<PAGE>
As Filed With The Securities And Exchange Commission On July 7, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
American Home Mortgage Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6162 13-4066303
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification Number)
of Incorporation or
Organization)
--------------
12 East 49th Street, New York, NY 10017
(212) 755-8600
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------
Michael Strauss
President and Chief Executive Officer
American Home Mortgage
12 East 49th Street
New York, NY 10017
(212) 755-8600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
--------------
Copies to:
Louis J. Bevilacqua, Esq. Howard B. Adler, Esq.
Cadwalader, Wickersham & Taft Gibson, Dunn & Crutcher LLP
100 Maiden Lane 1050 Connecticut Avenue, N.W.
New York, NY 10038 Washington, D.C. 20036
(212) 504-6000 (202) 955-8500
--------------
Approximate Date Of Commencement Of Proposed Sale To The Public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(/1/) Registration Fee
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value(/2/)......... $34,500,000(/2/) $ 9,591
- ------------------------------------------------------------------------------------------
Underwriters' Warrants..................... -- --
- ------------------------------------------------------------------------------------------
Common Stock underlying the
Underwriters' Warrants(/3/)............... $ 3,300,000 $ 917
- ------------------------------------------------------------------------------------------
Total...................................... -- $10,508
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(/1/) Estimated under Rule 457(o) solely for the purpose of calculating the
registration fee.
(/2/) Includes shares of common stock subject to an option granted to the
underwriters solely to cover over-allotments, if any. See "Underwriting."
(/3/) Pursuant to Rule 416, the number of shares of common stock issuable upon
exercise of the underwriters' warrants is subject to adjustment in
accordance with the anti-dilution provisions of such warrants.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Subject to Completion, dated , 1999
[LOGO]
American Home Mortgage Holdings, Inc.
Common Stock
$ per share
This is an initial public offering of common stock of American Home Mortgage
Holdings, Inc. We are offering for sale shares of our common stock. We
are a retail mortgage banking company that originates residential mortgage
loans through the Internet and through more traditional channels and then sells
these loans and the related servicing rights to institutional investors.
We anticipate the initial public offering price of the common stock will be
between $ and $ per share. The market price of the shares after the
offering may be higher or lower than the initial offering price.
We expect to list our common stock on the Nasdaq National Market under the
symbol "AHMH."
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Price to public.............................. $ $
Underwriters' discounts and commissions...... $ $
Proceeds to us............................... $ $
</TABLE>
The underwriters have agreed to underwrite this offering on a firm commitment
basis.
We have granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of
additional shares from us within 30 days following the date of this prospectus
to cover over-allotments. We have also granted Friedman, Billings, Ramsey &
Co., Inc. warrants to purchase up to additional shares of our common
stock as described in the "Underwriting" section of this prospectus.
Investing in our common stock involves risks. Please read the "Risk Factors"
section beginning on page 7 before purchasing our common stock.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Friedman Billings Ramsey Advest, Inc.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Special Notes of Caution................................................. 16
Transactions Related to the Offering..................................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 36
Management............................................................... 52
Certain Transactions..................................................... 57
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 62
Legal Matters............................................................ 64
Experts.................................................................. 64
Where You Can Find More Information...................................... 64
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-i-
<PAGE>
PROSPECTUS SUMMARY
You should read this Summary section together with the more detailed
information and financial statements and related notes appearing in this
prospectus, including the information under the section "Risk Factors."
THE COMPANY
We are a leading independent retail mortgage banking company focused on
expanding our business of originating residential mortgage loans through the
Internet and other more traditional channels and then selling these loans and
the related servicing rights to institutional buyers. In 1998, we originated
approximately $1.2 billion in loans, approximately 64.7% of which were made to
home buyers rather than to home owners seeking to refinance their mortgage
loans.
In January 1999, we began to market our mortgage products over the Internet.
We offer our mortgage products online through arrangements with a number of
popular Web sites and through our own MortgageSelect.com Web site. During June
1999, we accepted applications over the Internet for approximately $34 million
in loans, representing 19% of our total application volume. We offer our
mortgage products through a number of Web sites, including:
. Microsoft's HomeAdvisor;
. E-loan;
. GetSmart;
. LendingTree; and
. Consumer Financial Network.
At the core of our traditional business is our retail division. In 1998,
approximately 81.0% of the mortgage loans we originated were made through this
division. Our retail division currently originates mortgage loans primarily
through our 15 community loan offices in the New York metropolitan area and 6
eastern states. Additionally, we originate mortgage loans through direct-to-
consumer advertising and joint ventures with realtors and builders. To a lesser
extent, we also originate mortgage loans through our Corporate Affinity
Program, telemarketing and our Real Estate Direct Program.
Our Strategies for Growth
Our goal is to continue to expand our retail mortgage banking business
primarily through our Internet origination channel and also through our other
traditional origination channels. To achieve this goal, we are focusing on the
following growth initiatives through the remainder of 1999:
Internet Origination Channel
. Open our third and fourth Internet call centers.
. Qualify to offer mortgage loans through the Internet in the remaining 22
states in which we are not yet qualified.
. Launch further enhancements to our Web site to allow real-time credit
approvals and loan commitments.
. Commence an advertising campaign to increase awareness of, and to direct
potential customers to, our MortgageSelect.com Web site.
1
<PAGE>
Traditional Origination Channels
. Open new community loan offices and expand from our traditional
geographic base.
. Hire additional sales-oriented loan originators.
. Form additional joint ventures with realtors and builders.
. Selectively pursue strategic acquisitions in our industry.
Our Competitive Advantages
We believe that by leveraging the following competitive advantages across
both our Internet and traditional origination channels we will be able to
continue to expand our mortgage origination business:
. Lending to Home Buyers
We concentrate on lending to home buyers
rather than to home owners seeking to
refinance their mortgage loans, which we
believe makes our business less susceptible
to interest rate increases. In 1998,
approximately 64.7% of our mortgage loans
were made to home buyers as compared to the
Mortgage Bankers Association (MBA) estimate
of the mortgage industry average of 50% for
such year.
. Breadth of Product Offering We offer a broad range of loan products which
allows us to meet the needs of a wide variety
of customers.
. Use of Technology We seek to maximize the efficiency of our
operations through the use of advanced
technology.
. Loans Specifically
Underwritten for Sale to
Investors The loans we originate are designed and
documented specifically to conform to the
underwriting and credit standards of our
third-party buyers. This helps ensure that
each loan we originate can be sold to one of
our buyers.
. One Stop Shopping We intend to provide customers with a single
source for mortgages and mortgage-related
products such as title insurance, abstract
services and home equity lines of credit.
. Consultative Sales Strategy Our experienced loan originators focus on
building a rapport with borrowers through
frequent customer contacts and follow ups.
2
<PAGE>
The Mortgage Industry
The mortgage banking industry is the largest consumer debt-related sector in
the United States. In 1998, mortgage loan origination volume in the United
States reached a record high of $1.5 trillion, compared to $834 billion in 1997
according to the MBA. The MBA also reports that mortgage bankers are the
leading group of residential mortgage lenders, originating approximately 60%,
or $880 billion, in mortgage loans in 1998. The MBA estimates that $1.2
trillion in mortgages will be originated in 1999.
Mortgage lending traditionally takes place through the manual exchange of
information from the time of application to the loan closing. This traditional
means of lending is cumbersome and inefficient. We believe that Internet
mortgage lending is the solution to these inefficiencies. Forrester Research
estimates that $91.2 billion, or 10%, in mortgage loans will be originated
online by the year 2003, compared to $18.7 billion, or less than 1.5%, in 1998.
In addition, Killen & Associates predicts online mortgage originations will
account for up to 30% of total mortgage originations by 2005.
General Information
We are located on the Internet at www.MortgageSelect.com. Our executive
offices are located at 12 East 49th Street, New York, NY 10017 and our
telephone number is (212) 755-8600.
----------------
Unless otherwise indicated, all share and per share data and information in
this prospectus:
. assume that the underwriters will not exercise their over-allotment
option; and
. reflect the exchange of all of the issued and outstanding shares of
common stock of American Home Mortgage Corp. for shares of our
common stock (the incorporation transaction).
The incorporation transaction will be completed immediately before the
closing of this offering. This transaction will create a holding company for
American Home Mortgage Corp. We are the holding company, American Home Mortgage
Holdings, Inc., and the issuer of the shares offered pursuant to this
prospectus. See the "Transactions Related to the Offering" section in this
prospectus. Unless otherwise stated, "we," "our," "American Home Mortgage" and
"us" refer to American Home Mortgage Holdings, Inc. and its wholly-owned
subsidiary, American Home Mortgage Corp.
References in this prospectus to mortgage originations include only mortgage
originations that were closed during the period.
3
<PAGE>
THE OFFERING
Common stock offered............ shares(/1/)
Common stock to be outstanding
after the offering.............
shares(/1/)
Use of proceeds................. We will use the net proceeds of the offering,
which are estimated to be $ million, (1) to
repay indebtedness incurred to fund an S
corporation distribution to Michael Strauss,
our sole existing stockholder, (2) for
Internet business expansion purposes,
including computer hardware and software and
an Internet advertising campaign, and (3) for
general corporate and working capital
purposes, including funding of potential
acquisitions of related businesses. For a
more detailed discussion of the S corporation
distribution to the stockholder and the use
of proceeds, please see the "Transactions
Related to the Offering" and "Use of
Proceeds" sections of this prospectus.
Proposed Nasdaq National Market AHMH
symbol.........................
For a more detailed description of our capitalization, please see the
"Capitalization" section of this prospectus.
- ----------------
(/1/) Does not include shares of common stock reserved for issuance upon
exercise of the underwriters' over-allotment option and shares
reserved for issuance upon exercise of warrants issued to Friedman,
Billings, Ramsey & Co., Inc.
4
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share and operating data)
You should read the summary financial data set forth below in conjunction
with our consolidated financial statements and related notes and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of this prospectus.
<TABLE>
<CAPTION>
Year Ended December Three Months Ended
31, March 31,
---------------------- -------------------
1996 1997 1998 1998 1999
------ ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA: (unaudited)
Revenues:
Gain on sale of mortgage loans... $6,360 $10,597 $18,981 $ 3,589 $ 5,190
Interest income, net............. 204 369 734 97 224
Other............................ 21 356 502 19 244
------ ------- ------- --------- ---------
Total revenues................. 6,585 11,322 20,217 3,705 5,658
------ ------- ------- --------- ---------
Expenses:
Salaries, commissions and
benefits, net................... 3,459 5,317 9,430 2,122 3,123
Marketing and promotion.......... 814 962 1,236 292 429
Occupancy and equipment.......... 501 909 1,654 246 475
Data processing and
communications.................. 337 612 952 195 269
Provision for loss............... -- 117 153 -- 28
Other............................ 830 946 1,543 347 577
------ ------- ------- --------- ---------
Total expenses................. 5,941 8,863 14,968 3,202 4,901
------ ------- ------- --------- ---------
Income before income taxes and
minority interest................. 644 2,459 5,249 503 757
State income taxes............... 38 140 328 27 37
Minority interest................ -- -- 51 -- 13
------ ------- ------- --------- ---------
Net income....................... $ 606 $ 2,319 $ 4,870 $ 476 $ 707
====== ======= ======= ========= =========
PRO FORMA DATA (unaudited):
Pro forma provision for income
taxes(/1/)........................ 245 942 1,982 194 296
Net income adjusted for pro forma
income tax provision............ $ 361 $ 1,377 $ 2,888 $ 282 $ 411
====== ======= ======= ========= =========
Pro forma net income per share:
Basic............................ $ $
Diluted.......................... $ $
======= =========
Pro forma weighted average number
of shares outstanding(/2/):
Basic............................
Diluted..........................
======= =========
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------
Actual As Adjusted(/3/)
------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 2,695
Loans held for sale, net............................. 28,526
Total assets......................................... 36,087
Warehouse lines of credit............................ 27,280
Other liabilities.................................... 2,267
Total stockholder's equity........................... 6,540
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended December Three Months Ended
31, March 31,
-------------------- -------------------
1996 1997 1998 1998 1999
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total mortgage originations (in
millions).......................... $ 491 $ 724 $1,158 $ 225 $ 287
Home purchases.................... 348 562 749 135 153
Refinancings...................... $ 143 $ 162 $ 409 $ 90 $ 134
Number of loans originated.......... 2,772 4,361 6,543 1,265 1,631
Loan originators at period end...... 40 71 76 73 104
Number of branches at period end.... 7 8 12 8 15
</TABLE>
- --------
(/1/)Before this offering, we elected to be treated as an S corporation for
federal and state income tax purposes. Pro forma income taxes for the years
ended December 31, 1996, 1997 and 1998 and the three months ended March 31,
1998 and 1999 reflect adjustments for federal and state income taxes as if
we had been taxed as a C corporation rather than an S corporation for such
periods. Please see the "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Termination of S Corporation Status
and Income Taxes" section of this prospectus.
(/2/)The pro forma weighted average number of shares outstanding at December 31,
1998 gives effect to the assumed issuance of shares of common stock to
generate sufficient cash to pay the S corporation distribution amount of
$5.6 million at December 31, 1998. The pro forma weighted average number of
shares for March 31, 1999 gives effect to the assumed issuance of shares
of common stock to generate sufficient cash to pay the S corporation
distribution amount of $6.5 million at March 31, 1999. The issuance of
common stock was based on an assumed offering price of $ per share (the
midpoint of the range set forth on the cover page of this prospectus).
Please see the "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Termination of S Corporation Status and Income
Taxes" section of this prospectus.
(/3/)As adjusted to give effect to:
--an assumed S corporation distribution of $6.5 million as of March 31,
1999, which amount we expect will increase as a result of additional S
corporation income from April 1, 1999 to the closing of this offering;
--our recording of a one-time non-cash reduction to earnings in the amount
of $370,000 to recognize a deferred income tax liability as a result of the
termination of our S corporation status, which amount may change by the
amount of net deferred tax assets or liabilities related to our operations
from April 1, 1999 to the closing of this offering; and
--the issuance and sale of our common stock at an assumed offering price of
$ per share (the midpoint of the range set forth on the cover page of
this prospectus) and application of the net proceeds as described in the
"Use of Proceeds" section of this prospectus.
6
<PAGE>
RISK FACTORS
An investment in our common stock involves a number of risks. Before making
an investment decision, you should carefully consider all of the risks
described in this prospectus. If any of the risks discussed in this prospectus
actually occur, our business, financial condition and results of operations
could be materially adversely affected. If this were to occur, the trading
price of our common stock could decline significantly and you may lose all or
part of your investment.
If we do not manage our growth effectively, our financial performance could be
materiallyadversely affected
We have experienced rapid and substantial growth in our mortgage loan
originations and revenues since 1995. We intend to pursue a growth strategy for
the foreseeable future by enhancing and expanding our Internet business,
expanding our traditional business into new geographic areas, increasing the
market share of our existing community loan offices, entering into additional
joint ventures with realtors and builders, and pursuing selective strategic
acquisitions of mortgage lenders and other mortgage banking-related companies.
We cannot assure you that we will accurately anticipate and respond to the
changing demands our expanding operations will face. We anticipate that future
operations will place a significant strain on our management, loan originators,
information systems and other resources. We must attract and integrate new
personnel, improve existing procedures and controls and implement new ones to
support any future growth. Our inability to meet our future hiring needs and to
adapt our procedures and controls accordingly could have a material adverse
effect on our results of operations, financial condition and business
prospects. In addition, we have re-assigned and will continue to re-assign
personnel from our traditional business to meet the demands of our Internet
business, which may have an adverse effect on our overall business. Further, we
must maintain and expand our relationships with popular Web sites in order to
successfully implement our Internet growth strategy. In addition, if we make
strategic acquisitions, we must successfully integrate the mortgage brokers and
other companies we acquire. We cannot assure you that we will achieve our
growth expectations, and our inability to do so could materially adversely
affect our results of operations and business.
Our historical rapid growth may not reflect our future growth potential and we
may not be able to maintain similarly high levels of growth in the future
Since 1995, our earnings have grown by more than 50% year to year through
December 31, 1998, and 46% for the first 3 months of 1999 as compared to the
same period of last year. We may not be able to achieve comparable growth in
the future. Market conditions in the past 5 years have favorably impacted the
mortgage banking industry in general. Our growth rate has benefited from low
interest rates and a long period of economic growth. We do not know whether
these favorable conditions will continue. If they do not, however, it is likely
to adversely affect our earnings growth. In addition, we anticipate expending
significant funds to implement our growth strategy. There may be a significant
delay between the timing of these expenditures and any increase in earnings,
which may depress our earnings. Our future plans are subject to both known and
unknown risks and uncertainties that may cause our actual results in future
periods to be materially adversely different than our prior performance. As a
result, we cannot guarantee that our future revenues will increase or that we
will continue to be profitable. Because our historical growth rates are not
likely to accurately reflect our future growth or our ability to grow in the
future, we cannot assure you that we will continue to grow at the same pace or
as profitably as we have in the past.
If we are unable to implement our Internet strategy successfully, or our
agreements with Internet mortgage Web sites are terminated, our growth would
be limited
A substantial portion of our planned future growth depends on our ability to
originate loans on the Internet. Our Internet success will depend, in part, on
the development and maintenance of the Internet's infrastructure and consumer
acceptance of the Internet as a distribution channel for mortgages. Internet-
based
7
<PAGE>
mortgage lending is relatively new, and we cannot assure you that consumers
will increase their use of the Internet for obtaining mortgage loans. In order
to increase our loan volume on the Internet, we depend on building and
maintaining relationships with operators of Internet mortgage Web sites,
attracting consumers with our loan terms and service, and controlling our
costs. However, our ability to significantly increase the number of loans we
originate over the Internet and to continue to originate loans profitably over
the Internet remains uncertain. In addition, many of our agreements with
Internet mortgage Web sites can be terminated by either party on short notice.
If any of these agreements were terminated, our business and results of
operations could be materially adversely affected.
A period of rising interest rates, an economic slowdown or a recession could
reduce the demand for mortgages
Rising interest rates generally reduce the demand for consumer credit,
including mortgage loans. Interest rates have been at favorably low levels for
the last several years, generally ranging from 6.5% to 7.5% for conforming
loans. There is no assurance that interest rates will continue at favorably low
rates. In an economic slowdown or recession, real estate values and home sales
decline and the number of borrowers defaulting on their loans increases. In a
period of rising interest rates or an economic slowdown, we will originate and
sell fewer loans and could be required to repurchase more of the loans we have
sold as a result of early payment defaults by borrowers. Accordingly, a period
of rising interest rates, an economic slowdown or a recession would adversely
affect our business and results of operations.
An increase in interest rates could reduce the value of our loan inventory
The value of our loan inventory is based, in part, on market interest rates.
Accordingly, we may experience losses on loan sales if interest rates change
rapidly or unexpectedly. If interest rates rise after we fix a price for a
loan, but before we sell that loan, the value of that loan will decrease. If
the amount we receive from selling the loan is less than our cost of
originating the loan, we may incur net losses, and our business and operating
results could be adversely affected.
Our hedging strategy may not protect us from interest rate risk and may lead to
losses
Although we generally sell our loans within 30 days after funding, there may
be unexpected delays that could increase our interest rate exposure. While we
use hedging and other strategies to minimize our exposure to interest rate
risks, no hedging or other strategy can completely protect us. In addition, the
nature and timing of hedging transactions may influence the effectiveness of
these strategies. Poorly designed strategies or improperly executed
transactions could actually increase our risk and losses. In addition, hedging
strategies involve transaction and other costs. We cannot assure you that our
hedging strategy and the hedges that we make will adequately offset the risks
of interest rate volatility or that our hedges will not result in losses. For
further discussion of our hedging strategy, please see the "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Management" section of this prospectus.
The loss of our key management could result in a material adverse effect on our
business
Our future success depends to a significant extent on the continued services
of our senior management, particularly our President and Chief Executive
Officer, Michael Strauss. The loss of the services of Mr. Strauss, or other key
employees, could have a material adverse effect on our business and results of
operations. We do not maintain "key person" life insurance for any of our
personnel.
The loss of key purchasers of our loans or a reduction in prices paid could
adversely affect our financial condition
We sell substantially all of the mortgages we originate to institutional
investors. Generally, we sell the servicing rights to our loans at the time we
sell those loans. In 1998, we sold over 70.0% of the loans we funded
8
<PAGE>
to two large national banks and one regional bank, all of which compete with us
directly for retail originations. If these banks or any other significant
purchaser of our loans cease to buy our loans or servicing rights and
equivalent purchasers cannot be found on a timely basis, then our business and
results of operations could be materially adversely affected. Our results of
operations could also be affected if these banks or other purchasers lower the
price they pay to us or adversely change the material terms of their loan
purchases from us.
The prices at which we sell our loans vary over time. A number of factors
determines the price we receive for our loans. These factors include:
. the number of institutions that are willing to buy our loans;
. the amount of comparable loans available for sale;
. the levels of prepayments of, or defaults on, loans;
. the types and volume of loans we sell;
. the level and volatility of interest rates; and
. the quality of our loans.
The prices at which we can sell our mortgage servicing rights vary over time
and may be materially adversely affected by a number of factors, including the
general supply of and demand for mortgage servicing rights and changes in
interest rates. Servicing rights for a particular loan category that was
originated at higher interest rates tend to have a lower value than those
originated with comparatively lower interest rates due to the greater
likelihood that loans with higher interest rates will be prepaid more quickly.
For a more detailed description of our sales strategies, please see the
"Business--Sale of Loans and Servicing Rights" section of this prospectus.
Because our ability to fund mortgage loans depends on the availability of
financing sources, our revenues and business would be negatively affected if
our current financing sources were canceled or not renewed
Our ability to make mortgage loans depends largely on our ability to secure
financing on acceptable terms. Currently, we fund substantially all of our
loans through our warehouse facility and under loan purchase and sale
agreements with 4 institutional investors. Each of these financing arrangements
has a one-year term and is cancelable by the lender at any time. Our financing
facilities require us to observe financial and other covenants. If we are not
able to renew any of these financing arrangements or arrange for new financing
on terms acceptable to us, or if we default on our covenants and are unable to
access funds under any of these arrangements, then we will have to reduce our
mortgage originations, which would reduce our revenues. For a more detailed
description of our financing sources, please see the "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" section of this prospectus.
Our business may suffer if we cannot attract or retain qualified loan
originators
We depend on our loan originators to generate customers by, among other
things, developing relationships with consumers, real estate agents and
brokers, builders, corporations and others, which we believe leads to repeat
and referral business. Accordingly, we must be able to attract, motivate and
retain skilled loan originators. In addition, our growth strategy contemplates
hiring additional loan originators. The market for such persons is highly
competitive and historically has experienced a high rate of turnover.
Competition for qualified loan originators may lead to increased costs to hire
and retain them. We cannot guarantee that we will be able to attract or retain
qualified loan originators. If we cannot attract or retain a sufficient number
of skilled loan originators, or even if we can retain them but at higher costs,
our business and results of operations could be adversely affected.
9
<PAGE>
We face intense and increasing competition that could adversely impact our
market share and our revenues
We face intense competition from Internet-based lending companies and other
lenders participating on Web sites, as well as from traditional mortgage
lenders, such as commercial banks, savings and loan associations and other
finance and mortgage banking companies. Entry barriers in the mortgage industry
are relatively low and increased competition is likely. As we seek to expand
our business, we will face a greater number of competitors, many of whom will
be well-established in the markets we seek to penetrate. Many of our
competitors are much larger than we are, have better name recognition than we
do and have far greater financial and other resources. We cannot assure you we
will be able to effectively compete against them or any future competitors.
Competition may lower the rates we are able to charge borrowers, thereby
potentially lowering the amount of premium income on future loan sales and
sales of servicing rights. Increased competition also may reduce the volume of
our loan originations and loan sales. We cannot assure you that we will be able
to compete successfully in this evolving market. For additional information on
the competitive environment in which we operate, please see the "Business--
Competition" section of this prospectus.
Changes in existing government sponsored and federal mortgage programs could
negatively affect our business
Our ability to generate revenue through mortgage sales to institutional
investors largely depends on programs administered by Fannie Mae, the Federal
Home Loan Mortgage Corporation and others which facilitate the issuance of
mortgage-backed securities in the secondary market. A portion of our business
also depends on various programs administered by the Federal Housing
Administration and the Veterans Administration. Any discontinuation of, or
significant reduction in, the operation of those programs could have a material
adverse effect on our business and results of operations. Also, any significant
adverse change in the level of activity in the secondary market or the
underwriting criteria of these entities would reduce our revenues.
We conduct a majority of our business in the northeast and may be adversely
affected by a future decline in economic conditions in that region
In 1998, approximately 73.7%, 15.3% and 8.9% of the mortgages we originated
(as measured by principal balances) were secured by property located in New
York, Connecticut and New Jersey, respectively. A decline in economic
conditions in these states or the surrounding regions could materially
adversely affect our business and results of operations. Moreover, if the real
estate markets in these states or regions should experience an overall decline
in property values, the overall quality of our loan portfolio may decline and
the rates of delinquency, foreclosure, bankruptcy and loss on loans we
originate may increase. This would negatively affect our ability to originate
loans or to sell our loans and servicing rights.
We may be required to return proceeds obtained from the sale of loans, which
would negatively impact our results of operations
When we sell a loan to an investor, we are required to make unqualified
representations and warranties regarding the loan, the borrower and the
property. These representations are made based in part on our due diligence and
related information provided to us by the borrower and others. If any of these
representations or warranties are later determined not to be true, we may be
required to repurchase the loan, including principal and interest, from the
investor or indemnify the investor for any damages or losses caused by the
breach of such representation or warranty. In connection with some non-prime
loan sales, we may be required to return a portion of the premium paid by the
investor if the loan is prepaid within the first year after its sale. If, to
any significant extent, we are required to repurchase loans, indemnify
investors or return loan premiums, it could have a material adverse effect on
our business and results of operations.
10
<PAGE>
Our non-prime mortgage business subjects us to greater risks than our prime
business and if we were to increase our non-prime mortgage business in the
future, our business would become less stable
Under our non-prime mortgage loan programs, we make loans to borrowers who
have impaired or limited credit histories or higher debt-to-income ratios than
prime mortgage lenders allow. For the year ended December 31, 1998,
approximately 2.2% of the dollar amount, or 3.6% of the total number, of our
loans originated were categorized as non-prime. If non-prime lending becomes a
more significant part of our business, our failure to adequately address the
related risks could have a material adverse effect on our business and results
of operations. The non-prime mortgage banking industry is riskier than the
conforming mortgage business primarily because there is a greater risk of
default and product offerings for non-prime mortgages frequently change, which
may make selling a non-prime loan to our institutional investors more
difficult.
Our financial results may fluctuate as a result of seasonality and other
factors, including the demand for mortgage loans, which makes it difficult to
predict our future performance
Our business is generally subject to seasonal trends. These trends reflect
the general pattern of resales of homes, which typically peak during the spring
and summer seasons and decline from January through March. Our quarterly
results have fluctuated in the past and are expected to fluctuate in the
future, reflecting the seasonality of the industry.
Further, if the closing of a sale of loans or servicing rights is postponed,
the recognition of premium income from these sales is also postponed. If such a
delay causes us to recognize income in the next quarter, our results of
operations for the previous quarter could be materially adversely affected.
Unanticipated delays could also increase our exposure to interest rate
fluctuations by lengthening the period during which our variable rate
borrowings under our credit facilities are outstanding. In addition, the
following factors influence our revenues and net earnings:
. the level and volatility of interest rates;
. the demand for mortgage loans; and
. the size and timing of sales of loans and servicing rights.
These and other factors make it very difficult to predict our results of
operations. If our results of operations do not meet the expectations of our
stockholders and securities analysts, then our common stock price may be
materially adversely affected.
Our dependence on information systems may result in computer problems caused by
the Year 2000
We rely on communications and information systems to conduct our business.
As we implement our growth strategy and increase our origination of mortgages
over the Internet, this reliance will also increase. Any failure or
interruption of our computer systems or third-party computer systems on which
we rely could cause underwriting or other delays. Failures or interruptions may
result from the inability of computer systems to recognize a date using "00" as
the Year 2000. Our computer systems may not be Year 2000 ready. We cannot
assure you that these Year 2000 issues have been or will be adequately
addressed by us or the third parties on which we rely, or that any such
failures or interruptions will not occur. The occurrence of any failures or
interruptions could have a material adverse effect on our business and results
of operations. For a more detailed discussion of our Year 2000 readiness
program, please see the "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness" section of this
prospectus.
The success of our online business depends on system integrity and security
The performance of our Web site and the Web sites in which we participate is
important to our reputation, our ability to attract customers and our ability
to achieve market acceptance of our services. Any system failure
that causes an interruption or an increase in response time of our services
could result in fewer loan applications
11
<PAGE>
through our Web site. System failures, if prolonged, could reduce the
attractiveness of our services to borrowers and clients. Our operations are
susceptible to outages due to fire, floods, power loss, telecommunications
failures, break-ins and similar events. In addition, despite our implementation
of network security measures, our servers are vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering with our computer
systems. We do not carry sufficient insurance to compensate for losses that may
occur as a result of any of these events.
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. We rely on encryption and
authentication technology licensed from third parties to effect secure
transmission of confidential information, such as that required on a mortgage
loan application. Advances in computer capabilities, new discoveries in
cryptography or other developments may result in a breach of the algorithms we
use to protect customer data. If any compromise of our security occurs, it
would injure our reputation, and could adversely impact the success of our
business.
Our online success depends on our ability to adapt to technological changes
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and frequent new
products and enhancements. If faster Internet access becomes more widely
available through cable modems or other technologies, we may be required to
make significant changes to the design and content of our Web site to compete
effectively. As the number of Web pages and users increases, we will need to
modify our Internet infrastructure and our Web site to accommodate increased
traffic. If we cannot modify our Internet systems, we may experience:
.system disruptions;
.slower response times;
.impaired quality and speed of application processing; and
.delays in reporting accurate interest rate information.
If we fail to effectively adapt to increased usage of the Internet or new
technological developments, our business will be adversely affected.
We must comply with numerous government regulations and we are subject to
changes in law that could increase our costs and adversely affect our business
Our business is subject to the laws, rules and regulations of various
federal, state and local government agencies regarding the origination,
processing, underwriting, sale and servicing of mortgage loans. These laws,
rules and regulations, among other things, limit the interest rates, finance
charges and other fees we may charge, require us to make extensive disclosure,
prohibit discrimination and impose qualification and licensing obligations on
us. They also impose on us various reporting and net worth requirements. We
also are subject to inspection by these government agencies. Our failure to
comply with these requirements could lead to, among other things, the loss of
approved status, termination of contractual rights without compensation,
demands for indemnification or mortgage loan repurchases, class action lawsuits
and administrative enforcement actions.
Our operations on the Internet are not currently subject to direct
regulation by any government agency in the United States beyond mortgage-
related regulations and regulations applicable to businesses generally. A
number of legislative and regulatory proposals currently under consideration by
federal, state and local governmental organizations may lead to laws or
regulations concerning various aspects of business on the Internet, including:
.user privacy;
.taxation;
.content;
.access charges;
12
<PAGE>
.liability for third-party activities; and
.jurisdiction.
The adoption of new laws or the application of existing laws may decrease
the use of the Internet, increase our costs or otherwise adversely affect our
business.
Regulatory and legal requirements are subject to change. If such
requirements change and become more restrictive, it would be more difficult and
expensive for us to comply and could affect the way we conduct our business,
which could adversely impact our results of operations. Although we believe we
are currently in material compliance with the laws, rules and regulations to
which we are subject, we cannot assure you that we are, or will be, in full
compliance with applicable laws, rules and regulations.
If we cannot comply with those laws or regulations, or if new laws limit or
eliminate some of the benefits of purchasing a mortgage, our business and
results of operations may be materially adversely affected. For a more detailed
discussion of the types of governmental regulation applicable to our business,
please see the "Business--Government Regulation" section of this prospectus.
As we expand, our inability to trademark the names under which we do business
may subject us to significant legal expenses and impair our marketing efforts
We have conducted our business under the name American Home Mortgage since
1988, and commenced doing business over the Internet under the name
MortgageSelect.com. We cannot obtain trademark protection for either name. As a
result, the use of these names may be challenged by competitors in the various
states in which we currently operate or in the states into which we seek to
expand. Any challenges may result in our inability to use those names in such
states and may require us to do business under other names that do not have the
goodwill and name recognition, particularly of American Home Mortgage,
associated with them. It may also prove impractical to do business over the
Internet under more than one name. Our inability to use our names could result
in a loss of business. These challenges may also result in significant legal
expenses arising from the defense of our names and an inability to market our
names nationally.
Our proposed national expansion through the Internet will subject us to laws
and regulations with which we are unfamiliar
As part of the expansion of our Internet business, we intend to offer
mortgage loans in all 50 states through the Internet and are in the process of
obtaining the necessary qualifications or licenses in such states. Because we
currently make loans primarily in the New York metropolitan area and several
other eastern states, we are not familiar with the laws and regulations of
other states and the difficulties of complying with such laws. Moreover, such
laws and regulations were not drafted with the Internet in mind and using the
Internet as an origination channel for mortgage loans may create compliance
issues. Compliance with new laws and regulations may substantially slow our
ability to grow. Our future failure to adequately comply with the laws and
regulations to which we will be subject could result in liability that could
materially adversely affect our business and results of operations.
Pending industry-wide litigation could change the manner in which we do
business and subject us to potential liability
Numerous lawsuits seeking class certification have been filed against
mortgage lenders alleging that certain types of direct and indirect payments
made by those lenders to mortgage brokers are referral fees or unearned fees
prohibited under the Real Estate Settlement Procedures Act. These lawsuits also
allege that consumers were not informed of the brokers' compensation in
violation of law. There is much uncertainty as to the law on this issue because
several federal district courts construing RESPA have reached conflicting
results. If the pending cases on lender payments to brokers are ultimately
resolved against the lenders, it may cause an industry-wide change in the way
independent mortgage brokers are compensated. In addition, future legislation,
13
<PAGE>
regulatory interpretations or judicial decisions may require us to change our
broker compensation programs or subject us to material monetary judgments or
other penalties. Any changes or penalties may have a material adverse effect on
our business and results of operations. For a more detailed description of
government regulation, please see the "Business--Government Regulation" section
of this prospectus.
We face risks in connection with any potential acquisition that could have a
material adverse impact on our growth or our operations
We may at times consider selective strategic acquisitions of mortgage
lenders and other mortgage banking-related companies. There is substantial
competition for acquisition opportunities in the mortgage industry. This
competition could result in an increase in the price of, and a decrease in the
number of, attractive acquisition candidates. As a result we may not be able to
successfully acquire attractive candidates on terms we deem acceptable. In
addition, we cannot assure you that we will be able to obtain the requisite
financing on terms we deem acceptable. Pursuing acquisitions also involves a
number of special risks, including adverse short-term effects on our results of
operations, dilution resulting from issuances of our common stock, diversion of
management's time, strain on our financial and administrative infrastructure,
difficulties in integrating acquired businesses and personnel, loss of
personnel and unanticipated legal liabilities. We cannot guarantee you that we
will be able to overcome these acquisition risks or that they will not
adversely affect our growth and results of operations.
If we securitize our loans in the future, we will be subject to additional
risks that we do not currently face
We currently do not securitize the loans we originate, but rather sell or
swap them to institutional buyers. Although we do not currently intend to
securitize our loans, we may decide to do so in the future if market conditions
or other considerations justify doing so. Securitizing our loans would subject
us to numerous additional risks, including:
.delayed operating cash flow;
.conditions in the general securities and securitization markets;
.the need to obtain satisfactory credit enhancements;
.retention of credit enhancing residual interests; and
.increased potential for earnings fluctuations.
If we were to securitize our loans, we would have to adequately address
these and other related risks. Our failure to do so could have a material
adverse effect on our business and results of operations.
If we retain the servicing rights to our loans in the future, we would be
subject to additional risks that we do not currently face
Generally, we sell the servicing rights to our loans at the same time that
we sell those loans. Although we currently do not intend to retain the
servicing rights to our loans, we may decide to do so in the future if market
conditions or other considerations justify doing so. If we were to service our
loans ourselves, we would be subject to additional risks, including:
.decreased operating cash flow; and
. the potential of having to write down the value of the servicing rights
through a charge to earnings, particularly as a result of changing
interest rates and alternative financing options that lead to increased
prepayments.
If we were to retain the servicing rights to our loans, we would have to
adequately address these and other related risks. Our failure to do so could
have a material adverse effect on our business and results of operations.
14
<PAGE>
The loss of our relationship with Fannie Mae would have an adverse effect on
our business
We have an arrangement with Fannie Mae that allows us to use Fannie Mae's
Desktop Underwriter(R) software through our Internet Web site and to provide
mortgage brokers with use of that software. Our contract with Fannie Mae may be
canceled by either party on 90 days' notice. If Fannie Mae terminates the
agreement, our planned Internet growth and mortgage broker business could be
adversely affected, which could reduce our revenues.
We are exposed to environmental liabilities with respect to properties to which
we take title, which could increase our costs of doing business and adversely
impact our results of operations
In the course of our business, at various times, we may foreclose and take
title (for security purposes) to residential properties, and could be subject
to environmental liabilities with respect to such properties. To date, we have
not been required to perform any environmental investigation or remediation
activities, nor have we been subject to any environmental claims relating to
these activities. We cannot assure you that this will remain the case in the
future. We may be held liable to a governmental entity or to third parties for
property damage, personal injury, and investigation and clean up costs incurred
by these parties in connection with environmental contamination, or may be
required to investigate or clean up hazardous or toxic substances or chemical
releases at a property. The costs associated with an environmental
investigation or remediation activities could be substantial. In addition, as
the owner or former owner of a contaminated site, we may be subject to common
law claims by third parties seeking damages and costs resulting from
environmental contamination emanating from such property.
Our stock price may be volatile, which could result in substantial losses for
our stockholders
Before this offering, there had been no public market for our common stock.
We cannot assure you that an active public market for our common stock will
develop or can be sustained after this offering. Even if an active trading
market does develop, the market price of our common stock is likely to be
highly volatile and could be subject to wide fluctuations in response to such
factors as:
.actual or anticipated changes in our future financial performance;
.changes in financial estimates by securities analysts;
.conditions and trends in the Internet and e-commerce business;
. competitive developments, including announcements by us or our
competitors of new products or services or significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
.the operating and stock performance of our competitors;
.changes in interest rates; and
.additions or departures of key personnel.
There may be substantial sales of our common stock after the offering which
would cause a decline in our stock price
Sales of substantial amounts of our common stock in the public market
following this offering, or the perception that such sales could occur, could
have a material adverse effect on the market price of our common stock. We and
our existing stockholder have agreed not to offer, sell or contract to sell or
otherwise dispose of any common stock for a period of 180 days from the
effective date of this prospectus in our case, and for a period of 540 days
from the effective date in Mr. Strauss' case, without the prior written consent
of Friedman, Billings, Ramsey & Co., Inc., subject to certain limited
exceptions. Upon the expiration of these lock-up agreements, or if Friedman,
Billings, Ramsey & Co., Inc. in its sole discretion determines to release all
or any portion of the shares subject to the lock-ups, these shares may be sold
in the public market. For additional information, please see the "Shares
Eligible for Future Sale" section of this prospectus.
15
<PAGE>
You will experience immediate and substantial dilution as a result of this
offering
The initial offering price per share will exceed our net tangible book value
per share. As a result, you will incur immediate and substantial dilution of
approximately $ in the net tangible book value per share from the assumed
$ price per share paid for the common stock in this offering (the midpoint
of the range set forth on the cover page of this prospectus). For a more
detailed discussion of dilution, please see the "Dilution" section of this
prospectus.
Our existing stockholder will be able to exercise significant control over our
operations
Upon the closing of this offering, our President and Chief Executive
Officer, Mr. Strauss, will own approximately % of our outstanding common
stock. If the underwriters exercise their over-allotment option in full, Mr.
Strauss will own approximately % of our outstanding common stock.
Accordingly, Mr. Strauss will have the ability to control our affairs and the
outcome of all matters requiring stockholder approval, including:
.the election and removal of directors;
.amendments to our charter; and
.approval of significant corporate transactions, such as an acquisition of
our company or assets.
Mr. Strauss' control position would prevent a change in control transaction
with respect to our company without his approval. For a more detailed
description of Mr. Strauss' ownership of common stock, please see the
"Management" and "Principal Stockholders" sections of this prospectus.
It may be difficult for a third party to acquire us
Some provisions of our amended and restated certificate of incorporation,
bylaws and Delaware law contain anti-takeover provisions that could make it
more difficult for a third party to acquire us, even if such a transaction
would be beneficial to you as a stockholder. For a more detailed discussion of
these provisions, please see the "Description of Capital Stock" section of this
prospectus.
As a holding company, we depend on dividends and distributions from our
operating subsidiary to fund our operations and may, as a result, be
subordinate to the rights of its existing and future creditors
We are a holding company and our principal assets initially are the shares
of the capital stock of our wholly-owned subsidiary, American Home Mortgage
Corp. As a holding company without independent means of generating operating
revenue, we depend on dividends and other payments from our wholly-owned
subsidiary to fund our obligations and meet our cash needs. Our expenses may
include salaries of our executive officers, insurance, professional fees and
service of indebtedness that may be outstanding at various times. Financial
covenants under the existing or future loan agreements of our wholly-owned
subsidiary, or provisions of the laws of the state where our subsidiary is
organized, may limit its ability to make sufficient dividend or other payments
to us to permit us to fund our obligations or meet our cash needs, in whole or
in part. By virtue of our holding company status, our common stock will be
structurally junior in right of payment to all existing and future liabilities
of our subsidiary.
SPECIAL NOTES OF CAUTION
Regarding Forward-Looking Statements
Some of the information in this prospectus may constitute "forward-looking
statements" within the meaning of the federal securities laws. Forward-looking
statements generally discuss our plans and objectives for future operations.
They also include statements containing a projection of revenues, earnings
(loss), capital expenditures, dividends, capital structure or other financial
terms. The following statements particularly are forward-looking in nature:
.our strategy;
16
<PAGE>
.development of our Internet capabilities;
.projected joint ventures or acquisitions;
.the impact of Year 2000 on our information systems and those of our
vendors;
.projected capital expenditures; and
.use of proceeds of this offering.
The forward-looking statements in this prospectus are based on our
management's beliefs, assumptions, and expectations of our future economic
performance, taking into account the information currently available to them.
These statements are not statements of historical fact. Forward-looking
statements involve risks and uncertainties, some of which are not currently
known to us, that may cause our actual results, performance or financial
condition to be materially different from the expectations of future results,
performance or financial condition we express or imply in any forward-looking
statements. Some of the important factors that could cause our actual results,
performance or financial condition to differ materially from our expectations
are:
.general volatility of the capital markets and the market price of our
shares;
. changes in the real estate market, interest rates or the general economy
of the markets in which we operate;
. economic, technological or regulatory changes affecting the use of the
Internet;
. our ability to employ and retain qualified employees;
. our ability, and the ability of our significant vendors, suppliers and
customers, to achieve Year 2000 readiness;
. changes in government regulations that are applicable to our regulated
brokerage and property management businesses;
. our ability to identify and complete acquisitions and successfully
integrate businesses we acquire;
. changes in the demand for our services;
. degree and nature of our competition; and
. the other factors referenced in this prospectus, including, without
limitation, under the captions "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business."
When used in our documents or in any oral presentation, the words "plan,"
"believe," "anticipate," "estimate," "expect," "objective," "projection,"
"forecast," "goal" or similar words are intended to identify forward-looking
statements. We qualify any and all of our forward-looking statements entirely
by these cautionary factors.
Regarding Additional Information
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
17
<PAGE>
TRANSACTIONS RELATED TO THE OFFERING
Our subsidiary, American Home Mortgage Corp., has been engaged in the
residential mortgage business since its incorporation in 1988. Immediately
before this offering, the sole existing stockholder of American Home Mortgage
Corp. will exchange his shares for an aggregate of shares of our common
stock. As a result of this incorporation transaction, immediately before this
offering, the former stockholder of American Home Mortgage Corp. will own all
of our issued and outstanding common stock.
Since 1988, American Home Mortgage Corp. has elected to be treated for
federal and certain state income tax purposes as an S corporation under the
Internal Revenue Code, and comparable state laws, where permitted and
applicable. As a result, our earnings have been included in the taxable income
of our existing stockholder for federal and state income tax purposes, and
American Home Mortgage Corp. has not been subject to income tax on these
earnings. Once we receive the contribution of American Home Mortgage Corp.
stock from our existing stockholder, the S corporation status of American Home
Mortgage Corp. will be terminated. Immediately before such contribution and our
conversion to C corporation status, American Home Mortgage Corp. will
distribute to our existing stockholder all previously earned and undistributed
taxable S corporation earnings through the date of the closing of this offering
(the S corporation distribution). That distribution, like previous
distributions to the stockholder, will be taxable to him. If the S corporation
distribution had occurred on March 31, 1999, the amount of that distribution
would have been approximately $6.5 million. We expect this amount to increase
as a result of additional S corporation income from April 1, 1999 to the
closing of this offering. The S corporation distribution will consist of a
promissory note (the S corporation distribution note) bearing interest at the
rate payable on American Home Mortgage Corp.'s principal credit facility, and
it is intended that, on the closing of this offering, we will contribute the
proceeds of the offering to American Home Mortgage Corp. and American Home
Mortgage Corp. will use a portion of this contribution to repay interest and
principal on the S corporation distribution note. Upon consummation of the
incorporation transaction, American Home Mortgage Corp. will no longer be
treated as an S corporation and, accordingly, will be fully subject to federal
and state income taxes. As a result of American Home Mortgage Corp. becoming
taxable as a C corporation, and of the contribution of its stock to us, for the
quarter in which this offering closes, on a consolidated basis we will record a
one-time non-cash reduction to earnings to recognize a deferred income tax
liability. If this reduction had been recorded at March 31, 1999, earnings
would have been reduced by approximately $370,000. This amount may change by
the amount of net deferred tax assets or liabilities related to the operations
of American Home Mortgage Corp. from April 1, 1999 through the date of the
closing of this offering. For more information, please see the "Capitalization"
section of this prospectus.
18
<PAGE>
USE OF PROCEEDS
The primary purposes of this offering are to repay indebtedness in
connection with the incorporation transaction, to expand our Internet business,
to create a public market for our common stock and to facilitate our future
access to the public markets. We estimate that the net proceeds from the sale
of the shares of common stock we are offering will be $ million. If the
underwriters fully exercise their over-allotment option, our net proceeds will
be approximately $ million. Net proceeds is what we expect to receive after
paying underwriting discounts and estimated offering expenses. For the purpose
of estimating net proceeds, we are assuming that the initial public offering
price will be $ per share (the midpoint of the range set forth on the cover
page of this prospectus).
We intend to use approximately $6.5 million of the net proceeds to pay the
aggregate principal and interest outstanding under the S corporation
distribution note as of March 31, 1999. We expect that the amount of the S
corporation distribution note will increase as a result of additional S
corporation income from the period beginning April 1, 1999 until the closing of
the offering, and that the amount of the net proceeds available for general
corporate and working capital purposes will accordingly decrease.
We intend to use the balance of the net proceeds to expand our Internet
business, including investing in computer hardware and software and commencing
an Internet advertising campaign, and for general corporate and working capital
purposes, including funding potential acquisitions of related businesses. While
at times we evaluate potential acquisitions and anticipate continuing to make
these evaluations, we have no present understandings, commitments or agreements
with respect to any acquisitions.
19
<PAGE>
DIVIDEND POLICY
Other than the S corporation distribution note, we do not intend to pay any
dividends on our capital stock in the foreseeable future. We currently intend
to retain future earnings, if any, for the development and expansion of our
business. In addition, because we are a holding company, our ability to pay
cash dividends depends in large part on our subsidiary's ability to make
distributions of cash or property to us. Our warehouse facility imposes
limitations on both dividends and distributions. For a more detailed discussion
of these limitations, please see the "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
section of this prospectus.
Our board of directors will make any further determinations as to our
dividend policy. These determinations will depend on a number of factors,
including our future earnings, capital requirements, financial condition and
future prospects and other factors that our board of directors may deem
relevant.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on
an actual basis, assuming the incorporation transaction had occurred on March
31, 1999 and as adjusted to reflect:
(1) the sale of shares of common stock at an assumed offering price
of $ per share (the midpoint of the range set forth on the cover page
of this prospectus);
(2) an assumed S corporation distribution of $6.5 million as of March
31, 1999, which amount we expect will increase as a result of additional S
corporation income from the period from April 1, 1999 to the closing of
this offering; and
(3) the application of the remaining estimated net proceeds as described
under "Use of Proceeds."
You should read the following table in conjunction with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this prospectus and our consolidated financial statements and
related notes included elsewhere in this prospectus. For more information,
please see the "Transactions Related to the Offering" section of this
prospectus.
<TABLE>
<CAPTION>
March 31, 1999
---------------
As
Actual Adjusted
------ --------
(in thousands)
<S> <C> <C>
Minority interest......................................... 65
Stockholders' equity
Preferred stock, $1.00 par value per share, 2,000,000
shares authorized; no shares issued and outstanding....
Common stock, $.01 par value per share, 25,000,000
shares authorized; shares issued and
outstanding actual, and as adjusted...........
Additional paid-in capital................................ 318
Retained earnings......................................... 6,222
----- -----
Total stockholders' equity.............................. 6,540
----- -----
</TABLE>
21
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999 was $6.5 million, or $
per share, based on shares of common stock outstanding, assuming the
incorporation transaction had occurred on March 31, 1999. Net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of our common stock outstanding.
Our pro forma net tangible book value at March 31, 1999 would have been $
million, or per share after giving effect to:
. the sale of shares of common stock at an assumed initial public
offering price of $ per share (the midpoint of the range set forth
on the cover page of this prospectus);
. an assumed S corporation distribution of $6.5 million as of March 31,
1999, which amount we expect will increase as a result of additional S
corporation income from April 1, 1999 to the closing of this offering;
and
. the application of the remaining estimated net proceeds as described
under "Use of Proceeds."
This represents an immediate increase in pro forma net tangible book value
of $ per share to Mr. Strauss, our sole existing stockholder, and an
immediate dilution of $ per share to new investors purchasing common stock
in this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....... $
Net tangible book value per share as of March 31,
1999................................................. $ 6,540
Decrease per share due to payment of the S
corporation distribution ............................ ( )
----------
Pro forma net tangible book value per share after
this offering........................................
---------
Dilution per share to new investors................... $
=========
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
the number of shares of common stock we have sold, the total consideration paid
to us, and the average price per share paid by our existing stockholder and by
investors purchasing common stock in this offering, before deducting
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ----------------------- Average Price
Number Percent Amount Percent Per share
----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder.... % $ % $
New investors...........
----------- --------- ----------- -----------
Total................. 100% $ 100%
</TABLE>
22
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share and operating data)
The following selected financial data as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998 have been derived from our
consolidated financial statements, included elsewhere in this prospectus, which
have been audited by Deloitte & Touche LLP, our independent auditors. The
selected financial data as of and for the years ended December 31, 1994, 1995
and 1996 have been derived from our unaudited consolidated financial
statements, which are not included in this prospectus. The following selected
financial data for the three months ended March 31, 1998 and 1999 and as of
March 31, 1999 have been derived from our unaudited consolidated financial
statements, included in this prospectus. The pro forma data for the year ended
December 31, 1998 and the three months ended March 31, 1999 have been derived
from our consolidated financial data included elsewhere in this prospectus.
These financial statements include all adjustments, consisting of normal
recurring adjustments, which we consider necessary for a fair presentation of
our financial position and results of operations for these periods. Operating
results for the three months ended March 31, 1999 are not necessarily
indicative of results that may be expected for the entire year. You should not
assume that the results below indicate results that we will achieve in the
future. The operating data are derived from unaudited financial information
that we compiled.
You should read the information below along with all the other financial
information and analysis presented in this prospectus, including our financial
statements and related notes, and the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended March
Year Ended December 31, 31,
-------------------------------------- -------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues
Gain on sale of mortgage
loans.................. $4,169 $6,361 $6,360 $10,597 $18,981 $3,589 $5,190
Interest income
(expense), net......... (319) (610) 204 369 734 97 224
Other................... -- -- 21 356 502 19 244
------ ------ ------ ------- ------- ------ ------
Total revenues........ 3,850 5,751 6,585 11,322 20,217 3,705 5,658
------ ------ ------ ------- ------- ------ ------
Expenses
Salaries, commissions
and benefits, net...... 3,022 3,930 3,459 5,317 9,430 2,122 3,123
Marketing and
promotion.............. 494 445 814 962 1,236 292 429
Occupancy and
equipment.............. 104 91 501 909 1,654 246 475
Data processing and
communications......... 163 203 337 612 952 195 269
Provision for loss...... -- -- -- 117 153 -- 28
Other................... 207 715 830 946 1,543 347 577
------ ------ ------ ------- ------- ------ ------
Total expenses........ 3,990 5,384 5,941 8,863 14,968 3,202 4,901
------ ------ ------ ------- ------- ------ ------
Income (loss) before
income taxes and
minority interest....... (140) 367 644 2,459 5,249 503 757
State income taxes.... 1 29 38 140 328 27 37
Minority interest..... -- -- -- -- 51 -- 13
------ ------ ------ ------- ------- ------ ------
Net income (loss)... $ (141) $ 338 $ 606 $ 2,319 $ 4,870 $ 476 $ 707
====== ====== ====== ======= ======= ====== ======
PRO FORMA DATA
(unaudited):
Pro forma provision for
income taxes(/1/)....... -- 143 245 942 1,982 194 296
Net income adjusted for
pro forma income tax
provision.............. $ (141) $ 195 $ 361 $ 1,377 $ 2,888 $ 282 $ 411
====== ====== ====== ======= ======= ====== ======
Pro forma net income per
share:
Basic................... $ $
Diluted................. $ $
======= ======
Pro forma weighted
average number of shares
outstanding(/2/):
Basic...................
Diluted.................
======= ======
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of March 31, 1999
-------------------------------------- ------------------------
1994 1995 1996 1997 1998 Actual As Adjusted(/3/)
------ ------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 649 $ 982 $ 1,226 $ 2,058 $ 2,892 $ 2,695
Loans held for sale,
net.................. 4,454 9,070 9,167 24,676 34,667 28,526
Total assets.......... 5,281 10,381 11,487 28,914 42,392 36,087
Warehouse lines of
credit............... 4,411 9,026 9,076 24,454 34,070 27,280
Other liabilities..... 361 509 881 1,886 2,398 2,267
Total stockholder's
equity............... $ 509 $ 886 $ 1,530 $ 2,574 $ 5,924 $ 6,540
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
---------------------------------- -------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total mortgage originations
(in millions).............. $ 220 $ 341 $ 491 $ 724 $1,158 $ 225 $ 287
Home purchases............ 167 264 348 562 749 135 153
Refinancings.............. $ 53 $ 77 $ 143 $ 162 $ 409 $ 90 $ 134
Number of loans originated.. 1,028 1,674 2,772 4,361 6,543 1,265 1,631
Loan originators at period
end........................ 22 28 40 71 76 73 104
Number of branches at period
end........................ 4 5 7 8 12 8 15
</TABLE>
- --------
(/1/)Before this offering, we elected to be treated as an S corporation for
federal and state income tax purposes. Pro forma income taxes for the
years ended December 31, 1996, 1997 and 1998 and the three months ended
March 31, 1998 and 1999 reflect adjustments for federal and state income
taxes as if we had been taxed as a C corporation rather than an S
corporation for such periods. Please see the "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Termination of
S Corporation Status and Income Taxes" section of this prospectus.
(/2/)The pro forma weighted average number of shares for December 31, 1998
includes the effect of the assumed issuance of shares of common stock
to generate sufficient cash to pay the S corporation distribution amount
of $5.6 million at December 31, 1998. The pro forma weighted average
number of shares for March 31, 1999 includes the effect of the assumed
issuance of shares of common stock to generate sufficient cash to pay
the S corporation distribution amount of $6.5 million at March 31, 1999.
The issuance of common stock was based on an assumed $ offering price
(the midpoint of the range set forth on the cover page of this
prospectus). Please see the "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Termination of S
Corporation Status and Income Taxes" section of this prospectus.
(/3/)As adjusted to give effect to:
--an assumed S corporation distribution of $6.5 million as of March 31,
1999, which amount we expect will increase as a result of additional S
corporation income from April 1, 1999 to the closing of this offering;
--our recording of a one-time non-cash reduction to earnings in the amount
of $370,000 to recognize a deferred income tax liability as a result of
the termination of our S corporation status, which amount may change by
the amount of net deferred tax assets or liabilities related to our
operations from April 1, 1999 to the closing of this offering; and
--the issuance and sale of our common stock at an assumed offering price of
$ per share (the midpoint of the range set forth on the cover page of
this prospectus) and application of the net proceeds as described in the
"Use of Proceeds" section of this prospectus.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We are a leading independent retail mortgage banking company primarily
engaged in the business of originating and selling residential mortgage loans.
In 1998, we originated approximately $1.2 billion in loans, of which 64.7% were
made to home buyers and 35.3% were made to owners seeking to refinance. We
offer a broad array of residential mortgage products targeted primarily to
high-credit-quality borrowers over the Internet, as well as through our
approximately 122 primarily commission-compensated loan originators. We operate
from 15 community loan offices in the New York metropolitan area and 6 eastern
states. We operate primarily as a mortgage banker, underwriting, funding and
selling our loan products to more than 45 different investors.
Since our founding in 1988, we have focused on growing our origination
volume by building a retail origination network through internal growth and
recently through operators of Internet mortgage Web sites and our own
MortgageSelect.com Web site.
As a mortgage bank, we generate revenues through the origination and
subsequent sale of funded loans. These revenues are made up of net gain on sale
and interest income. Net gain on sale consists of the net gain on the sale of
mortgage loans and mortgage servicing rights, which are sold generally within
30 days of origination. This net gain is recognized based on the difference
between the combined selling price of the loan and its related servicing
rights, and the carrying value of the mortgage loans and servicing rights sold.
Net gain on sale also includes loan-related fees consisting of application,
documentation, commitment and processing fees paid by borrowers. Net interest
income consists of the difference between interest received by us on our
mortgage loans held for sale and interest paid by us under our bank credit
facilities.
Our expenses largely consist of:
. salaries and benefits paid to employees;
. occupancy and equipment costs;
. Internet-related expenses, including licensing and participation fees
and advertising costs;
. marketing, promotion and advertising costs; and
. data processing and communication costs.
A substantial portion of these expenses is variable in nature. Commissions paid
to loan originators are 100% variable, while other salaries and benefits
fluctuate from quarter to quarter based on our assessment of the appropriate
levels of non-loan originator staffing, which correlates to the current level
of loan origination volume and our perception of future loan origination
volume.
Seasonality affects the mortgage industry as loan originations are typically
at their lowest levels during the first and fourth quarters due to a reduced
level of home buying activity during the winter months. Loan originations
generally increase during the warmer months beginning in March and continuing
through October. As a result, we expect higher earnings in our second and third
quarters and lower earnings in the first and fourth quarters.
Interest rate and economic cycles also affect the mortgage industry, as loan
originations typically fall in rising interest rate environments. During these
periods, refinancing originations decrease, as higher interest rates provide
reduced economic incentives for borrowers to refinance their existing
mortgages. Due to stable and decreasing interest rate environments over recent
years, our historical performance may not be indicative of results in rising
interest rate environments. In addition, our recent and rapid growth may
distort some of our ratios and financial statistics and may make period-to-
period comparisons difficult. In light of this growth, our historical earnings
performance may be of little relevance in predicting future performance.
Furthermore, our financial statistics may not be indicative of our results in
future periods.
25
<PAGE>
Termination of S Corporation Status and Income Taxes
Since April 1, 1988, our subsidiary, American Home Mortgage Corp., has been
subject to taxation under subchapter S of the Internal Revenue Code and
comparable state laws. As a result, our income has primarily been taxed, for
federal, state and local income tax purposes, directly to our stockholder
rather than to the company itself. In connection with the termination of our S
corporation status and simultaneous with the closing of the offering, we intend
to make a distribution to our existing stockholder in the amount of his
undistributed accumulated S corporation earnings. This distribution will be
made in the form of the S corporation distribution note. We will repay the S
corporation distribution note out of the net proceeds of this offering. If the
S corporation distribution had occurred as of March 31, 1999, the amount would
have been approximately $6.5 million. This amount is expected to increase as a
result of additional S corporation income from April 1, 1999 to the closing of
this offering. Upon termination of our S corporation status, we will record a
one-time, non-cash reduction to earnings to recognize a deferred income tax
liability. If the S corporation status had been terminated as of March 31,
1999, earnings would have been reduced by approximately $370,000. This amount
is expected to change by the amount of net deferred tax assets or liabilities
related to our operations from April 1, 1999 to the closing of this offering.
The pro forma provision for income taxes in the selected consolidated financial
data shows results as if we had been subject to federal and state taxation at
the tax rates effective for the periods presented.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from our statement of operations expressed as a percentage of total
revenues. Any trends illustrated in the following table are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Gain on sale of mortgage loans.......... 96.6% 93.6% 93.9% 96.9% 91.7%
Net interest income..................... 3.1 3.3 3.6 2.6 4.0
Other................................... 0.3 3.1 2.5 0.5 4.3
----- ----- ----- ------ ------
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ------
Salaries, commissions and benefits,
net(/1/)............................... 52.5 47.0 46.6 57.3 55.2
Marketing and promotion................. 12.4 8.5 6.1 6.6 7.6
Occupancy and equipment................. 7.6 8.0 8.2 7.9 8.4
Data processing and communications...... 5.1 5.4 4.7 5.2 4.7
Provision for loss...................... -- 1.0 0.8 -- 0.5
Other................................... 12.6 8.4 7.6 9.4 10.2
----- ----- ----- ------ ------
Total expenses........................ 90.2 78.3 74.0 86.4 86.6
----- ----- ----- ------ ------
Net income before taxes and minority
interest........................... 9.8 21.7 26.0 13.6 13.4
State income taxes................ 0.6 1.2 1.6 0.8 0.7
Minority interest................. -- -- 0.3 -- 0.2
----- ----- ----- ------ ------
Net income as reported............ 9.2 20.5 24.1 12.8 12.5
----- ----- ----- ------ ------
Net income adjusted for pro forma
income tax provision............... 5.5 12.2 14.3 7.6 7.3
----- ----- ----- ------ ------
</TABLE>
- --------
(/1/) In 1996, our sole stockholder, Mr. Strauss, received a $628,000 one-time
bonus resulting in an increase in the percentage which salaries,
commissions and benefits constituted of our total revenues in such year.
26
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Total Revenues. Our total revenues for the three months ended March 31, 1999
increased to $5.7 million from $3.7 million for the same period in 1998, an
increase of $2.0 million, or 54.1%, primarily as a result of strong origination
growth and the subsequent sale of loans. Closed loan sales increased to $296.3
million for the three months ended March 31, 1999 from $206.4 million for the
same period in 1998 (which amounts include the $11.4 million and $10.3 million
of originations in which we acted as broker, respectively), resulting from new
community loan office expansion. During the three months ended March 31, 1999,
we opened 3 new branches. In addition, refinancings accounted for approximately
46.7% of our origination volume during the three months ended March 31, 1999
compared to approximately 40.0% during the same period in 1998. We originated
$10.5 million in loans over the Internet during the three months ended March
31, 1999, which resulted in $150,000 in revenues for the quarter.
Net gain on sale of mortgage loans increased to $5.2 million for the three
months ended March 31, 1999 from $3.6 million for the same period in 1998, an
increase of $1.6 million, or 44.4%. The increase was attributable to the
increase in our origination volume.
Net interest income increased to $223,000 for the three months ended March
31, 1999 from $97,000 for the same period in 1998, an increase of $126,000, or
129.9%. This increase was due to more efficient cash management including the
implementation of sweep accounts, which increased interest income.
Other income increased to $244,000 for the three months ended March 31, 1999
from $19,000 for the same period in 1998, an increase of $225,000, or 1,184%.
The increase was due primarily to volume incentive bonuses from various
investors.
Salaries, Commissions and Benefits. Salaries, commissions and benefits
increased to $3.1 million for the three months ended March 31, 1999 from $2.1
million for the same period in 1998, an increase of $1.0 million, or 47.6%. The
increase related primarily to increased staffing levels, both at new and
existing community loan offices, and, to a lesser extent, the non-deferred
portion of commissions paid to loan originators. As of March 31, 1999, we
employed 331 people compared to 215 people at March 31, 1998. These expenses
are expected to continue to increase in 1999 as a result of increased loan
origination volume and additional employees expected to be hired in connection
with the expansion of existing operations and new community loan office
openings.
Marketing and Promotion Expenses. Marketing and promotion expenses increased
to $429,000 for the three months ended March 31, 1999 from $292,000 for the
same period in 1998, an increase of $137,000, or 46.9%. The increase was
primarily attributable to new community loan office openings. These expenses
are expected to continue to increase in 1999 as a result of expansion of
existing operations, new community loan office openings, and increased
expansion of our Internet division.
Occupancy and Equipment Expenses. Occupancy and equipment expenses increased
to $475,000 for the three months ended March 31, 1999 from $246,000 for the
same period in 1998, an increase of $229,000, or 93.1%. The increase was due
primarily to an increase in occupancy costs as a result of opening new
community loan offices and depreciation charges for increased computer
networking. These expenses are expected to continue to increase in 1999 as a
result of expansion of existing operations and new community loan office
openings.
Net Income. Net income increased to $707,000 for the three months ended
March 31, 1999 from $476,000 for the same period in 1998, an increase of
$231,000, or 48.5%. If we had been taxed as a C corporation for those periods,
our net income would have been $411,000 and $282,000, respectively.
27
<PAGE>
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Total Revenues. Our total revenues increased to $20.2 million in 1998 from
$11.3 million in 1997, an increase of $8.9 million, or 78.8%, primarily as a
result of strong origination growth and the subsequent sale of loans. Closed
loan sales increased to $1.2 billion in 1998 from $729.6 million in 1997 (which
amounts include the $47.5 million and $30.7 million of originations in which we
acted as broker, respectively), resulting from new community loan office
expansion. During 1998, we opened 4 new community loan offices. In addition,
refinancings accounted for approximately 35.3% of our origination volume in
1998 compared to approximately 22.4% in 1997.
Net gain on sale of mortgage loans increased to $19.0 million in 1998 from
$10.6 million in 1997, an increase of $8.4 million, or 79.2%. The increase was
attributable to the increase in our origination volume.
Net interest income increased to $734,000 in 1998 from $369,000 in 1997, an
increase of $365,000, or 98.9%. This increase was due to increased loan
origination volume, as well as increased use of financing agreements or
purchase and sale facilities to increase the interest spread against borrowed
funds.
Other income increased to $502,000 in 1998 from $356,000 in 1997, an
increase of $146,000, or 41.0%. The increase was due primarily to volume
incentive bonuses from various investors, as well as the gain on sale of
marketable securities.
Salaries, Commissions and Benefits. Salaries, commissions and benefits
increased to $9.4 million in 1998 from $5.3 million in 1997, an increase of
$4.1 million, or 77.4%. The increase related primarily to increased staffing
levels, both at new and existing community loan offices, and, to a lesser
extent, the non-deferred portion of commissions paid to loan originators. As of
December 31, 1998, we employed 287 people compared to 185 people at December
31, 1997. These expenses are expected to continue to increase in 1999 as a
result of increased loan origination volume and additional employees expected
to be hired in connection with the expansion of existing operations and new
community loan office openings.
Marketing and Promotion Expenses. Marketing and promotion expenses increased
to $1.2 million in 1998 from $962,000 in 1997, an increase of $238,000, or
24.7%. The increase was primarily attributable to new community loan office
openings. These expenses are expected to continue to increase in 1999 as a
result of expansion of existing operations, new community loan office openings
and increased expansion of our Internet division.
Occupancy and Equipment Expenses. Occupancy and equipment expenses increased
to $1.7 million in 1998 from $909,000 in 1997, an increase of $791,000, or
87.0%. The increase was due primarily to an increase in occupancy costs as a
result of opening new community loan offices and depreciation charges for
increased computer networking. These expenses are expected to continue to
increase in 1999 as a result of expansion of existing operations and new
community loan office openings.
Net Income. Net income increased to $4.9 million in 1998 from $2.3 million
in 1997, an increase of $2.6 million, or 113.0%. If we had been taxed as a C
corporation for those periods, our net income would have been $2.9 million and
$1.4 million, respectively.
Year Ended December 31, 1997 Compared To Year Ended December 31, 1996
Total Revenues. Our total revenues increased to $11.3 million in 1997 from
$6.6 million in 1996, an increase of $4.7 million, or 71.2%, primarily as a
result of strong origination growth and the subsequent sale of loans. Closed
loan sales increased to $729.6 million in 1997 from $543.4 million in 1996
(which amounts include the $30.7 million and $52.7 million of originations in
which we acted as broker, respectively), resulting from new community loan
office expansion and recruitment of additional loan originators. During 1997,
we opened one new community loan office. In addition, refinancings accounted
for approximately 22.4% of our origination volume in 1997 compared to
approximately 29.1% in 1996.
28
<PAGE>
Net gain on sale of mortgage loans increased to $10.6 million in 1997 from
$6.4 million in 1996, an increase of $4.2 million, or 65.6%. The increase was
attributable to the increase in origination volume.
Net interest income increased to $369,000 in 1997 from $204,000 in 1996, an
increase of $165,000, or 80.9%. This increase was due to increased loan
origination volume, as well as increased use of financing agreements or sale
facilities to increase the interest spread against borrowed funds.
Other income increased to $356,000 in 1997 from $21,000 in 1996, an increase
of $335,000, or 1,595%. The increase was due primarily to volume incentive
bonuses from various investors.
Salaries, Commissions and Benefits. Salaries, commissions and benefits
increased to $5.3 million in 1997 from $3.5 million in 1996, an increase of
$1.8 million, or 51.4%. The increase in personnel expense related primarily to
increased staffing levels, both at new and existing community loan offices,
and, to a lesser extent, the non-deferred portion of commissions paid to loan
originators. In addition, officer salaries were $130,000 in 1997 compared to
$758,000 in 1996. The 1996 figure reflects the $628,000 one-time bonus paid to
our President and Chief Executive Officer, Mr. Strauss. As of December 31,
1997, we employed 185 people compared to 103 people at December 31, 1996.
Marketing and Promotion Expenses. Marketing and promotion expenses increased
to $962,000 in 1997 from $814,000 in 1996, an increase of $148,000, or 18.2%.
The increase was primarily attributable to new community loan office openings.
Occupancy and Equipment Expenses. Occupancy and equipment expenses increased
to $909,000 in 1997 from $501,000 in 1996, an increase of $408,000, or 81.4%.
The increase was due primarily to an increase in occupancy costs as a result of
opening new community loan offices and depreciation charges for increased
computer networking.
Net Income. Net income increased to $2.3 million in 1997 from $606,000 in
1996, an increase of $1.7 million, or 280.5%. If we had been taxed as a C
corporation for those periods, our net income would have been $1.4 million and
$361,000, respectively.
Liquidity and Capital Resources
To originate a mortgage loan, we draw against a warehouse facility we have
with First Union National Bank. The First Union warehouse facility was
originally for $40 million. This amount was increased to $50 million through
August 31, 1999, by which time we expect this facility to have been replaced by
a new $60 million warehouse facility that will be agented by First Union. Our
existing warehouse facility is secured by the mortgages we originate and
certain of our other assets. Loans under our warehouse facility bear interest
at rates that vary depending on the type of underlying loan, and these loans
are subject to sublimits, advance rates and terms that vary depending on the
type of underlying loan and the ratio of our liabilities to our tangible net
worth. In 1998, we paid a weighted average interest rate on our warehouse
facility borrowings of 6.84%, not including float on checks before they clear
our warehouse facility account, compared with 7.55% in 1997. At June 30, 1999,
the outstanding balance under the warehouse facility was $38.8 million.
The documents governing our warehouse facility contain a number of
compensating balance requirements and restrictive financial and other covenants
that, among other things, require us to maintain a minimum ratio of total
liabilities to tangible net worth and maintain a minimum level of tangible net
worth, liquidity, stockholder's equity and leverage ratios, as well as to
comply with applicable regulatory and investor requirements. The facility also
contains covenants limiting our ability to:
. transfer or sell assets;
. create liens on the collateral;
. pay cash or stock dividends; or
. incur additional indebtedness.
29
<PAGE>
In addition, under our warehouse facility, First Union will not continue to
finance a mortgage loan that we hold if:
. the loan is rejected as "unsatisfactory for purchase" by the ultimate
investor and has exceeded its permissible 60-day warehouse period;
. we fail to deliver the applicable mortgage note or other documents
evidencing the loan within the requisite time period;
. the underlying property that secures the loan has sustained a casualty
loss in excess of 5% of its appraised value; or
. the loan ceases to be an eligible loan (as determined pursuant to the
warehousing agreement).
In addition to the First Union warehouse facility, we have purchase and sale
agreements with Fannie Mae, Greenwich Capital Financial Products, Inc.,
Prudential Securities Funding Corp. and Paine Webber Real Estate Securities,
Inc., under which we sell the loans we have originated to these institutions on
an interim basis. Pursuant to these arrangements, we obtain commitments from
the ultimate buyer, which may be a bank, a pension fund or an investment bank,
to purchase our loans. We then sell our loans, together with the commitment
from the ultimate buyer, to one of the 4 institutions with which we have
purchase and sale agreements. These institutions in turn sell the loans to the
party who gave us the commitment. These agreements allow us to accelerate the
resale of our inventory of mortgage loans, thereby enabling us to use our
warehouse facility more effectively, because we do not have to wait until the
closing of a sale to the ultimate buyer before we receive the purchase price.
Amounts sold and being held under these agreements at June 30, 1999 and
December 31, 1998 were $56.8 million and $53.3 million, respectively. The
combined capacity available under our purchase and sale agreements is $168
million. These agreements are not committed facilities and may be terminated at
the discretion of the counterparty.
We make certain representations and warranties under the purchase and sale
agreements regarding, among other things, the loans' compliance with laws and
regulations, their conformity with the ultimate investor's underwriting
standards and the accuracy of information. In the event of a breach of these
representations or warranties or in the event of an early payment default, we
may be required to repurchase the loans and indemnify the investor for damages
caused by that breach. We have implemented strict procedures to ensure quality
control and conformity to underwriting standards, and minimize the risk of
being required to repurchase loans. In addition, an outside firm performs
quality control tests for us. Please see the "Business--Quality Control"
section of this prospectus. To date, we have been required to repurchase fewer
than 20 of the loans we have sold.
As of March 31, 1999, our warehouse facility borrowings decreased to $27.3
million from $34.1 million as of December 31, 1998. We had a maximum of $12.7
million available for additional borrowings as of March 31, 1999. At March 31,
1999, our loans held for sale were $28.5 million compared to $34.7 million at
December 31, 1998.
Cash and cash equivalents decreased to $2.7 million at March 31, 1999 from
$2.9 million at December 31, 1998. In December 1998, we changed our primary
warehouse facility to the First Union facility described above. The First Union
warehouse facility allows less funds to be borrowed on a per loan basis than
our prior warehouse arrangement, resulting in our investing more of our own
funds in loan originations.
Our primary uses of cash and cash equivalents during the three months ended
March 31, 1999 were as follows:
30
<PAGE>
. $302,000 to pay the balance of our state and local corporate tax
obligation; and
. $282,000 to purchase furniture and office and computer equipment for new
branch offices.
Cash and cash equivalents increased to $2.9 million at December 31, 1998
from $2.1 million at December 31, 1997. This increase in cash and cash
equivalents was primarily attributable to the increase in our net income to
$5.2 million in 1998, before depreciation and amortization.
Our primary uses of cash and cash equivalents during 1998 were as follows:
. $1.9 million to increase accounts receivable;
. $1.5 million to fund a distribution to our stockholder to enable him to
pay income taxes attributable to him as a result of our S corporation
status; and
. $1.2 million to purchase furniture and office and computer equipment for
existing and new branch offices and to upgrade our telecommunications
system.
Our ability to originate loans depends in large part on our ability to sell
these mortgage loans at par or for a premium in the secondary market so that we
may generate cash proceeds to repay borrowings under our warehouse facility.
The value of our loans depends on a number of factors, including:
. interest rates on our loans compared to market interest rates;
. the borrower credit risk classification;
. loan-to-value ratios; and
. general economic conditions.
Please see the "Risk Factors--The loss of key purchasers of our loans or a
reduction in prices paid could adversely affect our financial condition"
section in this prospectus.
The net proceeds of this offering, together with cash flows from operations,
our existing cash balances and funds available under our working capital credit
facilities, are expected to be sufficient to meet our liquidity requirements
for at least the next 12 months. We do, however, expect to continue our
expansion and expect that eventually we will have to arrange for additional
sources of capital through the issuance of debt or equity or additional bank
borrowings. We have no commitments for any additional financings, and we cannot
assure you that we will be able to obtain any additional financing at the times
required and on terms and conditions acceptable to us. If we fail to obtain
needed additional financing, our growth could slow and operations could be
affected.
Inflation
For the period 1995 to 1998, inflation has been relatively low and we
believe it has not had a material effect on our results of operations. To the
extent inflation increases in the future, interest rates will also likely rise,
which would impact the number of loans we originate. This impact would
adversely affect our future results of operations. Please see the "Risk
Factors--A period of rising interest rates, an economic slowdown or a recession
could reduce the demand for mortgages" section of this prospectus.
Risk Management
Movements in interest rates can pose a major risk to us in either a rising
or declining interest rate environment. When interest rates rise, loans held
for sale and any applications in process with agreed upon rates decrease in
value. To preserve the value of such loans or applications in process with
agreed upon rates, we execute mandatory loan sale agreements (forward sales of
mortgage-backed securities) to be settled at future dates with fixed prices.
However, when interest rates decline, customers may choose to abandon their
31
<PAGE>
applications. In that case, we may be required to purchase loans at current
market prices to fulfill existing mandatory loan sale agreements, thereby
incurring losses upon sale. We use an interest rate hedging program to attempt
to manage these risks. Through this program, we purchase and forward sell
mortgage-backed securities and acquire options on mortgage and treasury
securities.
Our board of directors establishes thresholds, which limit our exposure to
such risk. We perform daily analysis to determine our risk exposures under
various interest rate scenarios and manage these risks through a combination of
forward sales of mortgage-backed securities and options on treasury futures.
All derivatives are obtained for hedging (or other than trading) purposes, and
management evaluates the effectiveness of the hedges on an on-going basis.
The following tables summarize our interest rate sensitive instruments:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
-------------------------- --------------------------
Notional Amount Fair Value Notional Amount Fair Value
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Instruments:
Commitments to fund
mortgages at agreed-
upon rates........... $58,568,276 $1,137,689 $63,317,000 $1,279,118
Forward delivery
commitments.......... 79,841,139 (215,571) 80,439,000 (154,820)
Option contracts to
buy securities....... 4,000,000 (15,320) 7,000,000 14,145
</TABLE>
In the event that we do not deliver into the forward delivery commitments or
exercise our option contracts, the instruments can be settled on a net basis.
Net settlement entails paying or receiving cash based upon the change in market
value of the existing instrument. All forward delivery commitments and option
contracts to buy securities are to be contractually settled within 6 months of
the balance sheet date.
The following describes the methods and assumptions we use in estimating
fair values of the above financial instruments:
. Fair value estimates are made as of a specific point in time based on
estimates using present value or other valuation techniques. These
techniques involve uncertainties and are significantly affected by the
assumptions used and the judgments made regarding risk characteristics
of various financial instruments, discount rates, estimates of future
cash flows, future expected loss experience, and other factors.
. Changes in assumptions could significantly affect these estimates and
the resulting fair values. Derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in an immediate sale of the instrument. Also,
because of differences in methodologies and assumptions used to estimate
fair values, our fair values should not be compared to those of other
companies.
. The fair value of commitments to fund with agreed upon rates are
estimated using the fees and rates currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed rate loan commitments, fair value also considers the difference
between current market interest rates and the existing committed rates.
. The fair value of these instruments is estimated using current market
prices for dealer or investor commitments relative to our existing
positions.
Our hedging program contains an element of risk because the counterparties to
our mortgage and treasury securities transactions may be unable to meet their
obligations. While we do not anticipate nonperformance by any counterparty, we
are exposed to potential credit losses in the event the counterparty fails to
perform. Our exposure to credit risk in the event of default by a counterparty
is the difference between the contract and the current market price. We
minimize our credit risk exposure by limiting the counterparties to well-
capitalized banks and securities dealers who meet established credit and
capital guidelines.
32
<PAGE>
Year 2000 Readiness
Many existing computer programs use only 2 digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond, the Year
2000. We are at risk if any of the information technology systems or non-
information technology systems on which we depend to conduct our operations are
not Year 2000 ready. Potential areas of exposure include our business-critical
computerized applications relating to, among others, loan origination,
servicing, hedging, payroll, financing and financial accounting and reporting.
In addition, our other non business-critical systems and services may be
affected.
Our Internal Systems. Most, if not all, of our computer hardware and
software is less than 2 years old and has been certified as Year 2000 ready. As
a result, we believe that our exposure to Year 2000-related hardware and
software problems will not be significant. To date, we have not incurred
significant expenses to ensure Year 2000 readiness. We expect to resolve any
further internal Year 2000 readiness issues primarily through normal upgrades
of our software or through replacement of existing software, where necessary.
Costs. The costs of these upgrades or replacements are included in our
capital expenditure budget and we do not expect them to be material to our
financial position or results of operations. We estimate our total cost to
become Year 2000 ready will not exceed $25,000. This is only an estimate,
however, and we cannot assure you that our Year 2000 readiness costs will not
exceed this estimate. Recent experience of other companies has shown that
actual costs could exceed estimates. In addition, these upgrades and
replacements, if necessary, may not be completed on schedule or may not
successfully address our Year 2000 readiness issues. However, our actual total
costs are subject to certain risks and uncertainties including, among others,
the readiness of our service providers, vendors and suppliers, and our
financial institutions and significant customers.
Third Parties. We have confirmed the readiness of our systems in some cases,
either as a result of purchasing Year 2000 ready software and hardware or
through conducting analyses of our systems, and we are in the process of
surveying our third party providers, vendors, suppliers, financial institutions
and customers to confirm that they are Year 2000 ready. We are currently unable
to predict whether Year 2000 issues will affect the operations of our
customers, suppliers, vendors or financial institutions. If our service
providers, vendors and suppliers or our financial institutions and significant
customers are adversely affected by the Year 2000 issue, our operations could
face substantial interruptions and our business and financial condition also
could be materially adversely affected. These third-party risks include
possible interruptions in our ability to fund loans utilizing our warehouse
facility, our ability to sell loans to Fannie Mae and other investors, our
ability to originate mortgages over the Internet and our hedging system's
ability to link to financial data.
The Internet. In the event that the operational facilities that support our
Web site are not Year 2000 ready, our Web site may become unavailable. For
instance, we depend on the integrity and stability of the Internet to provide
demand for our Internet-generated loan services. We also depend on the Year
2000 readiness of third parties' computer systems. The infrastructure required
to support our operations includes a network of computers and
telecommunications systems over which we have little if any control and which
are operated by numerous unrelated entities and individuals, none of which
individually can control or manage the potential Year 2000 issues that may
impact the entire infrastructure as a whole. A significant disruption in third
parties' ability to access the Internet could have an adverse effect on demand
for our Internet-generated loan services and would have a material adverse
effect on us.
Contingency Plans. Although we are currently assessing potential contingency
plans, we have not developed any worst-case scenario contingency plans to deal
with possible interruptions that may occur as a result of the Year 2000. In
addition, we have not yet developed a contingency plan to address the worst-
case scenario that might occur if (1) our systems fail to be Year 2000 ready,
(2) the systems used by third parties on which we rely fail to be Year 2000
ready or (3) Year 2000 issues make the Internet or our Web site
33
<PAGE>
unavailable. In the event that the Internet or our Web site becomes
unavailable, we believe our dependence on the widespread and unrelated entities
that maintain the Internet's infrastructure makes it impossible for us to
develop or implement an adequate contingency plan. Moreover, if our present
efforts to address the Year 2000 readiness issues are not successful, or if
third parties on which we depend do not successfully address these issues, our
business, operating results and financial position could be materially
adversely affected.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires that
all derivatives be carried on the balance sheet at fair value and that changes
in the fair value of derivatives be recognized in income when they occur,
unless the derivatives qualify as hedges in accordance with the standard. If a
derivative qualifies as a hedge, a company can elect to use
34
<PAGE>
hedge accounting. The type of accounting to be applied varies depending upon
whether the nature of the exposure that is being hedged is classified as one of
three hedged risks defined in the statement: change in fair value, change in
cash flows and change in foreign-currency. This statement's implementation has
been delayed to be effective for all fiscal quarters of fiscal years beginning
after June 15, 2000 and cannot be applied retroactively. We will adopt this
statement effective January 1, 2000. We believe that the adoption of this
statement will not have a material effect on our financial position or results
of operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed for Internal Use" ("SOP 98-1"), which will become effective for
financial statements for calendar year 1999, with early adoption encouraged.
SOP 98-1 requires the capitalization of eligible costs of specified activities
related to computer software developed or obtained for internal use. We do not
believe that the adoption of this statement will have a material impact on our
financial condition or results of operations.
35
<PAGE>
BUSINESS
Introduction
American Home Mortgage is a leading independent retail mortgage banking
company that began operations in 1988. We focus on expanding our business of
originating residential mortgage loans through the Internet and other more
traditional channels. We sell the loans we originate and the related servicing
rights to institutional buyers, rather than hold the loans for investment. In
1998, we originated approximately $1.2 billion in loans largely through our
network of retail branches in the New York metropolitan area and 6 eastern
states. We primarily lend to home buyers rather than to home owners seeking to
refinance their mortgage loans. In 1998, approximately 64.7% of our mortgage
loans were made to home buyers.
In January 1999, we began to market our mortgage products over the Internet.
We offer our mortgage products online through arrangements with a number of
popular Web sites and through our MortgageSelect.com Web site. In June 1999:
. we accepted applications over the Internet for approximately $34 million
in loans, representing 19% of our total application volume for the
month;
. we began accepting applications through our relationship with
Microsoft's HomeAdvisor and other Web sites, bringing the total number
of Web sites through which we accept applications to 10;
. we expanded to 31 the number of Web sites that hyperlink potential loan
applicants directly to our MortgageSelect.com Web site, bringing our
total Internet presence to 41 Web sites;
. we began operations at our second Internet call center; and
. we released a new version of our MortgageSelect.com Web site.
Our planned Internet growth initiatives through 1999 include:
. opening our third and fourth Internet call centers;
. qualifying to offer mortgage loans through the Internet in the remaining
22 states in which we are not yet qualified;
. launching further enhancements to our Web site to allow real-time credit
approvals and loan commitments; and
. commencing an advertising campaign, initially in selected markets, to
increase awareness of, and direct customers to, our MortgageSelect.com
Web site.
In addition to our Internet growth initiatives, we have expanded our
traditional mortgage product distribution channels. Specifically, since the
beginning of 1998:
. we opened 7 new community loan offices and hired 51 loan originators,
bringing our total number of community loan offices and loan originators
to 15 and 122, respectively;
. we formed 3 joint ventures with realtors and builders to serve the
mortgage needs of their customers;
. we doubled the number of companies participating in our Corporate
Affinity Program from 10 to 20; and
. we were selected by developers as the exclusive, onsite lender for new
residential developments with a potential for mortgage loan originations
in excess of $300 million.
We intend to continue these initiatives and to further expand from our
traditional geographic base by opening new community loan offices in the
eastern United States and possibly other areas. We also intend to selectively
consider strategic acquisitions of related businesses.
Our retail business focuses on offering a broad range of residential
mortgage products primarily to high credit quality borrowers. Typically, we
sell our mortgage loans on a limited recourse basis to institutional
36
<PAGE>
buyers within approximately 30 days of their origination, which limits our
exposure to interest rate fluctuations and credit risks. In addition, we
generally sell the servicing rights on loans we originate. This allows us to
avoid the administrative and collection expenses of managing and servicing a
loan portfolio and the risk of loss of anticipated future servicing revenue due
to mortgage prepayments in a declining interest rate environment.
Our revenues and net income increased from approximately $5.8 million and
$338,000 in 1995 to approximately $20.2 million and $4.9 million in 1998,
respectively. Substantially all of our revenues are derived from the profits
generated by:
. selling our residential mortgage loans;
. discounts and fees charged to borrowers such as application,
underwriting, commitment and loan processing fees; and
. the interest spread during the period we hold mortgage loans for sale.
Industry Overview
The mortgage banking industry is the largest consumer debt-related sector in
the United States. In 1998, mortgage loan origination volume in the United
States reached a record high of $1.5 trillion, compared to $834 billion in 1997
according to the MBA. The MBA also reports that mortgage bankers are the
leading group of residential mortgage lenders, originating approximately 60%,
or $880 billion, in mortgage loans in 1998. The MBA estimates that $1.2
trillion in mortgages will be originated in 1999.
The mortgage banking industry involves primarily two businesses: origination
and servicing. Origination is the process of taking a loan application,
gathering the relevant credit and other information on the borrower, and
obtaining funds. Servicing a loan occurs after the loan has been made and
involves the collection of principal and interest, as well as handling
prepayments and foreclosures.
Mortgage lending traditionally takes place through the manual exchange of
information from the time of application to the underwriting phase. This
traditional means of lending is cumbersome and inefficient. Many mortgage
bankers do not have the technology to automate this system in order to achieve
greater efficiency. We believe that Internet mortgage lending is the solution
to these inefficiencies. Forrester Research estimates that approximately $91.2
billion, or 10%, in mortgage loans will be originated online by the year 2003
compared to $18.7 billion or less than 1.5% in 1998. We have established our
own Internet site, MortgageSelect.com, which we expect will account for a
significant portion of our total originations in 1999.
Furthermore, the retail origination market of the mortgage banking industry
is highly fragmented. According to the National Association of Mortgage
Brokers, approximately 20,000 mortgage brokers operated in the United States in
1998. In terms of volume originated by individual firms, a report by Wholesale
Access, a research and publishing firm in Columbia, Maryland, stated that the
average brokerage firm originated $33 million in mortgage loans as compared to
the approximately $1.2 billion we originated in 1998. We believe this industry
environment will aid us in implementing our growth strategy of selectively
acquiring other mortgage lenders who share our business philosophy.
Growth Objectives
The value of our loan originations has grown from $341 million in 1995 to
$1.2 billion in 1998 and from $225 million for the first 3 months of 1998 to
$287 million for the first 3 months of 1999, primarily through an increase in
the number of our community loan offices and loan originators. Our growth
strategy is to continue to increase our loan origination volume by becoming a
leader in Internet mortgage originations, by expanding our traditional, non-
Internet businesses and by pursuing selective strategic acquisitions of
mortgage bankers and other mortgage-banking related companies.
37
<PAGE>
. Enhance and Expand Our Internet Business. We believe the Internet will
be an increasingly important medium to provide mortgage products and
services. We intend to increase our Internet mortgage origination volume
by expanding our business into the remaining 22 states in which we are
not yet qualified and by establishing relationships with additional Web
sites so as to increase the number of sources that refer customers to
us. With part of the proceeds of this offering, we intend to start an
intensive marketing campaign in selected markets to promote our own
MortgageSelect.com Web site and create name recognition. Please see the
"Use of Proceeds" section in this prospectus. Finally, to maximize the
return on our Web site investment, we intend to enter into contracts to
provide private label Internet origination services to thrifts and
smaller banks.
. Expand Our Traditional Business into New Regions. We intend to extend
our business model and expand our traditional lending activities into
new geographic regions. In the first 6 months of 1999, we opened new
community loan offices in suburban Philadelphia, Washington, D.C. and
Maryland. We intend to open 4 additional offices over the next 12 months
in the eastern United States and possibly other areas. In connection
with our geographic expansion, we plan to advertise in related local and
regional print media to create name recognition and create awareness of
our products and services.
. Increase the Market Share of Our Existing Community Loan Offices. We
hope to further penetrate our existing markets by hiring additional loan
originators and production personnel. We are also using new ways to
market mortgage loans, including joint ventures with realtors and
builders and corporate affinity lending.
. Expand Through Selective Strategic Acquisitions. At various times, we
expect to consider acquiring mortgage lenders that share our business
philosophy regarding progressive marketing, innovative use of technology
and sound underwriting. In order to increase core sales, we may also
consider acquiring other mortgage banking related companies to enhance
our product and service offerings. In evaluating acquisition candidates,
we will consider factors such as the accretive impact of the acquisition
on our earnings, our ability to support and retain production personnel
and our ability to enhance and expand the acquired franchise. We believe
our broad and competitive product line and the technical and other back-
up support we offer make us an attractive partner for potential
acquisition candidates.
Operating Strategy
In operating our business, we focus on the following elements:
. Lending to Home Buyers. We focus on making loans to home buyers rather
than to home owners seeking to refinance their mortgages. We believe
this makes our business less susceptible to interest rate increases
because in a rising interest rate environment home purchase volume tends
to be more stable than mortgage refinancing volume, which tends to
decrease dramatically in response to rising interest rates. In 1998,
64.7% of the mortgage loans we originated were made to home buyers,
compared to 35.3% which were made to owners seeking refinancing.
. Maximizing Marketing Efficiency by Offering Broad Product Line. We
believe we have one of the broadest and best-priced product offerings in
the industry. Offering a variety of well-priced loan products enables us
to best serve the largest number of mortgage customers, each of whom may
find different loan characteristics desirable. For a list of our
products, please see the "Business--Our Mortgage Products" section of
this prospectus.
. Using Technology to Maximize Efficiency. In a continuous effort to
increase efficiency, we have dedicated ourselves to maintaining state-
of-the-art information systems. In 1998, we installed an "enterprise"
computer system. This system controls most aspects of our operations,
from the processing of a loan application through the closing of the
loan and our sale of the loan to institutional investors. The system
also performs checks and balances on many aspects of our operations, and
it supports our marketing efforts. We believe this integrated approach
reduces our marginal cost per loan. We intend to continually look for
new ways to improve efficiencies through automation.
38
<PAGE>
. Maintaining a Technologically Advanced Web site. In June 1999, we
introduced a new, technologically advanced version of our
MortgageSelect.com Web site that was designed to provide customers with
24-hour access to our interest rates and product terms and the ability
to lock in an interest rate, to file a pre-approval request or
application, to check the status of their pending application and to
obtain their credit report. Our Web site also provides mortgage
customers with an array of "tools" that assist them in determining how
much financing they can afford, what kind of mortgage best suits their
needs and otherwise provides answers to frequently asked questions.
Later in 1999, we intend to introduce a number of enhancements to our
Web site that will enable our customers, in one continuous online
session, to apply for a loan, receive a loan commitment if approved and
lock in an interest rate.
. Underwriting Loans to the Standards of Investors who Buy our Loans. Our
underwriting process is designed to ensure that each loan we originate
can be sold to a third-party investor by conforming the loan to the
underwriting and credit standards of that investor. Whenever possible,
we use "artificial intelligence" underwriting systems, including Fannie
Mae's Desktop Underwriter(R), to ensure consistency with our investors'
predetermined standards. These systems interface with our "enterprise"
computer system. In addition, we have a series of internal and external
quality control procedures in place to ensure compliance with our
underwriting standards.
. Cross Selling and One-Stop Shopping. We have begun offering title
insurance, abstract services and home equity lines of credit to our
mortgage customers. We believe we can enhance the revenues we earn
through the cross-selling of these and other products and services, and
leverage our origination network without significant additional capital
investments.
. Maintaining a Sales-Oriented Culture. Our loan originators are primarily
compensated through sales commissions, which encourages them to be
responsive to our customers. In addition, we foster a consultative sales
strategy that emphasizes proactive and frequent customer assistance. Our
loan originators actively guide customers through the loan application
process, not merely providing information requested by the customer, but
keeping customers informed about rate changes and market conditions.
Business Divisions and Markets
Our business is organized into the following 3 divisions, each of which
focuses on a distinct market segment: our Internet division, our retail
division and our wholesale division.
Our Internet Division
We created our Internet division in January 1999. During that month, we
accepted 14 loan applications with a total principal amount of $2.7 million.
Our Internet division has been expanding rapidly. In June 1999, we accepted 188
Internet loan applications with a total principal amount of approximately $34
million, more than a ten-fold increase from January 1999, and constituting 19%
of our mortgage loan applications in June. Forrester Research estimates that
approximately $91.2 billion, or 10%, in mortgage loans will be originated
online by the year 2003, compared to $18.7 billion, or less than 1.5%, in 1998.
In addition, Killen & Associates predicts online mortgage originations will
account for up to 30% of total mortgage originations by 2005. Our goal is to
become one of the nation's leading Internet mortgage originators.
Internet Industry Overview. The Internet has become a substantial medium for
both communication and electronic commerce. International Data Corporation, or
IDC, estimates the number of Internet users worldwide will increase from 142
million in 1998 to over 400 million in 2002. In addition, the number of
households using the Internet for online banking will grow from 6.6 million in
1998 to more than 32 million in 2003, showing the growth in reliance on the
Internet for financial services. Consumers have become proficient in using the
Internet for finding, evaluating and purchasing a wide variety of products and
services. IDC estimates that revenue from business-to-consumer electronic
commerce will increase from $15 billion in 1997 to more than $178 billion in
2003, for a compounded annual growth rate of 51%.
Because of its flexibility, the Internet provides companies with additional
ways to reach consumers with the most current information about their products
and services. This information can be updated instantaneously to provide new
features and presentations, or to adjust prices and terms according to market
changes. In
39
<PAGE>
addition, the Internet provides a cost-efficient means of conducting a
document-intensive business such as mortgage banking. Consumers can apply
online, have access to their file, update information instantly, and check the
status of their loans 24 hours a day, seven days a week.
Our Web Site Relationships. To market and sell loans on the Internet, we
work with many of the leading Web sites in our industry, including Microsoft's
HomeAdvisor, E-Loan, GetSmart, LendingTree and Consumer Financial Network. We
believe a large number of Internet mortgage shoppers will be introduced to
lenders on these and other future Web sites. We believe our inclusion in these
Web sites gives us a strategic advantage because they are developing their
business processes and software in conjunction with their existing
participating lenders and, in some cases, limiting access by additional
lenders.
The following table contains descriptions of our current Web site
relationships. Except as otherwise noted, we are a participating retail lender
on each of these Web sites.
<TABLE>
<CAPTION>
Start
Company Description Date*
------- ----------- -----
<C> <S> <C>
Microsoft HomeAdvisor.. HomeAdvisor.com is part of the Microsoft 5/99
Network of Internet products and services.
HomeAdvisor is an online service providing
home lists and home financial services.
E-Loan................. E-Loan.com is a leading online mortgage 8/99
company. We will be a purchaser of closed
loans.
GetSmart............... GetSmart.com is a leading online provider of 1/99
financial products and services.
LendingTree............ LendingTree.com is a leading online loan 2/99
marketplace that also offers its products and
services through the Priceline.com Web site.
Consumer Financial
Network............... CFN.com is an e-commerce platform for 3/99
marketing financial services and employee
benefits over corporate intranets and the
Internet.
RealEstate.com......... RealEstate.com is an online provider of 4/99
comprehensive real estate services in an
online auction format.
LoanWeb................ LoanWeb.com is a provider of online financial 4/99
services providing borrower leads to lenders.
iOwn.com............... iOwn.com is a leading Internet mortgage broker 7/99
that helps consumers find both a home and a
low-cost mortgage online. We will accept
brokered loan applications.
Genesis2000............ Genesis2000 is a leading provider of mortgage 12/99
automation software for over 6,400 broker
companies with more than 30,000 users
nationwide. American Home Mortgage is a
charter wholesale lender on the Genesis2000
ePass network, an online e-commerce channel
for 30,000 national brokers to submit loans to
lenders.
</TABLE>
- ----------------
* Refers to actual or anticipated online commencement date.
Mortgage shoppers who visit a Web site are prompted by the site's software
to provide information about their loan needs and preferences and about their
income and financial condition. The site's software then compares the
information given by the potential customer with a database of the terms of the
loans of lenders participating on the site. The software selects those loans
for which the customer qualifies that satisfy the potential customer's loan
needs. The site's software then introduces the potential customer to one of the
lenders
40
<PAGE>
that participates on the site. The way in which the customer is introduced
varies from site to site, but when customers are connected to us they are
introduced on an exclusive or semi-exclusive basis.
Once a customer is introduced to us, we communicate with that customer
online or through one of our Internet call centers. Our call centers employ
representatives who are trained to work with customers in a consultative
manner. Our consultative sales approach stresses proactive and frequent contact
with customers. For example, our representatives provide customers with written
analysis, comparing the costs of different loan products, showing closing costs
and amortization schedules. The representatives are trained to call customers
frequently, to provide them with updated information about interest rates and
to answer frequently-asked questions. The objective of our call center
representatives is to build a relationship with potential customers, and gain
the confidence and business of those customers.
Our MortgageSelect.com Web Site. In June 1999, we released a new,
technologically advanced version of our Web site. It provides our customers
with 24-hour access to a variety of products and services. In addition to
providing information about interest rates and product terms, our Web site
allows customers to perform a number of functions such as locking-in an
interest rate, filing a pre-approval request or application, checking the
status of their pending applications and obtaining their credit report. Later
this year, we intend to further expand the functionality of our Web site by
enabling our customers, in one continuous session, to apply for a loan, receive
a commitment for that loan if approved and lock-in their interest rates.
Currently, we primarily use our Web site to help us gain the business of
mortgage shoppers that have been referred to us by our Web site relationships.
As we increase the functionality of our Web site, we will seek to use and
market it in new ways. Initially, we will use our Web site to market loans
directly to Internet mortgage shoppers. We intend to commence an advertising
campaign, initially directed at selected markets, that will aim to increase
mortgage shoppers' awareness of our Web site and establish name recognition for
MortgageSelect.com. In the longer term, we intend to enter into contracts to
provide private label Internet origination services to thrifts and smaller
banks.
Our Internet Growth Strategy. The goal of our Internet marketing efforts is
to both expand our Internet reach and enhance our ability to originate
mortgages over the Internet. To continue the growth of our Internet division,
we must first increase our call center capacity to be able to service all the
referrals we receive from the popular Web sites. Continued growth depends on
our ability to increase the number of referrals from those and other Web sites.
We intend to complement our growth from increased Web site referrals with
growth from marketing our own Web site and from providing, on a contract basis,
Internet origination services to local and regional thrifts and smaller banks.
We intend to use part of the proceeds of this offering to fund the increase of
our Internet capacity and capabilities. Please see the "Use of Proceeds"
section of this prospectus.
Our Internet growth strategy focuses on the following elements:
. Increasing Our Call Center Capabilities. We recently opened our second
Internet call center, and are planning a third and a fourth center. We
believe we can rapidly increase our call center capacity by transferring
experienced managers and personnel from our traditional origination
channels to our Internet division. We believe we can maximize the number
of inquiries that we convert into loans by limiting the number of sales
representatives in any one call center to 28 persons. Our experience is
that having a number of smaller call centers allows us to best manage
and motivate our sales representatives and create an atmosphere that is
most conducive to our consultative sales approach. To enable several
smaller call centers to work together efficiently, we are installing
"virtual" software so that a representative in any one call center can
service a mortgage shopper regardless of the source that referred that
shopper.
. Expanding Our Territorial Presence. All of our Internet business is
currently conducted in 28 states. We are in the process of meeting the
licensing or qualification requirements of, and otherwise expanding our
Internet business to, all 50 states so that we can accept mortgage
applications over the Internet without limitation.
. Establishing a Presence on Additional Web Sites. We employ a dedicated
e-commerce staff that seeks to establish new relationships with both
national and regional Web sites. Our e-commerce staff
41
<PAGE>
is headed by a person with extensive experience in negotiating with
popular Web sites on behalf of lenders. We believe our e-commerce staff
has been successful in achieving our inclusion in many of the popular
Web sites and will continue to expand our Internet presence.
. Continuing to Market Our Own Web Site. In June 1999, we released a new,
technologically advanced version of our Web site. The main criteria in
designing our Web site are functionality and user-friendliness. We are
continuously looking for ways to expand the functions customers can
perform online and reduce the time it takes from initial application to
loan approval and commitment. We also seek to maintain user-
friendliness, through live interaction with loan originators and
immediate telephone assistance from a loan originator. We intend to
commence an advertising campaign, initially directed at selected
markets, that will aim to increase mortgage shoppers' awareness of our
Web site and establish name recognition for MortgageSelect.com.
. Providing Contract Internet Origination Services to Thrifts and Smaller
Banks. We have designed our Web site and call center technology so that
they can be adapted to support the brand names of other lenders. We
intend to offer, on a private label basis, our Internet capabilities and
call center technology to thrifts and smaller banks, effectively
becoming the Internet mortgage presence of those institutions so that
they can offer their loans through our Web site. We believe this
approach will assist us in defraying the cost of the development of our
Web site and call center technology over a greater number of loans.
We believe we have a number of strategic advantages that will enable us to
effectively compete on the Internet, including:
. Our Call Center Culture. Our call centers have a sales culture. Our loan
originators use a consultative sales approach that includes frequent and
repeated customer contacts and follow ups. They do not merely provide
information requested by a customer, but actively assist and guide a
client through the loan application process, furnish written
presentations, pre-approvals and updates on rates and market conditions
and otherwise ensure that a customer's questions are being answered. We
compensate our loan originators primarily on a commission basis to
encourage their responsiveness to customers. We believe our sales
culture sets us apart from many of our competitors and is an important
reason for our success in originating loans over the Internet.
. Our Competitive Adjustable Rate Mortgage Terms. We believe we are able
to offer better terms for adjustable rate mortgages than many of the
large lenders that constitute most of our competition on the popular Web
sites. The reason is that we typically sell the adjustable rate loans we
originate to thrifts while these large lenders often securitize their
adjustable rate originations. Securitizers tend to require a higher
yield for their loans than entities like thrifts that hold their loans
for investment. As a result, thrifts can profitably purchase and hold
adjustable rate mortgage loans with lower rates than securitizers, and
have historically done so. Consequently, we are typically able to offer
better terms than those large lenders that are the majority of our
competitors on the popular Web sites. Many of the mortgage brokers and
mortgage bankers that traditionally compete with us for adjustable rate
borrowers do not participate on the popular Web sites because they do
not have the requisite financial resources and information technology.
. Our Ability to Sell Servicing Rights to the Highest Bidder. We are able
to offer competitive rates for fixed rate mortgages because we can
direct the sale of servicing rights for a particular type of loan to the
servicing rights buyer that places the highest value on that type of
loan. For example, we may sell the servicing rights to a $100,000 loan
in Florida to one buyer, while we sell the servicing rights to a
$150,000 loan in Florida to another buyer and the servicing rights to a
similar loan in New Jersey to yet another buyer. In each case, we
identify and execute a sale to a servicing buyer whose servicing model
places the highest value on the type of servicing to be sold. This
selling strategy is the reason we are able to offer competitive terms in
the fixed rate mortgage market.
. Our Advanced Internet Technology. Our Internet technology is user-
friendly and designed to facilitate interaction with the client. Our
loan originators will soon be able to "share" the computer
42
<PAGE>
screen with a customer and see how a customer is completing an
application while the customer is doing so, allowing them to assist a
customer in a more meaningful manner. In addition, our technology will
enable us to give a customer a commitment letter for certain loans in
"real" time. This means that in one continuous online session, a
customer's application would be submitted to Fannie Mae's Desktop
Underwriter(R) and, if approved, a commitment letter with a set interest
rate and other terms could be returned to the customer.
Our Retail Division
Our retail division is the core of our traditional business. In 1998,
approximately 81.0% of the mortgage loans we originated were made through our
retail division. This division consists of 15 offices, including our New York
City headquarters. Our retail division has 6 origination channels:
. community loan offices;
. direct-to-consumer advertising;
. realtor and builder joint ventures;
. our Corporate Affinity Program;
. telemarketing; and
. our Real Estate Direct Program.
Community Loan Offices. Our community loan offices serve the regions in
which they operate, and obtain business by developing and nurturing a referral
network of realtors, real estate attorneys, builders and accountants. Many of
our loan originators are highly experienced and, therefore, can provide an
accurate analysis of a potential borrower's options and needs. They also
facilitate the efficient processing and closing of a borrower's loan. Other
reasons customers are referred to our loan originators include our broad and
competitive product line and our high level of customer service, including
pre-approval commitments based on Fannie Mae's Desktop Underwriter(R) and
flexible rate lock-in and extension policies, a willingness to hold escrows
and other accommodations that help a borrower and facilitate a real estate
transaction. Our community loan offices provide special services to builders,
including issuing commitments to lend to buyers in their projects. We have
been selected by many leading builders as their onsite resource for mortgage
financing. For example, we were recently selected to be the sole on-site
lender for a 90-story condominium project in New York City.
We intend to further expand our community loan office originations by
opening offices in new geographic regions, recruiting experienced loan
originators for those offices and hiring additional loan originators in the
markets we currently serve. In order to attract and retain experienced loan
originators, we offer a high level of support that includes a broad product
range, technical help desk support, flexible extension policies, expenditures
on trade shows, educational seminars and other marketing initiatives and
promotional materials. We believe our experience in implementing this strategy
in our current markets will enable us to expand into additional states and
increase our market presence in our home region. In the past 3 months, we have
opened community loan offices in suburban Philadelphia, Washington, D.C., and
Maryland. Over the next 12 months, we expect to open at least 4 additional
community loan offices in the eastern United States and possibly other areas.
Direct to Consumer Advertising. We advertise our products in selected local
and regional print media. Customer calls generated by advertising are handled
by our more experienced loan originators who use our consultative sales
approach. We believe an important part of our success is attributable to the
way our loan originators interact with potential customers.
We intend to expand our direct to consumer business by increasing the
number of publications in which we advertise, including adding publications in
regions into which we expand. As we open additional local offices and expand
into new states, we will seek to build name recognition by advertising in the
regional and
43
<PAGE>
local print media. We often start an advertising campaign in the regional press
before, or in conjunction with, the opening of a new community loan office. In
selecting publications, we aim to strike an efficient balance between the cost
of a particular media and the number of leads it generates. We believe our
broad product line maximizes the efficiency of our advertising budget. The
follow-up provided by our loan originators allows us to service a customer in a
personal manner and provides us, we believe, with a competitive advantage. We
believe this strategy complements our geographic expansion strategy.
Realtor and Builder Joint Ventures. Since 1998, we have established 3 joint
ventures with mid-size real estate brokerage firms and builders, who provide
the venture with access to potential customers. We and our partners each have a
50% interest in the venture. Our joint venture partners are System One
Partners, LLP, a marketing cooperative of many of the leading realtors in
Fairfield County, Connecticut, comprising approximately 40 offices, Spectrum
Skanska Inc., a leading builder in the New York tri-state area, and Country
Living Associates, Inc., a purveyor of high-end properties in Connecticut. Each
venture makes loans, retaining the application and processing fees, points and
discounts earned in connection with the mortgages it originates. The venture
then sells the mortgage loans to us at a premium. We then resell the loans to
institutional buyers, earning a profit from those resale efforts. We believe
that this distribution channel provides an opportunity to cross sell with local
realtors and builders.
We intend to expand this part of our business by identifying and entering
into additional joint ventures, and we expect to establish at least 4
additional joint ventures in the next 18 months. We believe joint ventures of
this nature are a fairly new way of doing business. Our flexibility and
willingness to tailor an arrangement to a particular venture, rather than
adhere to a set of model terms, gives us a competitive advantage when competing
with certain larger lenders seeking to enter into a venture with a particular
realtor or builder.
Corporate Affinity Program. Under this program, we make loans to employees
of large companies and firms who are members of our Corporate Affinity Program.
The employees receive special group discounts, service guarantees and other
accommodations. Current Corporate Affinity Program members include Credit
Suisse First Boston Corporation, Deutsche Bank AG, Goldman Sachs Inc. and UBS
Corporation.
We intend to identify and sign up additional companies to participate in our
program. We believe our affinity loan programs are successful because of our
broad product line, our personal approach to dealing with customers and our
ability to be flexible to meet a customer's needs.
Telemarketing. We maintain a staff of loan originators and telemarketers who
place calls to persons identified as having high-interest rate loans due to
poor past credit history, but who have improved their credit history and would
now qualify for lower interest rate mortgages. We intend to expand this part of
our business by hiring additional loan originators and telemarketers.
Real Estate Direct. In 1998, we established our Real Estate Direct Program.
The program's goal is to reach customers at the beginning of the home-buying
process. Under this program, we place advertisements for a particular home that
not only describe the home, but also a package of available mortgage financing
terms. A typical advertisement will feature a picture of the home and will
describe in the headline the downpayment and monthly charges required to carry
that particular home. The advertisement is intended to show how financing terms
offered by us make the home readily purchasable. We believe that we benefit by
having early access to potential borrowers, many of whom, although they may not
buy the particular property advertised, will become our customers. With the
experience gained from operating this program in our traditional territory, we
believe we can expand this program as part of our overall geographic expansion.
Our Wholesale Division
We have established relationships with more than 75 mortgage brokers. Our
wholesale division actively solicits referrals of borrowers from this network
of independent mortgage brokers. While our strategy focuses primarily on
establishing direct access to borrowers, our mortgage broker channel is an
important source of mortgage loans, accounting for 19.0% of the mortgage loans
we originated in 1998.
44
<PAGE>
A mortgage broker deals directly with the borrower and submits the fully
processed loan application to us for an underwriting determination. We apply
our usual underwriting standards to each wholesale-originated mortgage, issue a
written commitment and, upon satisfaction of all lending conditions, close the
mortgage. We offer mortgage brokers direct access to Fannie Mae's Desktop
Underwriter(R), which enables them to give their clients immediate approvals.
We believe this gives us an advantage over lenders who do not provide that
service. Other reasons we believe we are able to attract mortgage broker
business include our broad and competitive product line, our ability to provide
approval within 24 to 48 hours of receipt of a file, our flexible lock-in and
extension policies, our personalized service, our knowledgeable and experienced
wholesale loan originators and our support of mortgage broker industry events,
such as trade shows and educational seminars.
We conduct due diligence on mortgage brokers with whom we consider doing
business. Our diligence includes verifying their financial statements and
running credit checks of principals, checking business references provided by
the brokers and verifying with the applicable regulators that a broker is in
good standing. Once approved, we require that a mortgage broker sign an
agreement that governs the mechanics of doing business with us and that sets
forth the representations and warranties the broker makes regarding each loan
submitted to us.
Through our wholesale division, we can increase our loan volume without
incurring the higher marketing, labor and other overhead costs associated with
increased retail originations because brokers conduct their own marketing and
employ their own personnel to attract customers, assist the borrower in
completing the loan application and maintain contact with borrowers.
Our Mortgage Products
We offer a broad and competitive range of mortgage products that aim to meet
the mortgage needs of all borrowers. Our product line includes Fannie Mae-
eligible loans, jumbo loans, adjustable rate mortgages, FHA-insured and VA-
guaranteed loans, alternate "A" loans, non-prime loans, home equity and second
mortgage loans, construction loans and bridge loans. Our experience and
expertise in numerous types of mortgages give us the ability to provide our
full product line through each of our 3 divisions.
Our extensive network of loan buyers allows us to identify specific loan
features, to identify a loan buyer who will purchase loans with those specific
features and to select a buyer who will accept the lowest yield for loans with
those features. As a result, we are able to offer a wide range of products that
are well priced and that have many different features to suit a customer's
needs.
The following table summarizes information with respect to the most
important categories of mortgage loans we originate.
1998 MORTGAGE LOAN ORIGINATION SUMMARY
<TABLE>
<CAPTION>
% of Total
Mortgage Type Number of Loans Dollar Volume Dollar Volume
------------- --------------- ------------- -------------
(in millions)
<S> <C> <C> <C>
Fannie Mae Eligible Fixed..... 3,560 $ 539.6 46.6%
Jumbo Fixed................... 506 171.5 14.8
Adjustable Rate (ARMs)........ 519 177.5 15.4
FHA/VA........................ 1,084 143.0 12.4
Alternate "A" Loans........... 539 82.1 7.1
Non-Prime Loans............... 240 25.8 2.2
Home Equity/Second............ 177 9.0 .8
Construction Loans............ 20 8.4 .7
Bridge Loans.................. 9 .6 --
----- -------- -----
TOTAL....................... 6,654 $1,157.5 100.0%
</TABLE>
45
<PAGE>
. Conforming and Government-Insured Fixed Rate Loans. These mortgage loans
conform to the underwriting standards established by Fannie Mae or the
Federal Home Loan Mortgage Corporation (commonly referred to as Freddie
Mac). This product is limited to high quality borrowers with good credit
records and involves adequate down payments or mortgage insurance. These
loans may qualify for insurance from the Federal Housing Authority (FHA)
or guarantees from the Veterans Administration (VA). We have been
designated by the U.S. Department of Housing and Urban Development (HUD)
as a direct endorser of loans insured by the FHA and as an automatic
endorser of loans partially guaranteed by the VA, allowing us to offer
so-called FHA or VA mortgages to qualified borrowers. FHA and VA
mortgages must be underwritten within specific governmental guidelines,
which include borrower income verification, asset verification, borrower
credit worthiness, property value and property condition.
. Jumbo Loans. Jumbo loans are considered non-conforming mortgage loans
because they have a principal loan amount in excess of the loan limits
set by Fannie Mae and Freddie Mac (currently, $240,000 for single-
family, one-unit mortgage loans in the continental United States). We
offer jumbo loans with creative financing features, such as the pledging
of security portfolios. Our jumbo loan program is geared to the more
financially sophisticated borrower.
. Adjustable Rate Mortgages (ARM). The ARM's defining feature is a
variable interest rate which fluctuates over the life of the loan,
usually 30 years. Interest rate fluctuations are based on an index that
is related to Treasury bill rates, regional or national average cost of
funds of savings and loan associations, or another widely published rate
such as LIBOR. The period between the rate changes is called an
adjustment period and may change every 6 months, one year, 3 years, 5
years or 10 years. Some of our ARMs may include payment caps, which
limit the interest rate increase for each adjustment period.
. Alternate "A" Loans. From a credit risk standpoint, alternate "A" loan
borrowers present a risk profile comparable to that of conforming loan
borrowers, but entail special underwriting considerations, such as a
higher loan to value ratio or limited income verification.
. Non-Prime Mortgage Loans. The non-prime mortgage loan focuses on
customers whose borrowing needs are not served by traditional financial
institutions. Borrowers of non-prime mortgage loans may have impaired or
limited credit profiles, high levels of debt service to income, or other
factors that disqualify them for conforming loans. By originating
mortgage loans to borrowers with higher credit risk, we are able to
charge higher interest rates than would be charged for our conventional
loans. Offering this category of mortgage loans on a limited basis
allows us to provide loan products to borrowers with a variety of
differing credit profiles.
. Home Equity and Second Mortgage Loans. These loans are generally secured
by second liens on the related property. Home equity mortgage loans can
take the form of a home equity line of credit, which generally bears an
adjustable interest rate, while second mortgage loans are closed-end
loans with fixed interest rates. Both types of loans are designed for
borrowers with high credit profiles. Home equity lines generally provide
for a 5- or 15-year draw period where the borrower withdraws needed cash
and pays interest only, followed by a 10- to 20-year repayment period.
Second mortgage loans are fixed in amount at the time of origination and
typically amortize over 15 to 30 years with a balloon payment due after
15 years.
. Construction Loans. We offer a variety of construction loans for owner-
occupied single-family residences. These loans are available on a
rollover basis, meaning that the borrower can secure funding for the
land purchase and construction of the home, then roll the financing over
into a permanent mortgage loan. During the construction period,
interest-only payments are made. Withdrawals during the construction
period, to cover the costs associated with each stage of completion, are
usually made in 5 to 10 disbursements.
46
<PAGE>
. Bridge Loans. The bridge loans that we make are short-term loans and may
be used in conjunction with our other loan products. Bridge loans
provide a means for a borrower to obtain cash based on the equity of a
current home that is on the market but not yet sold and to use that cash
to purchase a new home.
Loan Funding and Borrowing Arrangements
We draw against our warehouse facility with First Union to originate
mortgage loans. We expect to replace this facility with a $60 million line of
credit that will be agented by First Union. In addition to the First Union
warehouse facility, we have 4 uncommitted purchase and sale agreements under
which we sell the loans we have originated to institutions on an interim basis.
The combined capacity available under our purchase and sale agreements is $168
million. For a more detailed description of these arrangements, please see the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" section of this prospectus.
Sale of Loans and Servicing Rights
Our business strategy is to sell the loans we make, typically within 30 days
of origination, rather than hold them for investment. We sell our loans to
Fannie Mae, large national banks, thrifts and smaller banks, securities
dealers, real estate investment trusts and other institutional loan buyers. We
also swap loans with Fannie Mae for mortgage-backed securities, which we then
sell. We do not currently securitize our loans, although we may decide to do so
in the future if market conditions or other considerations justify doing so. In
most instances, we sell the servicing rights to our loans at the same time that
we sell those loans. When we swap loans for mortgage-backed securities, at the
time of completing the swap, we sell the servicing rights to the loans to an
independent loan servicer.
Typically, we sell or swap the loans with limited recourse to us. This means
that, with some exceptions, we reduce our exposure to default risk at the time
we sell the loan, except that we may be required to repurchase the loan if we
breach the representations or warranties we make in connection with the sale of
the loan, in the event of an early payment default, or if the loan does not
comply with the underwriting standards and other requirements of the ultimate
investor.
We sell or swap the loans under agreements to the buyers and institutions
described above, many of whom compete directly with us for mortgage
originations. The agreements generally do not have a limit as to the principal
amount of loans that we may sell, and establish an ongoing sale program under
which these investors and institutions stand ready to buy so long as the loans
we offer for sale meet their underwriting standards.
In 1998, the 3 institutions that bought the most loans from us were Norwest
Funding, Inc., Chase Manhattan Mortgage Corporation and CFS Bank, which
accounted for 36.3%, 30.0% and 3.7%, respectively. We have brokered or sold
loans to Chase Manhattan Mortgage Corporation since 1988, to Prudential Home
Mortgage or its successor Norwest Funding, Inc. since 1991, and to CFS Bank
since 1995. We believe we have favorable relationships with our investors. The
loss of any of these institutions as a buyer of our loans, or a significant
reduction in the prices those buyers are willing to pay, however, could have a
material adverse effect on our business and results of operations.
Loan Underwriting
Our primary goal in making a decision whether to extend a loan is whether
that loan conforms to the expectations and underwriting standards of the
investor who buys that type of loan. Whenever possible, we use artificial
intelligence underwriting systems to determine whether a particular loan meets
those standards and expectations. In those cases where artificial intelligence
is not available, we rely on our experienced credit officer staff to make the
determination. Our credit officers have an average of 8 years of relevant
experience.
47
<PAGE>
Typically, our buyers focus on a potential borrower's credit history, often
as summarized by credit scores, income and stability of income, liquid assets
and net worth and the value and the condition of the property to be pledged. We
believe our credit officers have the experience and training necessary to
evaluate a potential borrower's conformance to our investors' requirements
based on these criteria. Historically, we have not had material credit losses
and believe our credit decisions ensure that the loans we originate meet the
standards of our loan buyers and minimize the risk of default.
Compliance
Our compliance efforts are headed by our compliance officer, who is an
experienced attorney in the field. The officer is responsible for staying
current with the lending laws and regulations in each of the jurisdictions in
which we make loans. He is also responsible for assuring that our processes,
disclosures and loan products conform to all applicable federal, state and
local laws and regulations. We are subject to periodic audits by the regulators
in many of the states where we operate. To date, the audits have not found any
material violations. In addition, our "enterprise" computer application assists
us in complying with government regulations by automatically selecting the
requisite loan disclosure documents, calculating permissible fees and charges
and assuring that products offered to a particular borrower meet the
requirements of that borrower's state. Our legal compliance is reviewed as part
of our quality control process, which is performed by an independent contractor
with expertise in these matters.
Quality Control
We have hired an outside firm to perform quality control testing for us. The
firm typically samples, on a random basis, 10% of the loans we originate. It
checks the accuracy of the borrower's income and assets and the credit report
used to make the loan, reviews whether the loan buyer's underwriting standards
were properly applied, whether the loan complies with government regulations
and, for 1% of the loans we originate, it reappraises the underlying property.
The firm issues monthly reports to us, which we use to identify areas that need
corrective action or could use improvement. Historically, those reports have
not identified material quality control concerns.
Government Regulation
Our business is subject to extensive and complex rules and regulations of,
and examinations by, various federal, state and local government authorities
and government sponsored enterprises, including without limitation HUD, FHA,
VA, Fannie Mae, Freddie Mac, Ginnie Mae and state regulatory authorities. These
rules and regulations impose obligations and restrictions on our loan
origination and credit activities, including without limitation the processing,
underwriting, making, selling, securitizing and servicing of mortgage loans.
Our lending activities also are subject to various federal laws, including
the Federal Truth-in-Lending Act and Regulation Z thereunder, the Homeownership
and Equity Protection Act of 1994, the Federal Equal Credit Opportunity Act and
Regulation B thereunder, the Fair Credit Reporting Act of 1970, the Real Estate
Settlement Procedures Act of 1974 and Regulation X thereunder, the Fair Housing
Act, the Home Mortgage Disclosure Act and Regulation C thereunder and the
Federal Debt Collection Practices Act, as well as other federal statutes and
regulations affecting our activities. Our loan origination activities also are
subject to the laws and regulations of each of the states in which we conduct
our activities.
These laws, rules, regulations and guidelines limit mortgage loan amounts
and the interest rates, finance charges and other fees we may assess, mandate
extensive disclosure and notice to our customers, prohibit discrimination,
impose qualification and licensing obligations on us, establish eligibility
criteria for mortgage loans, provide for inspections and appraisals of
properties, require credit reports on prospective borrowers, regulate payment
features, and prohibit kickbacks and referral fees, among other things. These
rules and requirements also impose on us certain reporting and net worth
requirements. Failure to comply with these requirements can lead to, among
other things, loss of approved status, termination of contractual rights
without
48
<PAGE>
compensation, demands for indemnification or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions.
Although we believe that we have systems and procedures in place to insure
compliance with these requirements and believe that we currently are in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations, that more restrictive laws, rules and
regulations will not be adopted in the future, or that existing laws, rules and
regulations or the mortgage loan documents with borrowers will not be
interpreted in a different or more restrictive manner. The occurrence of any
such event could make compliance substantially more difficult or expensive,
restrict our ability to originate, purchase, sell or service mortgage loans,
further limit or restrict the amount of interest and other fees and charges
earned from mortgage loans that we originate, purchase or service, expose us to
claims by borrowers and administrative enforcement actions, or otherwise
materially and adversely affect our business, financial condition and
prospects.
Members of Congress, government officials and political candidates have from
time to time suggested the elimination of the mortgage interest deduction for
federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of our loans are made to
borrowers for the purpose of purchasing a home, the competitive advantage of
tax deductible interest, when compared with alternative sources of financing,
could be eliminated or seriously impaired by this type of governmental action.
Accordingly, the reduction or elimination of these tax benefits could have a
material adverse effect on the demand for the kind of mortgage loans we offer.
A multitude of class action lawsuits have been filed against companies in
the mortgage banking industry, which allege, among other things, violations of
the terms of the mortgage loan documents and certain laws, rules and
regulations (including without limitation consumer protection laws). These
lawsuits may result in similar suits being filed against us. In addition, the
publicity generated by such lawsuits may result in legislation that affects the
manner in which we conduct our business and our relationships with mortgage
brokers, correspondents and others. Any of these developments may materially
and adversely affect our business, financial condition and prospects.
We also are performing various mortgage-related operations on the Internet.
The Internet, and the laws, rules and regulations related to it, are new and
still evolving. As such, there exist many opportunities for our business
operations on the Internet to be challenged or to become subject to
legislation, any of which may materially and adversely affect our business,
financial condition and prospects.
Information Systems
In 1998, we installed an enterprise system that supports most of our
business functions. The system is a computer application from Data-Link
Systems, LLC d.b.a. Fiserv Mortgage Products Division, which our programming
staff has modified extensively to meet our specific needs. Our enterprise
system functions on a wide area network that connects all of our branches in
"real time." With our wide area network, a transaction at any one of our
locations is committed centrally and is therefore immediately available to all
personnel at all other locations. An important benefit of our enterprise system
is that it aids us in controlling our business process. For example, the system
assures that our underwriting policies are adhered to, that only loans that are
fully approved are dispersed, and that the correct disclosures and loan
documents are used based on a borrower's state and loan program. Our enterprise
system also provides our management with reports and other key data.
Our MortgageSelect.com Internet Web site is based on the latest software
technology from Microsoft Corporation and resides on high performance Microsoft
NT Servers. MortgageSelect.com has developed proprietary call center and Web
site software programs that integrate the call center, its contact management
system, Fannie Mae's automated underwriting system and the Internet Web site.
Our Internet software programs were developed using in-house personnel and
outside software consulting companies specializing in Internet mortgage
services software.
49
<PAGE>
Competition
Mortgage banking on the Internet is highly competitive. A large number of
mortgage companies currently transact business over the Internet in one form or
another. The sophistication of these companies in the Internet channel varies
from simple one-page information Web sites to Web sites with extensive on-line
content and features. Many of these mortgage companies share a business
strategy and capability similar to ours. The competition includes banks such as
Chase and Bank of America, as well as mortgage originators such as Prism
Financial Corporation, E-Loan and Mortgage.com, all of which are larger and
better capitalized than us. In addition, we also compete on the Internet with
large, national mortgage companies, such as Countrywide Credit Industries, Inc.
and HomeSide Lending, which have greater origination volumes and capitalization
than us.
A large number of mortgage companies also transact business through retail
offices and other traditional channels. Our competitors include other mortgage
bankers (including those noted above), state and national commercial banks,
savings and loan associations (including, for example, Dime Savings Bank of New
York, FSB and Home Federal Savings Bank), credit unions, insurance companies
and other finance companies. Many of these competitors are substantially larger
and have considerably greater financial, technical and marketing resources than
we do.
Competition in the mortgage banking industry is based on many factors,
including convenience in obtaining a loan, customer service, marketing and
distribution channels, amount and term of the loan and interest rates. We
believe that our competitive strengths include a broad product offering, a
variety of distribution channels, providing prompt, responsive service and
flexible underwriting to borrowers as well as independent mortgage brokers. Our
underwriters apply our underwriting guidelines but have the flexibility to
deviate from such guidelines when an exception or upgrade is warranted by a
particular loan applicant's situation, such as evidence of a strong mortgage
repayment history relative to a weaker overall consumer-credit repayment
history. This provides the independent mortgage brokers working with us with
the ability to offer loan programs to a diversified class of borrowers.
No single lender or group of lenders has, on a national level, achieved a
dominant or even a significant share of the market with respect to loan
originations for first mortgages. We believe that our product offerings,
competitive pricing, advanced technology and business strategies enable us to
compete effectively with these entities.
Training
We focus on recruiting, developing and motivating talented people from
within and outside the consumer finance industry to implement our business
strategies. We are committed to our human resources. To enhance their skills,
we offer and sometimes require our employees to attend training classes.
Through our training programs, we seek to instill in all of our employees our
commitment to provide superior customer service and to be responsive to
customer needs. New sales persons are required to take training classes to
provide them with knowledge of our products and to provide them with extensive
training in sales and marketing techniques, including telephone sales
techniques and customer relations. Sales persons are also provided with
periodic ongoing training to keep their skills and product knowledge up to
date.
Employees
As of March 31, 1999, we had 331 employees, substantially all of whom were
employed full-time. Of these employees, 100 were employed at our New York City
headquarters, and 231 were employed at our other offices. None of our employees
are represented by a union. We consider our relations with our employees to be
satisfactory.
50
<PAGE>
Properties
We do not own any real property, except for our mortgagee's interest in the
property that is the subject of our mortgage loans in the ordinary course of
business. The following table sets forth the location, approximate size, annual
base rent and lease expiration date of our significant offices.
<TABLE>
<CAPTION>
Annual Lease
Square Base Expiration
Location Footage Rent Date
-------- ------- -------- ----------
<S> <C> <C> <C>
New York, NY.................................. 15,436 $355,020 09/13/99
New York, NY.................................. 4,180 175,560 12/17/07
Plainview, NY................................. 6,188 136,097 08/31/00
Jericho, NY................................... 8,907 175,156 02/27/01
Norwalk, CT................................... 4,900 120,048 08/31/04
</TABLE>
Further, we lease 13 additional offices, with lease expiration dates from
1999 to 2007. With respect to the leases expiring within the next 12 months,
including the sublease of our New York City headquarters, we believe we will be
able to renew those leases or find alternative facilities on commercially
reasonable terms. We expect to lease additional offices in connection with our
planned geographic expansion.
Legal Proceedings
In the ordinary course of our business, we are at times subject to various
legal proceedings. We do not believe that any of our current legal proceedings,
individually or in the aggregate, will have a material adverse effect on our
operations or financial condition.
51
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Set forth below is certain information regarding our directors, executive
officers and key employees as of the date of this prospectus.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Michael Strauss......... 40 Chairman of the Board, President and Chief Executive Officer
Nicholas P. Rizzetta.... 52 Chief Financial Officer
Robert E. Burke......... 32 Senior Vice President, Treasurer
Leslie E. Tao........... 35 Senior Vice President, Production and Sales
Leonard Schoen, Jr...... 34 Senior Vice President, Operations
James O'Reilly.......... 45 Senior Vice President, Secondary Marketing
Ron Taylor.............. 51 Vice President, Internet Operations
Scott Lare.............. 35 Vice President, M.I.S.
</TABLE>
Michael Strauss. Mr. Strauss founded our company in 1988 and currently
serves as the Chairman of our board of directors and our President and Chief
Executive Officer. He is responsible for our strategic direction as well as
overseeing our day-to-day operations. Mr. Strauss is First Vice President and
Director of the Empire State Mortgage Bankers Association and a member of a
number of mortgage advisory councils. He has a B.S. in business administration
from Washington University in St. Louis, Missouri.
Nicholas P. Rizzetta. Mr. Rizzetta joined us in May 1999 as Chief Financial
Officer. He held a similar position at Homerica Mortgage Corporation, a
mortgage banker operating in the New York tri-state area, from 1997 to April
1999. From 1993 to 1997, Mr. Rizzetta was associated with a mortgage banking
consulting company. Before that, Mr. Rizzetta held a number of positions at
various financial institutions, including Chemical Bank and the Dime Savings
Bank. He is a Certified Public Accountant and has an M.B.A. in finance and
B.B.A. in accounting from Iona College in New Rochelle, New York.
Robert E. Burke. Mr. Burke has been Senior Vice President, Treasurer since
May 1999. From April 1997 to April 1999, he also served as Chief Financial
Officer. He was a partner with Burke & Company, an independent accounting firm,
from 1995 to 1997, and a Senior Manager at Goldstein Golub Kessler & Company,
P.C., another independent accounting firm, from 1990 to 1995. Mr. Burke is a
Certified Public Accountant and has a B.S. in accounting from Duquesne
University in Pittsburgh, Pennsylvania.
Leslie E. Tao. Ms. Tao has been Senior Vice President, Production and Sales
since 1996. She was a Vice President at Sterling Mortgage Corporation, a
mortgage broker in the New York tri-state area, from 1987 to 1996, responsible
for managing operations and sales. Ms. Tao has an M.B.A. in finance from
Hofstra University in Hempstead, New York, and a B.A. from the State University
of New York at Stony Brook, New York.
Leonard Schoen, Jr. Mr. Schoen has been with us since 1988. He has been the
Senior Vice President, Operations since 1995, overseeing all processing and
underwriting functions. Before that, he held various operations and management
positions with our company. Mr. Schoen has a B.S. in business administration
from Hofstra University.
James O'Reilly. Mr. O'Reilly joined us in April 1998 as Senior Vice
President, Secondary Marketing. He was Senior Vice President at Gateway
Funding, a Pennsylvania mortgage banker, from 1996 to March 1998, President of
Secondary Marketing Services, a consulting firm specializing in interest rate
risk management, from 1995 to 1996 and Senior Vice President at First Keystone
Mortgage, a Pennsylvania mortgage banker, from 1993 to 1995. Mr. O'Reilly also
was a Senior Bank Examiner for the Federal Home Loan Bank Board, where he was
responsible for the supervisory examinations of thrift institutions. He is a
Certified Public Accountant and has a B.S. in accounting from Saint Francis
College in Loretto, Pennsylvania.
52
<PAGE>
Ron Taylor. Mr. Taylor joined American Home Mortgage in January 1999 as Vice
President, Internet Operations. From August 1998 to January 1999, he was the
Chief Information Officer for the Consumer Direct Group at Mortgage.com, a
provider of online mortgage services, responsible for developing products and
business relationships. Mr. Taylor was the Vice President--Electronic Commerce
at Homeside Lending, a mortgage banker in Jacksonville, Florida, from 1995 to
1998 and Vice President--Mortgage Services Division at Alltel Corporation, a
mortgage service company, from 1991 to 1995. He has an M.S. in engineering from
the University of Texas in Austin, Texas and an M.B.A from Pepperdine
University in Malibu, California.
Scott Lare. Mr. Lare has been Vice President--M.I.S. since 1997. He is
responsible for all of our computer hardware, software and systems design. Mr.
Lare was the Director of Information Systems for KBS, a circuit board
manufacturing company, from 1995 to 1997. He was Technology Manager for
Certified Vacations, Inc., a vacation package wholesaler, from 1993 to 1994.
Mr. Lare has a B.A. in computer science from the State University of New York
at Oswego, New York.
Election of Directors and Executive Officers
Our board of directors consists of 5 members and is divided into 3 classes.
The board has 2 Class I directors (Messrs. and ), 2 Class
II directors (Messrs. and ), and one Class III director
(Mr. Strauss). Each director serves for a staggered 3-year term. At each annual
meeting of stockholders, a class of directors will be elected for a 3-year term
to succeed the directors of the same class whose terms are then expiring. The
terms of the Class I, Class II and Class III directors will expire upon the
election and qualification of their successors at the annual meeting of
stockholders to be held in 2000, 2001 and 2002, respectively.
Each officer serves at the discretion of the board of directors. There are
no family relationships among any of our directors and executive officers.
Board Committees
Audit Committee. As soon as practicable after the closing of this offering,
our board of directors will establish an audit committee which, among other
things, will perform the following functions:
. make recommendations to our board of directors concerning the engagement
of independent public accountants;
. monitor and review the quality and activities of our internal audit
function and those of our independent auditors; and
. monitor the adequacy of our operating and internal controls as reported
by management and the independent or internal auditors.
The initial members of the audit committee will be .
Compensation Committee. As soon as practicable after the closing of this
offering, our board of directors will establish a compensation committee which,
among other things, will perform the following functions:
. review salaries, benefits and other compensation of our officers and
other employees;
. make recommendations to our board of directors regarding salaries,
benefits and other compensation; and
. administer our employee benefit plans.
The initial members of the compensation committee will be .
53
<PAGE>
Director Compensation
Before this offering, directors received no compensation for their service
on the board of directors. Upon completion of this offering, directors who are
neither our employees nor those of our subsidiary will receive $ per board
and committee meeting attended. Directors will be reimbursed for out-of-pocket
expenses incurred in connection with their service as directors. In addition,
each non-employee director is eligible to receive restricted stock awards under
our 1999 Omnibus Stock Incentive Plan, under which non-employee directors will
receive an option to purchase shares of our common stock upon becoming a
director and annual awards of options to purchase shares of our common stock.
Directors who serve either as our officers or employees or as officers or
employees of our subsidiary will not receive any additional compensation for
their services as directors. Please see the "--Stock Option Plan" section of
this prospectus.
Compensation Committee Interlocks and Insider Participation
Before this offering, our board of directors did not have a compensation
committee and all compensation decisions were made by the full board of
directors. In the year ended December 31, 1998, the full board of directors,
which solely consisted of Mr. Strauss, determined the compensation of all
executive officers, including Mr. Strauss in his capacity as President and
Chief Executive Officer. Upon completion of this offering, the compensation
committee will make all compensation decisions. No interlocking relationship
exists between the board of directors or compensation committee and the board
of directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
Executive Compensation
Summary of Compensation. The following summary compensation table sets forth
information concerning compensation earned in the fiscal year ended December
31, 1998, by our Chief Executive Officer and our other 4 most highly
compensated executive officers (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------
Name And Principal Position Salary ($) Commissions ($)
-------------------------------------------- ---------- ---------------
<S> <C> <C>
Michael Strauss............................. 131,871(/1/) --
President and Chief Executive Officer
Leonard Schoen, Jr. ........................ 219,711(/1/) 13,931
Senior Vice President, Operations
Leslie E. Tao............................... 176,779(/1/) 505
Senior Vice President, Production and Sales
Robert E. Burke............................. 156,154(/1/) 9,010
Senior Vice President, Treasurer
Scott Lare.................................. 101,942(/1/) --
Vice President, M.I.S.
</TABLE>
--------
(/1/) Messrs. Schoen, Burke, Lare and Ms. Tao will receive base salaries in
1999 of $260,000, $160,000, $145,000 and $182,500, respectively. In
1999, Mr. Strauss will receive an annual base salary of $129,358, pro
rated for that portion of the year before the closing of this
offering, and an annual base salary of $350,000 pro rated for the
balance of the year. Mr. Rizzetta, who was hired as our Chief
Financial Officer in 1999, will receive a base salary in 1999 of
$140,000.
Stock Option Plan
In 1999, our board of directors adopted and our stockholder approved
the 1999 Omnibus Stock Incentive Plan. We have reserved an aggregate of
shares of common stock for issuance under this plan. The purpose of the Omnibus
Stock Plan is to promote our long-term growth and profitability by providing
54
<PAGE>
individuals with incentives to improve stockholder value and contribute to our
growth and financial success, and by enabling us to attract, retain and reward
the best available persons for positions of substantial responsibility.
The Omnibus Stock Plan provides for the grant of non-qualified stock
options, incentive stock options within the meaning of Section 422 of the
Internal Revenue Code, stock appreciation rights and restricted and non-
restricted stock awards, each of which may be granted separately or in tandem
with other awards. Participation in the Omnibus Stock Plan is open to all of
our employees, officers and directors. However, only our employees or those of
our subsidiary may receive incentive stock option awards.
To date, no options or other grants have been granted under the Omnibus
Stock Plan. However, options to acquire shares of common stock will be
granted upon consummation of this offering, exercisable at the initial public
offering price.
The compensation committee of the board of directors will administer the
Omnibus Stock Plan. In doing so, the compensation committee has the authority
to:
. determine the eligible persons to whom, and the time or times at which,
awards shall be granted;
. determine the types of awards to be granted;
. determine the number of shares to be covered by or used for reference
purposes for each award;
. impose terms, limitations, restrictions and conditions on any award as
deemed appropriate;
. modify, amend, extend or renew outstanding awards, or accept the
surrender of outstanding awards and substitute new awards (provided,
however, that except in specified circumstances, any modification that
would materially adversely affect any outstanding award shall not be
made without the consent of the grantee);
. accelerate or otherwise change the time in which an award may be
exercised or becomes payable and to waive or accelerate the lapse, in
whole or in part, of any restriction or condition with respect to such
award, including, without limitation, any restriction or condition with
respect to the vesting or exercisability of an award following
termination of any grantee's employment; and
. establish objectives and conditions, if any, for earning awards and
determining whether awards will be paid after the end of a performance
period.
As the plan's administrator, the compensation committee also is authorized
to make adjustments in the terms and conditions of, and the criteria included
in, awards in recognition of unusual or nonrecurring events affecting us, or
our financial statements or those of our subsidiary, or of changes in
applicable laws, regulations or accounting principles, whenever the
administrator determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Omnibus Stock Plan.
Options intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code must have an exercise price at least equal to fair
market value on the date of grant. Incentive stock options may not be
exercisable more than 10 years from the date the option is granted. If any of
our employees, or those of our subsidiary, owns or is deemed to own at the date
of grant shares of stock representing in excess of 10% of the combined voting
power of all classes of our stock, the exercise price for the incentive stock
options granted to that employee may not be less than 110% of the fair market
value of the underlying shares on that date and the option may not be
exercisable more than 5 years from the date the option is granted. The option
exercise price may be paid in cash, by tender of shares of common stock, by a
combination of cash and shares or by any other means the administrator
approves. Awards of stock appreciation rights, stock and phantom stock awards
and performance awards may be settled in cash, shares of common stock or a
combination of both, in the administrator's discretion.
55
<PAGE>
Our board of directors may terminate, amend or modify the Omnibus Stock Plan
or any portion of it at any time, except that all awards made before the
termination of the plan will remain in effect until they have been satisfied or
terminated in accordance with the terms of the plan and those awards.
Employment Arrangements
We have entered into an employment agreement with Mr. Strauss, our President
and Chief Executive Officer. The employment agreement provides for an annual
base salary of $350,000 and a discretionary bonus. The employment agreement is
effective as of July , 1999 for an initial term of 3 years and is
automatically renewable for a one-year term, provided that either party may
terminate the agreement upon 12-months prior notice. The employment agreement
generally contains confidentiality provisions and covenants not to compete
during the term of employment and for one year after termination of employment.
In the event of a merger or acquisition in which Mr. Strauss' position is
eliminated or materially altered, we must pay him up to 3 times his base
salary.
Our employment agreement with Mr. Rizzetta, Chief Financial Officer,
provides for an annual base salary of $140,000, and an annual bonus based on
quarterly financial performance. If the annual pretax income of American Home
Mortgage is between 90% and 120% of our business plan, Mr. Rizzetta is entitled
to a corresponding bonus of up to $30,000. Mr. Rizzetta also may receive an
additional bonus of up to $30,000 at the discretion of the President and Chief
Executive Officer. Mr. Rizzetta's employment agreement is terminable by either
party on 3 weeks' written notice to the other party.
Our employment agreement with Mr. Taylor, Vice President, Internet
Operations, provides for an annual base salary of $145,000, and an annual bonus
based on annual Internet loan originations and profitability. If the annual
Internet performance is between 90% and 120% of our business plan, Mr. Taylor
is entitled to a corresponding bonus of up to 25% of his base salary. Mr.
Taylor also is entitled to an additional bonus to be determined by our
President and Chief Executive Officer of at least 10% of Mr. Taylor's base
salary based on overall performance. The employment agreement is terminable by
either party on 2 weeks' written notice to the other party.
Our employment agreement with Mr. O'Reilly, Senior Vice President, Secondary
Marketing, provides for an annual base salary of $135,000, and an additional
amount equal to 10% of the improvement in our margins due to his utilizing best
execution models and other tools that enable us to receive a greater price for
our loans, which additional amount shall not be less than $15,000. In order to
carry out his duties under this agreement, Mr. O'Reilly uses software of his
own design and ownership. We have a 20-year non-exclusive licensing agreement
to use this software. The employment agreement is terminable by either party on
3 weeks' written notice to the other party.
Our employment agreement with Mr. Schoen, Senior Vice President, Operations,
prohibits him from disclosing certain confidential information regarding
American Home Mortgage during or after the term of his employment. The
agreement also restricts, for a period of one year after termination of
employment, certain employment with mortgage brokerage businesses. The
employment agreement is terminable by either party on 2 weeks' written notice
to the other party.
Our employment agreement with Mr. Burke, our Senior Vice President,
Treasurer, provides for an annual base salary of $130,000, which has been
increased to $160,000 for 1999, and is terminable by either party on 2 weeks'
written notice to the other party.
56
<PAGE>
CERTAIN TRANSACTIONS
Immediately before this offering, we will issue the S corporation
distribution note to Mr. Strauss, the founder of our subsidiary, American Home
Mortgage Corp. Had our S corporation status been terminated as of March 31,
1999, the amount of the S corporation distribution note would have been $6.5
million. We expect the amount of the S corporation distribution note to
increase as a result of additional S corporation income from April 1, 1999 to
the date of the closing of this offering. The S corporation distribution note
will bear interest at the same rate of interest as our warehouse facility and
will be repaid out of the proceeds of this offering. For a more detailed
description of the S corporation distribution note, please see the
"Transactions Related to the Offering" section of this prospectus.
In 1998, Mr. Strauss received distributions amounting to approximately $1.5
million from our subsidiary, American Home Mortgage, Inc. These distributions
enabled Mr. Strauss to pay taxes on American Home Mortgage Corp.'s earnings
that were attributable to him based on his sole ownership of the S corporation.
Pursuant to a guaranty agreement dated December 8, 1998, Mr. Strauss has
personally guaranteed the performance of all our obligations, liabilities and
indebtedness under our warehouse facility with First Union. Mr. Strauss'
liability under this guaranty is absolute and unconditional.
In 1998, we made a $52,000 interest-free loan to Great Oak Title Agency,
Inc. in connection with its start up. In March 1999, Mr. Strauss repaid the
outstanding balance on this loan. Great Oak is a title agency, 90% owned by Mr.
Strauss, that provides services to our subsidiary's customers. We did not
advance any other funds or expenses to Great Oak in 1998. In addition, during
1998, we made aggregate payments of $503,829 to Automated Information Services,
Inc. in connection with credit reporting services in the normal course of
business. Mr. Strauss holds a 15% interest in Automated Information Services,
Inc., which is a credit agency providing credit history data on borrowers.
In consideration of his employment as Senior Vice President, Secondary
Marketing, and the payment of $100, Mr. O'Reilly has granted us a 20-year non-
exclusive license to use certain interest rate risk management software
developed by Mr. O'Reilly.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of , 1999, after giving effect
to the incorporation transaction.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
-------------------------- -----------------------
Name of Beneficial Owner Number Percent Number Percent
- ------------------------ ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Michael Strauss......... 100
Leonard Schoen, Jr. .... -
Leslie E. Tao........... -
Robert E. Burke......... -
Scott Lare.............. -
</TABLE>
- --------
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and selected provisions of
our Amended and Restated Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by reference to our Amended and Restated
Certificate of Incorporation and Bylaws.
Common Stock
We are authorized to issue up to 25,000,000 shares of common stock, par
value $.01 per share, of which shares will be outstanding upon
completion of this offering. Each stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
There is no cumulative voting for election of directors. Accordingly, the
holders of a majority of the shares voted can elect all of the nominees for
director. Subject to the preferences of any series of preferred stock that may
at times be outstanding, if any, holders of outstanding shares of common stock
are entitled to receive dividends when, as, and if declared by our Board of
Directors out of funds legally available for dividends and, if we liquidate,
dissolve or wind up, are entitled to share ratably in all assets remaining
after payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of common stock have no
preemptive rights and have no rights to convert their common stock into any
other securities. All shares of common stock outstanding upon completion of
this offering are validly authorized and issued, fully paid and nonassessable.
Preferred Stock
We are authorized to issue up to 2,000,000 shares of preferred stock, par
value $1.00 per share, none of which will be outstanding upon completion of
this offering. The preferred stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by our board of
directors, without further action by our stockholders, and may include voting
rights, including the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion rights, redemption
rights and sinking fund provisions. The issuance of any preferred stock could
adversely affect the rights of the holders of common stock and, therefore,
reduce the value of the common stock. The ability of our board of directors to
issue preferred stock could discourage, delay or prevent a takeover.
Indemnification of Directors and Executive Officers and Limitation on Liability
Our Certificate of Incorporation includes provisions that eliminate the
personal liability of our directors for monetary damages resulting from
breaches of their fiduciary duty (except for liability for breaches of the duty
of loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL or for any transaction from which the director derived an improper
personal benefit). We believe that these provisions are necessary to attract
and retain qualified persons as directors and officers.
Section 145 of the DGCL permits a corporation to indemnify certain of its
officers, directors, employees and agents. Our Certificate of Incorporation
provides that we will indemnify, to the fullest extent permitted under law,
each of our directors and officers with respect to all liability and loss
suffered and expenses incurred by such person in any action, suit or proceeding
in which such person was or is made or threatened to be made a party or is
otherwise involved by reason of the fact that such person is or was one of our
directors or officers. We are also obligated to pay the expenses of the
directors and officers incurred in defending such proceedings, subject to
reimbursement if it is subsequently determined that such person is not entitled
to indemnification.
We intend to obtain a policy of insurance under which our directors and
officers will be insured, subject to the limits of the policy, against certain
losses arising from claims made against such directors and officers by reason
of any acts or omissions covered under such policy in their respective
capacities as directors or officers, including liabilities under the Securities
Act. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing
58
<PAGE>
provisions, or otherwise, we have been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Delaware Anti-Takeover Law
We are subject to Section 203 of the DGCL ("Section 203"), which, subject to
certain exceptions and limitations, prohibits a Delaware corporation from
engaging in any "business combination" with any "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
(i) prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (for the purposes of determining the
number of shares outstanding under the DGCL, those shares owned (x) by
persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer are excluded from the
calculation); or
(iii) on or subsequent to such date, the business combination is approved
by the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
For purposes of Section 203, a "business combination" includes:
(i) any merger or consolidation involving the corporation and the
interested stockholder;
(ii) any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
(iv) any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
For purposes of Section 203, an interested stockholder is defined as any entity
or person beneficially owning 15% or more of the outstanding voting stock of
the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Selected Certificate and Bylaw Provisions
Our Certificate of Incorporation provides that our board of directors will
be divided into 3 classes, with staggered 3-year terms. As a result, only one
class of directors will be elected at each annual meeting of stockholders, with
the other classes continuing for the remainder of their respective terms.
Our Certificate of Incorporation also provides that directors may be removed
from office only for cause and only by the affirmative vote of the holders of
at least a majority of our total outstanding voting stock. Vacancies on our
board of directors, including those resulting from an increase in the number of
directors, may be filled only by the remaining directors, not by stockholders.
59
<PAGE>
Any action required or permitted to be taken by our stockholders may be
effected only at an annual or special meeting of stockholders and will not be
permitted to be taken by written consent in lieu of a meeting. Our Certificate
of Incorporation and Bylaws also provide that special meetings of stockholders
may be called by the chairman of the board or a majority of our board of
directors. Stockholders will not be permitted to call a special meeting or to
require that the board of directors call a special meeting of stockholders.
There are provisions in our Certificate of Incorporation, including those
relating to the size and classification of the board of directors, the removal
of directors, the prohibition on action by written consent and the calling of
special meetings, that may only be amended by the affirmative vote of the
holders of at least a majority of our total outstanding voting stock. In
addition, our Certificate of Incorporation provides that our Bylaws may only be
amended by the affirmative vote of the holders of at least a majority of our
outstanding voting stock or by a vote of a majority of the members of the board
of directors in office.
Our Certificate of Incorporation and Bylaws contain an advance notice
procedure for nominations, other than by or at the direction of the board of
directors, of candidates for election as directors, as well as for other
stockholder proposals to be considered at annual meetings of stockholders. In
general, notice of intent to nominate a director or raise business at such
meeting must be received by us not less than 60 nor more than 90 days prior to
the scheduled annual meeting and must contain certain specified information
concerning the person to be nominated or the matter to be brought before the
meeting.
The preceding provisions could have the effect of discouraging, delaying or
making more difficult certain attempts to acquire us or to remove incumbent
directors even if a majority of our stockholders believe the attempt to be in
their or our best interests.
Options
No options are currently outstanding. Options to purchase a total of
shares of common stock under the Omnibus Stock Plan will be issued effective
upon the closing of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Once this offering is complete, we will have a total of shares of
common stock outstanding, assuming no exercise of the underwriters'
overallotment option and no exercise of the outstanding options or warrants to
purchase shares of common stock. Of these shares of common stock, the
shares from the offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by an
"affiliate," as that term is defined in Rule 144 of the Act, may generally be
sold only in compliance with the limitations of Rule 144 described below.
Rule 144
The shares of common stock held by Mr. Strauss, our President and
Chief Executive Officer, are "restricted securities" as defined in Rule 144 of
the Securities Act. Restricted securities may be sold in the public market only
if they are registered or if they qualify for an exemption from registration
under the Securities Act. Subject to the lockup agreement described below,
these shares of common stock will be available for sale in the public
market 90 days after the date of this prospectus. Under Rule 144, in any 3-
month period beginning 90 days after the date of this prospectus, Mr. Strauss
may sell a number of shares of common stock not to exceed the greater of:
. 1% of the then outstanding shares of common stock (about shares
immediately after the offering); or
. the average weekly trading volume in the common stock during the 4
calendar weeks before the person files notice of the Rule 144 sale,
subject to various restrictions.
Lock-Up Agreements
We and Mr. Strauss, our President, Chief Executive Officer and sole existing
stockholder, have agreed not to offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of
directly or indirectly, any shares of our common stock, or any securities
convertible into or exercisable or exchangeable for any of our common stock or
any right to acquire our common stock, for a period of 180 days from the
effective date of this prospectus in our case, and for a period of 540 days
from the effective date in Mr. Strauss' case. Friedman, Billings, Ramsey & Co.,
Inc. at any time and without notice, may release all or any portion of common
stock subject to the foregoing lock-up agreements.
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
between us and Friedman, Billings, Ramsey & Co., Inc. and Advest, Inc. as
representatives of the several underwriters, we have agreed to sell to each of
the underwriters named below, and each of the underwriters has severally agreed
to purchase, the number of shares of common stock set forth opposite their
names below.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc............................
Advest, Inc......................................................
---
Total..........................................................
===
</TABLE>
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to purchase all the common stock offered by this
prospectus if any is purchased. We have agreed to indemnify the underwriters
against certain civil liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of such
liabilities.
The underwriters initially propose to offer the common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus, and to certain dealers at such offering price less a concession not
to exceed $ per share. The underwriters may allow, and such dealers may
reallow, a concession not to exceed $ per share to certain other dealers.
After the common stock is released for sale to the public, the underwriters may
change the offering price and other selling terms.
We have granted the underwriters an option exercisable during the 30-day
period after the date of this prospectus to purchase, at the initial offering
price less underwriting discounts and commissions, up to an additional
shares of common stock for the sole purpose of covering over-allotments, if
any. To the extent that the underwriters exercise the option, each underwriter
will be committed, subject to certain conditions, to purchase that number of
additional shares of common stock that is proportionate to such underwriter's
initial commitment.
As described in the underwriting agreement, we have agreed to reimburse the
underwriters for certain out-of-pocket expenses up to $425,000. The following
table summarizes the compensation and estimated expenses we will pay:
<TABLE>
<CAPTION>
Total
------------------------
Without Over- With Over-
Per Share Allotment Allotment
--------- ------------- ----------
<S> <C> <C> <C>
Underwriting discounts and
commissions.........................
Expenses.............................
</TABLE>
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering
creating a syndicate short position. In addition, the underwriters may bid for
and purchase common stock in the open market to cover syndicate short positions
or to stabilize the price of the common stock. Finally, the underwriting
syndicate may reclaim selling concessions from syndicate members if the
syndicate repurchases previously distributed common stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
The underwriters have informed us that they do not intend to confirm sales
of the common stock offered by this prospectus to any accounts over which they
exercise discretionary authority.
62
<PAGE>
The underwriters have reserved up to shares of common stock for sale
to our directors, officers and employees at the public offering price. The
number of shares available for sale to the general public will be reduced to
the extent such persons purchase such reserved shares. Any reserved shares not
so purchased will be offered by the underwriters to the general public at the
public offering price on the same basis as the other shares offered hereby.
We and Mr. Strauss, our President, Chief Executive Officer and sole existing
stockholder, have agreed not to offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of
directly or indirectly, any shares of our common stock, or any securities
convertible into or exercisable or exchangeable for any of our common stock or
any right to acquire our common stock, for a period of 180 days from the
effective date of this prospectus in our case, and for a period of 540 days
from the effective date in Mr. Strauss' case. Friedman, Billings, Ramsey & Co.,
Inc. at any time and without notice, may release all or any portion of common
stock subject to the foregoing lock-up agreements.
We have agreed to sell to Friedman, Billings, Ramsey & Co., Inc. or its
designees, for nominal consideration, warrants to purchase an aggregate of
shares of our common stock (the FBR Warrants). The shares of common
stock subject to the FBR Warrants will be in all respects identical to the
shares of common stock offered to the public by this prospectus. The FBR
Warrants will be exercisable for a period of 4 years, which period commences
one year after the closing date of this offering at a per share exercise price
equal to 110% of the initial public offering price. Neither the FBR Warrants
nor the underlying shares of common stock may be transferred, assigned or
hypothecated for a period of one year from the closing of the offering, except
to the extent permitted by applicable rules of the NASD. We are also
registering in this offering the shares of common stock issuable upon exercise
of the FBR Warrants. The FBR Warrants will contain anti-dilution provisions
providing for appropriate adjustment of the exercise price and number of shares
of common stock that may be purchased upon the occurrence of certain events.
The FBR Warrants may be exercised by paying the exercise price in cash, through
the surrender of shares of common stock, through a reduction in the number of
shares covered by such Warrants, or by using a combination of these methods.
We have agreed that, for a period of at least two years from the date of
this prospectus, FBR will have the right to require us to use our best efforts
to elect a mutually acceptable designee to our board of directors for at least
such 2-year period. We have agreed to elect as a member of our board
of directors upon completion of this offering.
There is no established trading market for the shares. The offering price
for the shares will be determined by negotiation between us and the
representatives. The principal factors we will consider in determining the
public offering price include:
. prevailing market and general economic conditions;
. the market capitalizations, trading histories and stages of development
of other traded companies that we and the representatives believe to be
comparable to us;
. our results of operations in recent periods;
. our current financial position;
. estimates of our business potential;
. an assessment of our management;
. the present state of our development; and
. the availability for sale in the market of a significant number of
shares of common stock.
63
<PAGE>
We cannot assure you that an active trading market will develop for the
common stock or that the common stock will trade in the market subsequent to
the offering at or above the initial public offering price.
We have applied to list the shares of common stock on The Nasdaq National
Market under the symbol "AHMH".
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed on for us by Cadwalader, Wickersham & Taft. Certain legal
matters will be passed on for the underwriters by Gibson, Dunn & Crutcher LLP.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1997 and
for each of the 3 years in the period ended December 31, 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and have been so included in reliance
on the report of such firm given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act relating to the shares of our
common stock being offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and the
exhibits. For further information about us and the common stock offered, see
the registration statement and the exhibits thereto. Statements contained in
this prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance
where a copy of a contract or other document has been filed as an exhibit to
the registration statement, reference is made to the copy so filed, each of
those statements being qualified in all respects by that reference.
A copy of the registration statement and the exhibits may be inspected
without charge at the Commission's offices at Judiciary Plaza, 450 Fifth
Street, Washington, D.C. 20549, and copies of all or any part of the
registration statement may be obtained from the Public Reference Room of the
Commission, Washington, D.C. 20549 upon the payment of the fees prescribed by
the Commission. The public may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file periodic reports, proxy statements and other information with the
Commission. Upon approval of the common stock for quotation on the Nasdaq
National Market, our reports, proxy and information statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006. We intend to furnish our stockholders
with annual reports containing audited financial statements and with quarterly
reports for the first three quarters of each year containing unaudited interim
financial information.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998 and the three months ended March 31,
1999 (unaudited)....................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The accompanying financial statements give effect to the consummation of the
capitalization of American Home Mortgage Holdings, Inc. and the contribution of
the sole ownership interest of Michael Strauss in American Home Mortgage Corp.
in exchange for common stock ownership in American Home Mortgage Holdings, Inc.
that is expected to take place prior to the commencement of the proposed
offering of securities. The following report is in the form that will be
furnished by Deloitte & Touche LLP upon the consummation of the pending public
offering of common stock described in Note 14 to the financial statements
assuming that from March 25, 1999 to the effective date of such event no other
material events have occurred that would affect the accompanying financial
statements or require disclosure therein.
"To the Board of Directors and Stockholders of
American Home Mortgage Holdings, Inc.
We have audited the accompanying consolidated balance sheets of American
Home Mortgage Holdings, Inc. and its subsidiary (the "Company") as of
December 31, 1998 and 1997 and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of American Home Mortgage
Holdings, Inc. and its subsidiary at December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Parsippany, New Jersey
March 25, 1999
( , 1999 as to Note 14)"
Deloitte & Touche LLP
Parsippany, New Jersey
July 6, 1999
F-2
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
----------------------- -----------
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................. $ 2,057,619 $ 2,891,513 $ 2,694,625
Loans held for sale, net................... 24,675,753 34,666,863 28,525,979
Loans held for investment.................. 78,817 88,900 100,228
Accounts receivable........................ 982,863 2,892,807 2,658,021
Mortgage servicing rights, net............. 26,306 39,887 40,087
Real estate owned.......................... 186,000 -- --
Premises and equipment, net................ 690,236 1,575,154 1,776,738
Prepaid expenses and security deposits..... 216,424 236,810 291,426
----------- ----------- -----------
Total assets........................... $28,914,018 $42,391,934 $36,087,104
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Warehouse lines of credit................ $24,453,671 $34,069,526 $27,280,292
Accrued expenses and other............... 1,886,801 2,297,542 2,201,976
----------- ----------- -----------
Total liabilities...................... 26,340,472 36,367,068 29,482,268
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST.......................... -- 100,760 65,195
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 per share,
2,000,000 shares authorized, none issued
and outstanding.........................
Common stock, .01 per share par value,
25,000,000 shares authorized, issued
and outstanding......................... 317,600 317,600 317,600
Retained earnings........................ 2,255,946 5,606,506 6,222,041
----------- ----------- -----------
Total stockholders' equity............. 2,573,546 5,924,106 6,539,641
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $28,914,018 $42,391,934 $36,087,104
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
---------------------------------- -----------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(unaudited)
REVENUES:
<CAPTION>
Gain on sale of mortgage
loans.................. $6,360,692 $10,596,604 $18,980,534 $ 3,589,328 $ 5,190,518
Interest income, net.... 203,736 368,808 734,179 96,886 223,470
Other................... 21,053 356,018 502,223 18,870 244,065
---------- ----------- ----------- -------------- -------------
Total revenues........ 6,585,481 11,321,430 20,216,936 3,705,084 5,658,053
---------- ----------- ----------- -------------- -------------
EXPENSES:
Salaries, commissions
and benefits, net...... 2,700,541 5,186,373 9,301,023 2,089,411 3,090,648
Officer's salary........ 757,925 129,359 129,359 32,340 32,340
Marketing and
promotion.............. 814,180 962,475 1,236,461 292,464 429,187
Occupancy and
equipment.............. 501,168 909,216 1,653,709 245,897 474,804
Data processing and
communications......... 336,813 611,699 951,508 194,705 268,821
Provision for loss...... -- 116,837 152,955 -- 27,967
Other................... 830,484 946,270 1,542,998 347,063 577,163
---------- ----------- ----------- -------------- -------------
Total expenses........ 5,941,111 8,862,229 14,968,013 3,201,880 4,900,930
---------- ----------- ----------- -------------- -------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST.... 644,370 2,459,201 5,248,923 503,204 757,123
STATE INCOME TAXES........ 38,334 139,887 328,209 27,253 37,153
---------- ----------- ----------- -------------- -------------
INCOME BEFORE MINORITY
INTEREST................. 606,036 2,319,314 4,920,714 475,951 719,970
MINORITY INTEREST IN
INCOME OF CONSOLIDATED
JOINT VENTURE............ -- -- 50,759 -- 13,089
---------- ----------- ----------- -------------- -------------
NET INCOME................ $ 606,036 $ 2,319,314 $ 4,869,955 $ 475,951 $ 706,881
========== =========== =========== ============== =============
Unaudited pro forma
information:
Provision for pro forma
income taxes........... 245,000 942,000 1,982,000 194,000 296,000
---------- ----------- ----------- -------------- -------------
Pro forma earnings...... $ 361,036 $ 1,377,314 $ 2,887,955 $ 281,951 $ 410,881
========== =========== =========== ============== =============
Pro forma earnings per
share of common stock.. $ $
=========== =============
Pro forma weighted
average number of
shares outstanding.....
=========== =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Common Retained Total
Stock Earnings Equity
-------- ---------- ----------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996....................... $317,600 $ 402,814 $ 720,414
Net income................................... -- 606,036 606,036
-------- ---------- ----------
BALANCE, DECEMBER 31, 1996..................... 317,600 1,008,850 1,326,450
Net income................................... -- 2,319,314 2,319,314
Distributions................................ -- (1,072,218) (1,072,218)
-------- ---------- ----------
BALANCE, DECEMBER 31, 1997..................... 317,600 2,255,946 2,573,546
Net income................................... 4,869,955 4,869,955
Distributions................................ -- (1,519,395) (1,519,395)
-------- ---------- ----------
BALANCE, DECEMBER 31, 1998..................... 317,600 5,606,506 5,924,106
Net income (unaudited)....................... 706,881 706,881
Distributions (unaudited).................... (91,346) (91,346)
-------- ---------- ----------
BALANCE, MARCH 31, 1999 (unaudited)............ $317,600 $6,222,041 $6,539,641
======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
--------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............ $ 606,036 $ 2,319,314 $ 4,869,955 $ 475,951 $ 706,881
Adjustments to
reconcile net income
to net cash (used in)
provided by operating
activities:
Gain on mortgage-
related
securities......... -- -- (76,088) -- --
Depreciation and
amortization....... 61,732 126,965 284,304 30,735 79,943
Provision for loss.. -- 116,837 152,955 -- 27,967
Origination of
mortgage loans..... (490,822,316) (714,612,136) (1,141,240,923) (219,978,819) (278,740,292)
Proceeds on sale of
mortgage loans..... 490,713,588 698,872,291 1,131,144,305 206,444,086 284,853,209
Proceeds on sale of
equity securities,
trading............ -- -- 176,088 -- --
Purchases of equity
securities,
trading............ -- -- (100,000) (100,000) --
(Increase) decrease
in:
Accounts
receivable........ (424,226) (393,329) (1,909,944) (565,406) 234,786
Mortgage servicing
rights............ 23,119 (16,970) (13,581) -- (200)
Prepaid expenses
and security
deposits.......... (41,484) (117,451) (20,385) (19,297) (54,616)
Increase (decrease)
in accrued expenses
and other
liabilities........ 361,928 1,016,562 413,293 121,588 (95,566)
------------- ------------- --------------- -------------- --------------
Net cash provided
by (used in)
operating
activities....... 478,377 (12,687,917) (6,320,021) (13,591,162) 7,012,112
------------- ------------- --------------- -------------- --------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Sale/(purchase) of
real estate owned,
net................. -- (186,000) 186,000 186,000 --
Net sale/(purchases)
of loans held for
investment.......... -- (78,817) (10,083) 40,094 (11,328)
Investment and equity
in joint venture.... -- -- (50,000) -- --
Net purchases of
premises and
equipment........... (285,200) (520,829) (1,169,222) (422,995) (281,527)
Increase/(decrease)
in minority
interest............ -- -- 100,760 -- (35,565)
------------- ------------- --------------- -------------- --------------
Net cash used in
investing
activities....... (285,200) (785,646) (942,545) (196,901) (328,420)
------------- ------------- --------------- -------------- --------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase/(decrease)
in warehouse lines
of credit........... 49,537 15,377,843 9,615,855 13,045,236 (6,789,234)
Capital
distribution........ -- (1,072,218) (1,519,395) (300,846) (91,346)
------------- ------------- --------------- -------------- --------------
Net cash provided
by (used in)
financing
activities....... 49,537 14,305,625 8,096,460 12,744,390 (6,880,580)
------------- ------------- --------------- -------------- --------------
NET INCREASE/(DECREASE)
IN CASH............... 242,714 832,062 833,894 (1,043,673) (196,888)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR............... 982,843 1,225,557 2,057,619 2,057,619 2,891,513
------------- ------------- --------------- -------------- --------------
CASH AND CASH
EQUIVALENTS, END OF
YEAR.................. $ 1,225,557 $ 2,057,619 $ 2,891,513 $ 1,013,946 $ 2,694,625
============= ============= =============== ============== ==============
SUPPLEMENTAL
DISCLOSURE--CASH PAID
FOR:
Interest............. $ 422,732 $ 905,333 $ 1,674,266 $ 168,052 $ 570,101
Taxes................ 10,504 66,556 180,299 84,390 301,825
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ownership
American Home Mortgage Holdings, Inc. is a holding company whose principal
asset is its investment in its wholly-owned subsidiary, American Home Mortgage
Corp. (American Home Mortgage) (collectively referred to herein as the
Company). American Home Mortgage is a residential mortgage lender headquartered
in New York City with operations in New York, Connecticut, New Jersey, Florida,
Pennsylvania and Maine. The Company is 100% owned by its President, Michael
Strauss. On April 23, 1998, the Company entered into a joint venture with a
realtor in which the Company owns a 50% interest and the realtor owns the
remaining 50%. The Company purchases many of the loans originated by this joint
venture.
Consolidation
Because the Company exercises significant influence on the operations of the
joint venture, its balances and operations have been fully consolidated in the
accompanying consolidated financial statements and all material intercompany
accounts and transactions have been eliminated.
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
The Company's estimates and assumptions primarily arise from risks and
uncertainties associated with interest rate volatility, credit exposure and
regulatory changes. Although management is not currently aware of any factors
that would significantly change its estimates and assumptions in the near term,
future changes in market trends and conditions may occur which could cause
actual results to differ materially.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, restricted cash, amounts due
from banks, and overnight deposits.
Mortgage Loans Held for Sale
Mortgage loans held for sale represent mortgage loans originated and held
pending sale to interim and permanent investors. The mortgages are carried at
the lower of cost or market as determined by outstanding commitments from
investors or current investor yield requirements calculated on the aggregate
loan basis. The Company separately evaluates for impairment the estimated fair
value of its commitments to lend. If impairment exists, the Company records a
charge to earnings in the current period. The Company generally sells whole
loans without servicing retained. Gains or losses on such sales are generally
recognized at the time the title transfers to the investor based upon the
difference between the sales proceeds from the final investor and the basis of
the loan sold, adjusted for net deferred loan fees and certain direct costs,
selling costs and any other adjustments.
Mortgage Loans Held for Investment
Periodically, the Company originates or repurchases loans which are unable
to be sold through normal investor channels. These loans are classified as held
for investment and carried at amortized cost, which represents the lower of
cost or market value at the time the loans are transferred or repurchased. The
Company has the intent and ability to hold these loans for the foreseeable
future.
F-7
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for Foreclosure and Loan Losses
An allowance for losses is provided based on management's periodic
evaluation of its loss exposures and is expected to be adequate to absorb
currently anticipated losses. The pertinent factors in determining the
allowance include the underlying quality of the loans, actual loss experience,
current economic conditions, detailed analysis of individual loans for which
full collectibility may not be assured, and determination of the existence and
realizable value of the collateral and any guarantees securing such loans.
Mortgage Servicing Rights
The Company generally sells whole loans without servicing retained. Mortgage
servicing rights represent servicing retained on loans sold to one of the
Company's permanent investors who requires the Company to continue to service
the loans as a condition of sale. The Company does not have in-house servicing
capability and has a sub-servicing contract with a third party. The Company
capitalizes the cost of these mortgage servicing rights by allocating the
original cost basis in the loans based upon the relative fair value of the
underlying mortgage loans and mortgage servicing rights at the time the
servicing rights are contractually separated from the underlying loans. The
Company records amortization expense over the period of the projected net
servicing income. Impairment is recorded as a direct reduction of the asset
balance and a charge to amortization expense in the period it is determined.
Derivative Financial Instruments
The Company obtains and holds derivative financial instruments to manage
price and interest rate risk related to its mortgage loans held for sale and
commitments to fund mortgages. No derivatives are held for trading purposes.
Fair value amounts were determined based upon available market information.
Realized and unrealized gains and losses associated with these instruments are
included in the Company's lower of cost or market evaluation and the
determination of gain or loss on sale of mortgage loans. The Company is not
required to satisfy margin or collateral requirements for any of these
financial instruments.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation is provided in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives using the straight-line method. Leasehold improvements
are amortized over the lesser of the life of the lease or service lives of the
improvements using the straight-line method. Depreciation and amortization are
recorded within occupancy and equipment expense within the financial
statements.
Income Taxes
Through , 1999, American Home Mortgage elected for both federal and
state income tax purposes to be treated as an S corporation (effective April 1,
1988). As an S corporation, the net
earnings of American Home Mortgage were generally taxed directly to the
stockholder rather than American Home Mortgage.
On , 1999, the Company became a C corporation. All income earned from
that date is subject to corporate tax at statutory rates for both federal and
state income tax purposes. The Company accounts for income taxes from that date
in conformity with SFAS No. 109, "Accounting for Income Taxes', which requires
an asset and liability approach for accounting and reporting of income taxes.
F-8
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loan Origination Fees
Loan fees, discount points and certain direct origination costs are recorded
as an adjustment of the cost of the loan and are included in gain on sales of
loans when the loan is sold. Accordingly, salaries, compensation
and benefits have been reduced by approximately $2,636,000, $4,242,000 and
$6,788,000 in direct loan origination costs including commission costs incurred
for the years ended December 31, 1996, 1997 and 1998, respectively.
Salaries, compensation and benefits have been reduced by approximately
$1,307,000 and $1,629,000 for the three month periods ended March 31, 1998 and
1999.
Interest Recognition
Interest income is accrued as earned. Loans are placed on a non-accrual
status when any portion of the 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 on outstanding lines of credit at a rate based on a spread to the Fed
Funds rate.
Marketing and Promotion
The Company charges the costs of marketing and promotion to expense in the
period incurred.
Net Worth Requirements
American Home Mortgage is required to maintain certain specified levels of
minimum net worth in order to maintain its approved seller/servicer status for
Fannie Mae and HUD. At December 31, 1997 and 1998 and March 31, 1999 American
Home Mortgage was in compliance with its minimum net worth requirements.
2. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Mortgage loans held for sale....... $24,684,913 $34,307,323 $28,186,643
Deferred origination costs (fees),
net............................... (9,160) 359,540 339,336
----------- ----------- -----------
Mortgage loans held for sale, net.. $24,675,753 $34,666,863 $28,525,979
=========== =========== ===========
</TABLE>
F-9
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------- March 31,
1997 1998 1999
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Investor receivables...................... $821,514 $1,977,950 $2,363,462
Due from settlement agent................. -- 750,000 49,981
Mortgage payments receivable.............. 150,291 83,338 90,000
Due from related party.................... -- 52,429 --
Accrued interest receivable............... -- 26,588 --
Other..................................... 11,058 2,502 124,578
-------- ---------- ----------
Accounts receivable....................... $982,863 $2,892,807 $2,658,021
======== ========== ==========
</TABLE>
4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------- ----------
1997 1998 1999
--------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Furniture and fixtures.......... $ 285,939 $ 659,612 $ 706,678
Office equipment................ 692,247 1,420,390 1,654,851
Leasehold improvements.......... 57,165 122,241 122,241
--------- ---------- ----------
Subtotal...................... 1,035,351 2,202,243 2,483,770
Less: Accumulated depreciation
and amortization............... (345,115) (627,089) (707,032)
--------- ---------- ----------
Property, equipment and
leasehold improvements, net.... $ 690,236 $1,575,154 $1,776,738
========= ========== ==========
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1996,
1997 and 1998 was $60,248, $124,865, and $281,974 respectively and $30,000 and
$79,943 for the three months ended March 31, 1998 and 1999.
F-10
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
5. WAREHOUSE FACILITIES
Warehouse lines of credit consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 March 31, 1999
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Outstanding Average Outstanding Average Outstanding Average
Balance Rate Balance Rate Balance Rate
----------- -------- ----------- -------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
First Union............. $ -- $26,380,841 7.027% $26,201,490 6.631%
PNC..................... 24,453,671 7.550% 7,688,685 6.184% 1,078,802 6.310%
----------- ----------- -----------
Warehouse facilities.... $24,453,671 7.550% $34,069,526 6.837% $27,280,292 6.619%
=========== =========== ===========
</TABLE>
First Union extended a $40,000,000 line of credit to American Home Mortgage
on December 17, 1998. The interest rate on outstanding balances fluctuates
daily based on a spread to the Fed Funds rate and is paid monthly. This line
continues until terminated or modified by either party.
Upon extension of the line of credit by First Union, the PNC line of credit
was terminated and borrowings outstanding will be repaid upon sale of loans to
investors. Specific loans held for sale are collateral to this line of credit.
The interest rate on outstanding balances fluctuates daily based on a spread to
the Fed Funds rate and is paid monthly. This line terminates upon repayment of
the remaining outstanding borrowings.
The lines of credit are secured by mortgage loans and all other assets of
American Home Mortgage, and are guaranteed by the stockholder. The lines
contain various covenants pertaining to maintenance of net worth and working
capital. At December 31, 1997 and 1998, and March 31, 1999, American Home
Mortgage was in compliance with its loan covenants.
6. INCOME TAXES
As discussed in Note 1, the Company was an S corporation through , 1999
pursuant to the Internal Revenue Code of 1986, as amended and New York State
law, and as such did not incur any federal or New York State income tax
expense. The Company was liable for New York City income tax and other states
minimum taxes. This provision is included above under current state and local
provision.
On , 1999 the Company became a C corporation for federal and state
income tax purposes and as such is subject to federal and state income tax on
its taxable income. In connection with the change in tax status from an S
corporation to a C corporation, the Company incurred deferred income tax
expense of as of , 1999.
The liability for income taxes at , 1999 reflected on the consolidated
balance sheet includes a deferred tax liability of . This represents the
tax effect of temporary differences and differences between the tax basis and
financial statement carrying amounts of assets and liabilities. The major
sources of temporary differences and their deferred tax effect at , 1999
are as follows:
Deferred tax liabilities:
<TABLE>
<S> <C>
Capitalized cost of future servicing income...........................
Capitalized loan origination expenses.................................
Mark to market adjustments............................................
---
Total deferred tax liabilities......................................
===
</TABLE>
F-11
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
6. INCOME TAXES (continued)
A reconciliation of the statutory income tax provision to the effective
income tax provision, as applied to income for the period , 1999 to ,
1999, is as follows:
<TABLE>
<S> <C>
Tax at statutory rate.................................................
Change in tax status..................................................
State and local taxes.................................................
S corporation state and local tax.....................................
Non-deductible expenses and other.....................................
---
Total provision.....................................................
===
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Loans Sold to Investors
Generally, the Company is not exposed to significant credit risk on its
loans sold to investors. In the normal course of business the Company is
obligated to repurchase loans which are subsequently unable to be sold through
normal investor channels. Management believes this is a rare occurrence and
that the Company can usually sell the loans directly to a permanent investor.
Loan Funding Commitments
At December 31, 1997 and 1998, the Company had commitments to fund loans
approximating $163 million and $333 million, respectively. At December 31, 1997
and 1998, the Company had commitments to fund loans with agreed upon rates
approximating $54 million and $168 million, respectively. The Company hedges
the interest rate risk of such commitments primarily with mandatory delivery
commitments, which totaled $43 million at December 31, 1998. The remaining
commitments to fund loans with agreed-upon rates are anticipated to be sold
through "best-efforts" and investor programs. The Company does not anticipate
any material losses from such sales.
At March 31, 1999, the Company had commitments to fund loans approximating
$341 million.
Outstanding Litigation
The Company is involved in litigation arising in the normal course of
business. Although the amount of any ultimate liability arising from these
matters cannot presently be determined, the Company does not anticipate that
any such liability will have a material effect on the Company's consolidated
financial position or results of operations.
8. OPERATING LEASES
Certain facilities and equipment are leased under short-term lease
agreements expiring at various dates through December 31, 2007. All such leases
are accounted for as operating leases. Total rental expense for premises and
equipment, which is included in occupancy and equipment expense within the
financial statements amounted to $426,537, $728,645 and $1,253,362 for the
years ended December 31, 1996, 1997 and 1998, respectively. Total rental
expense for premises and equipment amounted to $160,982 and $289,005 for the
three months ended March 31, 1998 and 1999.
F-12
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
8. OPERATING LEASES (continued)
Obligations under non-cancelable operating leases which have an initial term
of more than a year are as follows:
<TABLE>
<CAPTION>
As of
December 31, March 31,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
1999................................................... $1,159,441 $1,437,923
2000................................................... 772,221 1,042,123
2001................................................... 456,174 726,076
2002................................................... 361,686 603,816
2003................................................... 194,020 352,130
Thereafter............................................. 752,680 806,478
---------- ----------
$3,696,222 $4,968,546
========== ==========
</TABLE>
9. OTHER RELATED PARTY TRANSACTIONS
The majority stockholder of the Company is a minority stockholder in another
company that provides credit reports in the normal course of business. Payments
to this company for the years ended December 31, 1996, 1997 and 1998 amounted
to approximately $130,000, $280,000 and $504,000, respectively. Additionally,
total amounts due to this related party as of December 31, 1997 and 1998 were
$10,400 and $25,379, respectively.
Payments approximating $118,000 and $71,000 for the three months ended March
31, 1999 and 1998 were made to this related company. Amounts outstanding to
this party as of March 31, 1999 was $1,932.
The majority stockholder of the Company is a majority stockholder in another
company that provides title services in the normal course of business. It is
the borrower's option to use this company for title services. The total amount
due from this related party was $0, $52,429 and $0 as of December 31, 1997 and
1998 and March 31, 1999, respectively.
10. CONCENTRATIONS OF CREDIT RISK
The Company originates loans predominately in northeastern states. Loan
concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers with similar characteristics, which would cause
their ability to meet contractual obligations to be similarly impacted by
economic or other conditions. In management's opinion at December 31, 1998
there were no significant concentrations of credit risk within loans held for
sale.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made as of a specific point in time based on
estimates using present value or other valuation techniques. These techniques
involve uncertainties and are significantly affected by the assumptions used
and the judgments made regarding risk characteristics of various financial
instruments, discount rates, estimates of future cash flows, future expected
loss experience, and other factors.
Changes in assumptions could significantly affect these estimates and the
resulting fair values. Derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
an immediate sale of the instrument. Also, because of differences in
methodologies and assumptions used to estimate fair values, the Company's fair
values should not be compared to those of other companies. All forward delivery
commitments and option contracts to buy securities are to be contractually
settled within six months of the balance sheet date.
F-13
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
Certain assets and liabilities, as a matter of accounting policy, are
reflected in the accompanying consolidated financial statements at fair value
due to their short-term nature, terms of repayment or interest rate associated
with the asset or liability. Such assets or liabilities include cash, accounts
receivable, loans held for investment, accrued expenses and other liabilities,
and warehouse lines of credit.
The following describes the methods and assumptions used by the Company in
estimating fair values of other financial instruments:
Mortgage Loans Held for Sale--Fair value is estimated using the quoted
market prices for securities backed by similar types of loans and current
investor or dealer commitments to purchase loans.
Mortgage Servicing Rights--Fair value is estimated by discounting the
anticipated net future cash flows associated with servicing the underlying
loans using discount rates that approximate market rates, expected
subservicing costs and externally published prepayment rates.
Commitments to Fund with Agreed Upon Rates--The fair value of
commitments to fund with agreed upon rates are estimated using the fees and
rates currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. These commitment obligations are considered
in conjunction with the Company's lower of cost or market valuation of its
mortgage loans held for sale.
Commitments to Deliver Mortgages and Option Contracts to Buy
Securities--The fair value of these instruments are estimated using current
market prices for dealer or investor commitments relative to the Company's
existing positions. These instruments contain an element of risk in the
event that the counterparties may be unable to meet the terms of such
agreements. In the event a counterparty to a delivery commitment was unable
to fulfill its obligation, the Company would not incur any material loss by
replacing the position at market rates in effect at December 31, 1998. The
Company minimizes its risk exposure by limiting the counterparties to those
major banks, investment bankers and private investors who meet established
credit and capital guidelines. Management does not expect any counterparty
to default on their obligations and, therefore, does not expect to incur
any loss due to counterparty default. These commitments and option
contracts are considered in conjunction with the Company's lower of cost or
market valuation of its mortgage loans held for sale.
No amounts were outstanding for loans held for sale related positions as
of December 31, 1997. Management believes that the fair value amounts for
loans held for sale and mortgage servicing rights approximated the carrying
amounts as of December 31, 1997.
F-14
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The following tables set forth information about financial instruments and
other selected assets, except for those noted above for which the carrying
value approximates fair value.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
Estimated
Notional Carrying Fair
Amount Amount Value
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Loans held for sale....................... $ -- $34,666,863 $35,557,116
Mortgage servicing rights................. -- 39,887 39,887
Commitments and Contingencies:
Loans held for sale related positions:
Commitments to fund mortgages at agreed-
upon rates............................. 58,568,276 -- 1,137,689
Forward delivery commitments............ 79,841,139 -- (215,571)
Option contracts to buy securities...... 4,000,000 -- (15,320)
<CAPTION>
March 31, 1999
-----------------------------------
(unaudited)
Estimated
Notional Carrying Fair
Amount Amount Value
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Loans held for sale....................... $ -- $28,525,979 $29,326,369
Mortgage servicing rights................. -- 40,087 40,087
Commitments and Contingencies:
Loans held for sale related positions:
Commitments to fund mortgages at agreed-
upon rates............................. 63,317,000 -- 1,279,118
Forward delivery commitments............ 80,439,000 -- (154,820)
Option contracts to buy securities...... 7,000,000 -- 14,145
</TABLE>
12. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
SFAS 133 requires that all derivative instruments be recognized as either
assets or liabilities at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge of fair value of a
recognized asset, liability or firm commitment, a hedge of cash flows of a
forecasted transaction or a hedge of foreign currency exposure. The statement's
implementation has been delayed to be effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company will adopt this
statement effective January 1, 2001. The Company has not yet determined the
impact SFAS No. 133 will have on its financial position or results of
operations when such statement is adopted.
In October 1998, the Financial Accounting Standards Board issued SFAS No.
134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise, an amendment to FASB SFAS No. 65, Accounting for Certain Mortgage
Banking Activities. SFAS No. 134 is effective for the first fiscal quarter
beginning after December 15, 1998. Management believes that the adoption of
SFAS No. 134 will not have a material impact on the Company or its results of
operations.
F-15
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
13. CONDENSED FINANCIAL INFORMATION OF AMERICAN HOME MORTGAGE HOLDINGS, INC.
The following provides condensed financial information for the financial
position, results of operations and cash flows of American Home Mortgage
Holdings, Inc. (parent company only):
Condensed Balance Sheet
, 1999
<TABLE>
<S> <C>
ASSETS:
Cash.................................................................... $
Equity in American Home Mortgage Corp. .................................
Other...................................................................
Total Assets........................................................
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES............................................................. $
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,000,000 shares authorized, no
shares issued and outstanding........................................
Common stock, $0.01 par value, 25,000,000 shares authorized,
shares issued and outstanding........................................
Additional paid-in-capital............................................
Retained earnings.....................................................
Total stockholders' equity..........................................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $
Condensed Statement of Income
For the period (date of inception) to , 1999
REVENUES:
Interest income.......................................................
Equity in earnings of American Home Mortgage Corp. ...................
Total revenues......................................................
EXPENSES:
INCOME BEFORE INCOME TAXES..............................................
INCOME TAXES............................................................
NET INCOME.............................................................. $
</TABLE>
F-16
<PAGE>
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
13. CONDENSED FINANCIAL INFORMATION OF AMERICAN HOME MORTGAGE HOLDINGS, INC.
(continued)
Condensed Statement of Cash Flows
For the period (date of inception) to , 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in earnings of American Home Mortgage Corp. ....................
Cash provided by operating activities....................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock..................................
Cash provided by financing activities....................................
NET INCREASE IN CASH.......................................................
CASH, BEGINNING OF PERIOD..................................................
CASH, END OF PERIOD $
</TABLE>
14. PENDING PUBLIC OFFERING OF COMMON STOCK
The Company has filed a registration statement with the Securities and
Exchange Commission for an underwritten initial public offering of shares
of common stock (the Offering). Immediately prior to effectiveness of the
Offering Michael Strauss intends to contribute his sole ownership interest in
American Home Mortgage for shares of $.01 par value Common Stock of the
Company in which:
. American Home Mortgage Holdings, Inc. will be the holding company
. American Home Mortgage Corp. will be a wholly-owned subsidiary of the
holding company
. Michael Strauss will receive shares of $.01 par value Common Stock
of American Home Mortgage Holdings, Inc.
. shares of $.01 par value Common Stock will be sold in the Offering.
All shares and per share information included in the accompanying
consolidated financial statements will be adjusted to give retroactive effect
to the change in the number of shares outstanding as a result of the expected
transactions.
15. UNAUDITED PRO FORMA INFORMATION
The pro forma financial information has been presented to show what the
significant effects on the historical results of operations might have been had
the exchange of shares described in Note 14 and the termination of the
Company's S corporation status occurred as of the beginning of the earliest
period presented.
Pro forma net income represents the results of operations adjusted to
reflect the Company's income tax status for an S corporation to a C
corporation, using a pro forma income tax rate of 44%.
Pro forma net income per share has been computed by dividing pro forma net
income by the shares received in exchange for the Company's shares. The pro
forma financial information does not reflect the sale of shares in the initial
public offering, nor the amount relating to an additional S corporation
distribution of approximately $ .
* * * * *
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
[LOGO]
American Home Mortgage Holdings, Inc.
Common Stock
----------------
PROSPECTUS
----------------
Friedman Billings Ramsey Advest, Inc.
, 1999
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that which is
set forth in this prospectus. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of the prospectus or of any sale of common stock.
Until , 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts, other than SEC, NASD and
Nasdaq fees, are estimates.
<TABLE>
<S> <C>
SEC Registration fee............................................. $10,508
NASD Filing fee.................................................. 4,280
Nasdaq National Market listing fee............................... *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue sky fees and expenses....................................... *
Transfer agent and registrar fees and expenses................... *
Miscellaneous fees and expenses.................................. *
Total.......................................................... $ *
=======
</TABLE>
- --------
*To be supplied by amendment.
American Home Mortgage will bear all of the expenses shown above.
ITEM 14. Indemnification of Directors and Officers.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
(the "DGCL") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
complete action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification may be
made in respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that despite the adjudication of liability such person
is fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith; that indemnification or advancement of expenses
provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; and empowers the corporation to
purchase and
II-1
<PAGE>
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities
under Section 145.
Our Amended and Restated Certificate of Incorporation provides that no
director, or person serving on a committee of the board of directors, shall be
personally liable to American Home Mortgage Holdings, Inc. or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability:
. for any breach of that director's duty of loyalty to American Home
Mortgage Holdings, Inc. or its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the DGCL; or
. for any transaction from which the director derived an improper personal
benefit.
Our Bylaws provide that we must indemnify our directors, officers and
employees against any liability incurred in connection with any proceeding in
which they may be involved as a party or otherwise, by reason of the fact that
he or she is or was a director, officer, employee, or agent of American Home
Mortgage Holdings, Inc., or is or was serving at the request of American Home
Mortgage Holdings, Inc. as a director, officer, employee, agent, fiduciary or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan, or other entity or enterprise, except:
. to the extent that such indemnification against a particular liability
is expressly prohibited by applicable law;
. for a breach of such person's duty of loyalty to American Home Mortgage
Holdings, Inc. or its stockholders;
. for acts or omission not in good faith;
. for intentional misconduct or a knowing violation of law; or
. for any transaction resulting in receipt by such person of an improper
personal benefit.
Such indemnification may include advances of expenses prior to the final
disposition of such proceeding.
ITEM 15. Recent Sales of Unregistered Securities.
The following is a list of securities sold by us over the last 3 years that
were not registered under the Securities Act:
Immediately before the closing of this offering, Michael Strauss, the
president, chief executive officer and sole existing stockholder of American
Home Mortgage Corp., will exchange his shares for an aggregate of shares
of our common stock.
ITEM 16. Exhibits and Financial Statement Schedules.
(A) EXHIBITS:
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
Form of Amended and Restated Certificate of Incorporation of the
3.1* Registrant.
3.2* Form of Bylaws of the Registrant.
4.1 Reference is hereby made to Exhibits 3.1 and 3.2.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.2* Specimen Certificate for the Registrant's Common Stock.
5.1* Opinion of Cadwalader, Wickersham & Taft, special counsel to the
Registrant.
10.1* Employment Agreement, dated as of , 1999, between American Home
Mortgage Corp. and Michael Strauss.
10.2 Employment Agreement, dated as of January 6, 1989, between American
Home Mortgage Corp. and Leonard Schoen, Jr.
10.3 Employment Agreement, dated as of April 14, 1999, between American Home
Mortgage Corp. and Nicholas P. Rizzetta.
10.4 Employment Agreement, dated as of April 3, 1997, between American Home
Mortgage Corp. and Robert Burke.
10.5 Employment Agreement, dated as of March 9, 1998, between American Home
Mortgage Corp. and James P. O'Reilly.
10.6 Employment Agreement, dated as of December 10, 1998, between American
Home Mortgage Corp. and Ron Taylor.
10.7* 1999 Omnibus Stock Option Plan
10.8 Sublease, dated as of February 1996, between Credit Suisse First Boston
Corporation and Michael Strauss, Inc., d/b/a American Home Mortgage.
10.9 Sublease, dated as of December 17, 1997, between Suntory International
Corp. and Michael Strauss, Inc., d/b/a American Home Mortgage.
10.10 Mortgage Warehousing Loan and Security Agreement, dated as of December
8, 1998, between First Union National Bank and Michael Strauss, Inc.,
d/b/a American Home Mortgage.
10.11 Software Licensing Agreement, dated as of July 7, 1999, between
American Home Mortgage Corp. and James P. O'Reilly.
10.12* Warrant Agreement, dated as of July , 1999, between American Home
Mortgage Holdings, Inc., and Friedman, Billings, Ramsey & Co., Inc.
10.13* Lock-up Agreement, dated as of July , 1999, between and Michael
Strauss and Friedman, Billings, Ramsey & Co., Inc.
10.14* Lock-up Agreement, dated as of July , 1999, between American Home
Mortgage Holdings, Inc. and Friedman, Billings, Ramsey & Co., Inc.
10.15 Loan Purchase Agreement, dated as of July 8, 1996, between Michael
Strauss, Inc., d/b/a American Home Mortgage, and Norwest Funding, Inc.
10.16 Origination and Sales Agreement, dated as of July 8, 1994, between
American Home Mortgage Corp. and Chase Manhattan Mortgage Corporation.
10.17* Loan Sales Agreement between American Home Mortgage Corp. and Columbia
Federal Savings Bank.
10.18 Master Agreement for the Sale and Purchase of Mortgages, dated as of
April 19, 1994, between Astoria Federal Savings and Loan Association
and Michael Strauss, Inc., d/b/a American Home Mortgage.
10.19 Mortgage Loan Purchase and Sale Operating Agreement, dated as of
February 1996, between Independence Savings Bank and American Home
Mortgage, Inc.
10.20 Correspondent Origination and Sales Agreement, dated as of April 25,
1997, between Dime Mortgage Inc., and Michael Strauss, Inc. d/b/a
American Home Mortgage.
21.1 Subsidiaries of American Home Mortgage Holdings, Inc.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted because the information required to be set
forth in those schedules is not applicable or is shown in the combined
financial statements or notes thereto.
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on July 7, 1999.
American Home Mortgage Holdings,
Inc.
By: /s/ Michael Strauss
-----------------------------------
Name: Michael Strauss
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Michael Strauss and Nicholas P.
Rizzetta, and each of them, his true and lawful attorney-in-fact and agent,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments, including post-effective amendments, to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to intent and purpose as he might or could do
in person, and hereby ratifies and confirms all said attorneys-in-fact and
agents, and each of them, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated below on July 7, 1999:
Signature Title
--------- -----
/s/ Michael Strauss Chairman of the Board,
______________________________________ President and Chief Executive Officer
Michael Strauss
/s/ Nicholas P. Rizzetta Chief Financial Officer
______________________________________
Nicholas P. Rizzetta
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
Form of Amended and Restated Certificate of Incorporation of the
3.1* Registrant.
3.2* Form of Bylaws of the Registrant.
4.1 Reference is hereby made to Exhibits 3.1 and 3.2.
4.2* Specimen Certificate for the Registrant's Common Stock.
Opinion of Cadwalader, Wickersham & Taft, special counsel to the
5.1* Registrant.
10.1* Employment Agreement, dated as of , 1999, between American Home
Mortgage Corp. and Michael Strauss.
10.2 Employment Agreement, dated as of January 6, 1989, between American
Home Mortgage Corp. and Leonard Schoen, Jr.
10.3 Employment Agreement, dated as of April 14, 1999, between American
Home Mortgage Corp. and Nicholas P. Rizzetta.
10.4 Employment Agreement, dated as of April 3, 1997, between American Home
Mortgage Corp. and Robert Burke.
10.5 Employment Agreement, dated as of March 9, 1998, between American Home
Mortgage Corp. and James P. O'Reilly.
10.6 Employment Agreement, dated as of December 10, 1998, between American
Home Mortgage Corp. and Ron Taylor.
10.7* 1999 Omnibus Stock Option Plan.
10.8 Sublease, dated as of February 15, 1996, between Credit Suisse First
Boston Corporation and Michael Strauss, Inc., d/b/a American Home
Mortgage.
10.9 Sublease, dated as of December 17, 1997, between Suntory International
Corp. and Michael Strauss, Inc., d/b/a American Home Mortgage.
10.10 Mortgage Warehousing Loan and Security Agreement, dated as of December
8, 1998, between First Union National Bank and Michael Strauss, Inc.,
d/b/a American Home Mortgage.
10.11 Software Licensing Agreement, dated as of July 7, 1999, between
American Home Mortgage Corp. and James P. O'Reilly.
10.12* Warrant Agreement, dated as of July , 1999, between American Home
Mortgage Holdings, Inc., and Friedman, Billings, Ramsey & Co., Inc.
10.13* Lock-up Agreement, dated as of July , 1999, between Michael Strauss
and Friedman, Billings, Ramsey & Co., Inc.
10.14* Lock-Up Agreement, dated as of July , 1999, between American Home
Mortgage Holdings, Inc. and Friedman, Billings, Ramsey & Co., Inc.
10.15 Loan Purchase Agreement, dated as of July 8, 1996, between Michael
Strauss, Inc., d/b/a American Home Mortgage, and Norwest Funding, Inc.
10.16 Origination and Sales Agreement, dated as of July 8, 1994, between
American Home Mortgage Corp. and Chase Manhattan Mortgage Corporation.
10.17* Loan Sales Agreement between American Home Mortgage Corp. and Columbia
Federal Savings Bank.
10.18 Master Agreement for the Sale and Purchase of Mortgages, dated as of
April 19, 1994, between Astoria Federal Savings and Loan Association
and Michael Strauss, Inc., d/b/a American Home Mortgage.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.19 Mortgage Loan Origination and Sale Operating Agreement, dated as of
February 1996, between Independence Savings Bank and American Home
Mortgage, Inc.
10.20 Correspondent Origination and Sales Agreement, dated as of April 25,
1997, between Dime Mortgage Inc., and Michael Strauss, Inc. d/b/a
American Home Mortgage.
21.1 Subsidiaries of American Home Mortgage Holdings, Inc.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 10.2
AGREEMENT
Made on the 6th day of January, 1989 by and between Michael Strauss, Inc.
dba American Home Mortgage, 60 E. 42nd Street, New York, NY, (the "Employer")
and Leonard Schoen, Jr., 41 Woodhollow Rd., Albertson, NY, (the "Employee").
WHEREAS, the Employer is engaged in business as a mortgage broker; and
WHEREAS, the Employee seeks employment with the Employer as a mortgage loan
closer;
Now, therefore, in consideration of the mutual promises set forth herein,
IT IS AGREED, by and between the Employer and the Employee as follows:
1. Employment. The Employer hereby employs the Employee, and the Employee
----------
hereby accepts employment upon the terms and conditions of this Agreement.
2. Duties. The Employee shall perform services for the Employer as a
------
mortgage loan closer, and shall have such duties as are customary for a mortgage
loan closer in the mortgage brokerage business, though the precise manner in
which those duties are to be preformed and their extent and the precise title of
the Employee will rest within the sole discretion of the Employer. The Employee
shall devote his entire time, attention and energy in futherence of the business
of the Employer, and shall not engage in any other business activity during the
term of this Agreement.
3. Term. The term of this agreement shall commence on the date hereof, and
----
shall continue until terminated by either party upon two weeks written notice to
the other party.
4. Compensation. The Employer shall pay the Employee for all services
------------
rendered a salary of $25,000 per year payable in weekly installments.
5. Disclosure of Information. The Employee acknowledges that the list and
-------------------------
identity of the lenders with which the Employer does business, and the manner in
which the Employer conducts its operations are valuable, special and unique
business assets, and the Employee hereby acknowledges that were they to be
divulged to third parties the Employer would suffer irreparable injury.
Therefore, the Employee expressly agrees that he shal1 not during or after the
term of his employment disclose the list and identity of the lenders with which
the Employer does business or the manner in which the Employer conducts its
operations to any person, firm, corporation or entity for any reason or purpose
whatsoever, nor shall the Employee either during the term hereof or thereafter
use those valuable, unique and special assets of the Employer in any manner for
his own profit.
<PAGE>
6. Reasonable Restriction. The Employee expressly and unequivocally agrees
----------------------
that for a period of one year from the termination of this Agreement he shall
not in either the City of New York or in Nassau County or both, directly or
indirectly own, manage, operate, control, be employed by, participate in, or be
connected in any manner with a mortgage brokerage or business similar to the
business being conducted by the Employer when this Agreement terminates.
Notwithstanding the above, during the one year period after this agreement
terminates, within New York City or Nassau County the Employee may be employed
by a nationallly chartered or state chartered bank or savings and loan or a New
York State licensed Mortgage Banker as defined in the regulations of the New
York State Banking Department. Employee further agrees that this restriction is
reasonable, and the Employee represents that this restriction is in no manner
burdensome to the Employee.
7. Injunctive Relief. The Employee expressly agrees that the Employer shall
-----------------
be entitled to an injunction to restrain the Employee from any breach or
threatened breach by the Employee of the provisions of paragraphs 5 and 6 of
this Agreement. Notwithstanding the foregoing, the Employer may also pursue any
other available remedies for such breach or threatened breach, including the
recovery of damages from the Employee.
8. Waiver. No waiver by the Employer of a breach of any provision of the
------
Agreement by the Employee shall operate or be construed as a waiver of any
subsequent breach by the Employee. No waiver shall be valid unless it is in
writing signed by the Employer.
9. Assignement. The Employee acknowledges that his services are unique and
-----------
personal, and that he may not assign his rights or delegate his duties
hereunder. This agreement shall inure to the benefit of any successor or assign
of the Employer.
10. Applicable Law. This Agreement shall be construed in accordance with
--------------
the laws of the State of New York for agreements entered into and to be wholly
preformed therein.
<PAGE>
11. Entire Agreement. This Agreement supercedes all prior agreements, and
----------------
contains the entire understanding to the parties hereto. It may only be modified
in writing signed by the Employer.
Michael Strauss, Inc dba American Home Mortgage
BY: /s/ Michael Strauss
-------------------------------------------
Michael Strauss
/s/ Leonard Schoen, Jr.
-------------------------------------------
Leonard Schoen, Jr.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
Made on the 14th day of April, 1999 by and between American Home Mortgage
Corp., 12 E. 49th Street, New York, NY, 10017 (the "Employer") and Nicholas P.
Rizzetta, 2 Beverly Place, Larchmont, NY 10538 (the "Employee").
WHEREAS, the Employer is engaged in business as a mortgage banker; and
WHEREAS, the Employee seeks employment with the Employer as a Chief
Financial Officer, Treasury;
Now, therefore, in consideration of the mutual promises set forth herein,
IT IS AGREED, by and between the Employer and the Employee as follows:
1. Employment. The Employer hereby employs the Employee, and the Employee
----------
hereby accepts employment upon the terms and conditions of this Agreement.
2. Duties. The Employee shall perform services for the Employer as a
------
Chief Financial Officer, Treasury, and shall have such duties as are customary
for a Chief Financial Officer, Treasury in the mortgage banking business,
through the precise manner in which those duties are to be performed and their
extent and the precise title of the Employee will rest within the sole
discretion of the Employer. The Employee shall devote his entire time, attention
and energy in furtherance of the business of the Employer, and shall not engage
in any other business activity during the term of this Agreement.
3. Term. The term of this Agreement shall commence on May 1, 1999 and
----
shall continue until terminated by either party upon three weeks written notice
to the other party. Notwithstanding the above, this Agreement shall terminate
immediately if the Employee commits an illegal or unethical act.
4. Compensation
------------
A. Annual Salary
-------------
The Employer shall pay the Employee for all services rendered a salary of
$140,000 per year. The Employer will provide the Employee medical benefits.
----------------
The medical benefits will be the Employer's standard company benefits as may be
-------------------------
amended from time to time.
[EMPLOYER INITIALS APPEAR HERE] [EMPLOYEE INITIALS APPEAR HERE]
<PAGE>
B. Discretionary Bonus
-------------------
The Employer will pay the Employee an annual Discretionary Bonus of up to
$30,000. The actual amount of this bonus will be at the discreation of the
President of American Home Mortgage. For the calendar year 1999, the amount of
this bonus will be 75% of what it otherwise would have been to account for the
fact that the Employee will only work approximately 1/4 of a year at the
Employer.
C. Financial Performance Bonus
---------------------------
The Employer will pay the Employee a bonus based upon the financial performance
of American Home Mortgage. The Performance Bonus for the year 1999 will be based
upon the financial performance in the 2nd, 3rd, and 4th quarter of 1999. The
Performance Bonus for the in all future years will be based upon the financial
performance in the 1st, 2nd, 3rd, and 4th quarter of that year. The level of
financial performance and corresponding bonus are as follows:
If American Home Mortgage
Annual pretax income is Then the bonus paid to
at least: the Employee will be:
------------------------- -------------------------
90% of Plan $7,500
100% of Plan $15,000
110% of Plan $22,500
120% of Plan $30,000
5. Expenses The employer will pay the reasonable expenses of the
--------
Employee in accordance with its policy for acceptable expenses which may be
amended from time to time. The Employee will submit a report of expenses
incurred on a monthly basis. The Employer will pay the Employee a monthly car
allowance of $450.00.
6. Waiver No waiver by the Employer of a breach of any provision of this
------
Agreement by the Employee shall operate or be construed as a waiver of any
subsequent breach by the Employee. No waiver shall be valid unless it is in
writing signed by the Employer.
7. Assignment The Employee acknowledges that his services are unique and
----------
personal, and that he may not assign his rights or delegate his duties
hereunder. This Agreement shall inure to the benefit of any successor or assign
of the Employer.
8. Applicable Law. This Agreement shall be construed in accordance with
--------------
the laws of the State of New York for agreements entered into and to be wholly
preformed therein.
Employer Initials [INITIALS APPEAR HERE]
----------------------
Employee Initials [INITIALS APPEAR HERE] Page 3 of 3
----------------------
<PAGE>
9. Entire Agreement. This Agreement supercedes all prior agreements,
----------------
and contains the entire understanding of the parties hereto. It may only be
modified in writing signed by the Employer.
American Home Mortgage Corp.
dba American Brokers Conduit
By: /s/ Michael Strauss
---------------------------------------------
Michael Strauss, President
/s/ Nicholas P. Rizzetta 4/14/99
---------------------------------------------
Nicholas P. Rizzetta
Page 3 of 3
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
Made on the 3rd day of April, 1997 by and between Michael Strauss, Inc. dba
American Home Mortgage, dba American Brokers Conduit, 12 E. 49th Street, New
York, NY, (the "Employer") and Robert Burke, 109-14 Ascan Avenue, Forest Hills,
NY 11375, (the "Employee") .
WHEREAS, the Employer is engaged in business as a mortgage banker; and
WHEREAS, the Employee seeks employment with the Employer as a Corporate
Controller;
Now, therefore, in consideration of the mutual promises set forth herein,
IT IS AGREED, by and between the Employer and the Employee as follows:
1. Employment. The Employer hereby employs the Employee, and the Employee
----------
hereby accepts employment upon the terms and conditions of this Agreement.
2. Duties. The Employee shall perform services for the Employer as a
------
Corporate Controller, through the precise manner in which those duties are to be
performed and their extent and the precise title of the Employee will rest
within the sole discretion of the Employer. The Employee shall devote his entire
time, attention and energy in furtherance of the business of the Employer, and
shall not engage in any other business activity during the term of this
Agreement.
3. Term. The term of this Agreement shall commence on April 21, 1997, and
----
shall continue until terminated by either party upon two weeks written notice to
the other party.
4. Compensation. The Employer shall pay the Employee for all services
------------
rendered a salary of $130,000 per year payable in weekly installments.
5. Waiver No waiver by the Employer of a breach of any provision this
------
Agreement by the Employee shall operate or be construed as a waiver of any
subsequent breach by the Employee. No waiver shall be valid unless it is in
writing signed by the Employer.
Employer Initials [Initials Appears Here]
-----------------------
Employee Initials [Initials Appears Here]
-----------------------
Page 1 of 2
<PAGE>
6. Assignment The Employee acknowledges that his services are unique and
----------
personal, and that he may not assign his rights or delegate his duties
hereunder. This Agreement shall inure to the benefit of any successor or assign
of the Employer.
7. Applicable Law. This Agreement shall be construed in accordance with the
--------------
laws of the State of New York for agreements entered into and to be wholly
preformed therein.
8. Entire Agreement. This Agreement supercedes all prior agreements, and
----------------
contains the entire understanding of the parties hereto. It may only be modified
in writing signed by the Employer.
Michael Strauss, Inc.
dba American Home Mortgage
dba American Brokers Conduit
By: /s/ Michael Strauss
-----------------------------------------
Michael Strauss
/s/ Robert Burke
-----------------------------------------
Robert Burke
Page 2 of 2
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
Made on March 9, 1998 by and between Michael Strauss, Inc. dba American
Home Mortgage, dba American Broker Conduit, 12 E. 49th Street, New York, NY
10017, (The "Employer") and James P. O'Reilly, 1447 Village Lane, Chester
Springs, PA 19425 (The "Employee").
WHEREAS, the Employer is engaged in business as a mortgage banker; and
WHEREAS, the Employee seeks employment with the Employer as a Senior
Vice President, Secondary Marketing;
Now, therefore, in consideration of the mutual promises set forth
herein,
IT IS AGREED, by and between The Employer and The Employee as follows:
1. Employment. The Employer hereby employs The Employee, and The
----------
The Employee hereby accepts employment upon the terms and conditions of this
Agreement.
2. Duties. The Employee shall perform services for the Employer as
------
Senior Vice President, and shall have such duties as are customary for a Senior
Vice President in the mortgage banking business, though the precise manner in
which those duties are to be performed and their extent and the precise title of
The Employee will rest within the sole discretion of The Employer.
3. Term. The term of this Agreement shall commence on April 15, 1998
----
and shall continue until terminated by either party upon three weeks written
notice to the other party. Notwithstanding the above, The Employer may terminate
this Agreement immediately if The Employee commits an illegal or unethical act.
4. Compensation.
------------
Base Salary. The Employer will pay The Employee a salary of $135,000
-----------
per annum.
Secondary Market Profit. The Employer will pay the Employee 10% of the
-----------------------
profit from secondary market activities for all loans sold. The profit from
secondary market activities is the difference between the price The Employer
receives for selling a loan less the price The Employer would have received for
a loan which it sold in accordance with its old procedures for selling loans.
The Employer's old procedures for selling loans shall mean the way it would have
sold a loan immediately prior to March 30, 1998. For example, if The Employer
sells a loan for 102% of par, and if, prior to March 30, 1998, The Employer
would have sold that loan to a conduit offering the highest price among a group
of conduits for 60 day best efforts pricing, and if the price from the conduit
was 101.75% of par, the secondary market profit would be
Page 1 of 3
Employer Initials [INITIALS APPEAR HERE]
----------------------
Employee Initials [INITIALS APPEAR HERE]
----------------------
<PAGE>
0.25% of par. For another example, if The Employer sells a subprime loan for
106% of par, and if The employer would have, prior to march 30, 1998 sold the
loan as part of a bulk sale for 105% of par, the secondary market profit would
be 1% of par.
Hedging Costs The Employer will reduce the amount due The employee
-------------
pursuant to the subsection titled Secondary Market Profit herein by 10% of the
hedging cost. The hedging cost shall mean the cost of par offs, options premiums
and all other costs associated with hedging The Employer's pipeline of loans.
Negative Results Both the secondary market profits and hedging costs may
----------------
be less than zero. In all cases, secondary market profits will be combined with
hedging profits in determining the amount due The Employee. For example, if the
secondary market profits were negative $100,000 and the hedging costs were
negative $150,000, the Employer would owe the Employee $5000 (10% of the
difference between -100,000 and -150,000). In no case however, will The Employee
be required to pay funds to The Employer as a result of either secondary market
profits, hedging costs or any combination thereof.
Payment of Secondary Market Profits Amounts due The Employee pursuant to
-----------------------------------
the Subsections Secondary Market Profits, Hedging Costs and Negative Results
will be paid quarterly. If, at the end of any quarter, secondary market profits
less hedging costs results in a deficit, the deficit will be accumulated, and
amounts due the Employee pursuant to this section for subsequent quarters will
first be offset against the accumulated deficit.
Guaranteed Bonus It the total compensation (exclusive of benefits) paid to
----------------
The Employee during any successive twelve month period beginning April 15, 1998
is less than $150,000, then The Employer will pay The Employee a bonus of
$150,000 less the compensation that was paid during the twelve month period.
5. Expenses & Benefits The Employer will pay the reasonable expenses of
-------------------
the Employee in accordance with its policy for acceptable expenses which may be
amended from time to time. The Employer will pay to The Employee a car allowance
at the beginning of each month of $500. The Employee will submit a report of
other expenses incurred on a monthly basis. The Employee will be entitled to all
standard company benefits including medical insurance and the opportunity to
participate in the company's 401k plan.
6. Risk Parameters The Employer shall establish risk parameters which
---------------
will set forth the maximum amount of loss The Employer would incur as a result
of movements in market interest rates. The Employee shall, at all times, cause
these risk parameters to be adhered to.
Employer Initials [INITIALS APPEAR HERE]
----------------------
Employee Initials [INITIALS APPEAR HERE]
----------------------
<PAGE>
7. Guarantee of Employment. The compensation set forth under section
-----------------------
4 -- Compensation will be paid to The Employee even if the Employee is
discharged by The Employer for 1) a period ending April 14, 1999 if The Employer
terminates this agreement without material cause prior to that date, or 2) for a
period ending October 14, 1998 if The Employer terminates this agreement due to
a clear and material lack of performance. Notwithstanding the above, if The
Employee is discharged because The Employee did not cause the risk parameters to
be adhered to, or willfully neglected his duties (by, for example, failing to
come to work without reasonable justification, purposefully acting against the
interests of The Employer, purposefully failing to adhere to the risk
parameters, etc.), no amounts will be due The Employee after discharge.
8. Proprietary Interest in Software. The Employee intends to install
--------------------------------
and use software of his own design to carry out his duties hereunder. It is
agreed that The Employee retains ownership rights to this software.
9. Waiver. No waiver by The Employer of a breach of any provision of
------
this Agreement by The Employee shall operate or be construed as a waiver of any
subsequent breach by The Employee. No waiver shall be valid unless it is in
writing signed by The Employer.
10. Assignment. The Employee acknowledges that his services are unique
----------
and personal, and that he may not assign his rights or delegate his duties
hereunder.
11. Applicable Law. This Agreement shall be construed in accordance with
--------------
the laws of the State of New York.
12. Entire Agreement. This Agreement supersedes all prior agreements, and
----------------
contains the entire understanding of the parties hereto. It may only be
modified in writing signed by The Employer.
Michael Strauss, Inc. dba
American Home Mortgage dba
American Brokers Conduit
By: /s/ Michael Strauss
----------------------------------------
Michael Strauss
/s/ James P. O'Reilly
----------------------------------------
James P. O'Reilly
Page 3 of 3
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Made on the 10th day of December, 1998 by and between Michael Strauss,
Inc. dba American Home Mortgage, 12 E. 49th Street, New York, NY, 10017 (the
"Employer") and Ron Taylor, 161 Turtle Bay Lane, Ponte Vedra, Florida (the
"Employee").
WHEREAS, the Employer is engaged in business as a mortgage banker; and
WHEREAS, the Employee seeks employment with the Employee as a Senior
Vice President - Internet & Electronic Commerce;
Now, therefore, in consideration of the mutual promises set forth
herein,
IT IS AGREED, by and between the Employer and the Employee as follows:
1. Employment. The Employee hereby employs the Employee, and the
----------
Employee hereby accepts employment upon the terms and conditions of this
Agreement.
2. Duties. The Employee shall perform services for the Employer as a
------
Senior Vice President, and shall have such duties as are customary for a Senior
Vice President in the mortgage banking business, though the precise manner in
which those duties are to be performed and their extent and the precise title of
the Employee will rest within the sole discretion of the Employer. The Employee
shall create and enhance American Home Mortgage's internet franchise, build
business relationships and links between internet portals, realtors and other
web sites and American Home Mortgage, and analyze and adjust American Home
Mortgage's internet expenditures to gain the most benefit for funds expended.
The Employee shall also work with the Senior Vice President - Internet
Origination's to improve and eventually support an in-house American Home
Mortgage internet web site, and take all other actions necessary to cause
American Home Mortgage to be a leader in internet organization's current with
state of the art practices and technology. The Employee shall devote his entire
time, attention and energy in furtherance of the business of the Employer, and
shall not engage in any other business activity during the term of this
agreement.
3. Term The term of this Agreement shall commence on January 11,1999
and shall continue until terminated by either party upon two weeks written
notice to the other party. Notwithstanding the above, this Agreement shall
terminate immediately if the Employee commits an illegal or unethical act.
Employer Initials Employee Initials [INITIAL APPEARS HERE]
------------ ----------------------
Page 1 of 3
<PAGE>
4. Compensation.
------------
A.Base Salary The Employer shall pay the Employee for all
-----------
services rendered a base salary of $145,000 per year payable in weekly
installments.
B.Bonus The Employer shall pay the Employee a bonus if
-----
performance standards are met as follows:
8% of base salary if American Home Mortgage's internet
origination's and profitability are 90% to 100% of plan or
15% of base salary if American Home Mortgage's origination's
and profitability are 100% to 120% of plan or
25% of base salary if American Home Mortgage's origination's
and profitability are 120% or more than 120% of plan.
C.Additional Bonus The Employer will also pay the Employee a
----------------
bonus of 10% to 25% or more of base salary based on overall performance and
success in achieving the general responsibilities set forth herein. The
percentage hereunder will be determined by American Home Mortgage's President.
6. Benefits The Employer will pay the cost of relocating the Employee
--------
to the Woodstock, NY area. Relocation benefits will include paying the real
estate commission to sell the Employee's current home (American Home Mortgage
will consider paying the Employee an allowance in lieu of paying a real estate
commission if the Employee decides not to sell the Employee's home), paying the
Employee's moving expenses, paying for temporary housing for up to sixty days,
and providing the Employee with a mortgage to purchase a new home at a rate
equal to it's internal cost of funds and without lender closing charges. The
Employer will provide the Employee medical benefits. The medical benefits will
----------------
be the Employer's standard company benefits as may be amended from time to time.
----------------------------
The Employee will have the opportunity to participate in our 401K plan, and an
---------
expense account.
7. Waiver No waiver by the Employer of a breach of any provision of
------
this Agreement by the Employee shall operate or be construed as a waiver of any
subsequent breach by the Employee. No waiver shall be valid unless it is in
writing signed by the Employer
8. Assignment The Employee acknowledges that his services are unique
----------
and personal, and that he may not assign his rights or delegate his duties
hereunder. This Agreement shall inure to the benefit of any successor or assign
of the Employer.
9. Applicable Law. This Agreement shall be construed in accordance with
--------------
the laws of the State of New York for agreements entered into and to be wholly
performed therein.
Employer Initials ______ [EMPLOYEE INITIALS APPEAR HERE]
Page 2 of 3
<PAGE>
10. Entire Agreement. This Agreement supercedes all prior agreements,
----------------
and contains the entire understanding of the parties hereto. It may only be
modified in writing signed by the Employer.
Michael Strauss, Inc. dba
American Home Mortgage dba
American Brokers Conduit
By:
-----------------------------------------------------------
Mitchell Eininger, Vice President
/s/ Ron Taylor
-----------------------------------------------------------
Ron Taylor
Page 3 of 3
<PAGE>
EXHIBIT 10.8
- --------------------------------------------------------------------------------
SUBLEASE
Between
CS FIRST BOSTON CORPORATION,
Sublessor
And
MICHAEL STRAUSS, INC. D/B/A
AMERICAN HOME MORTGAGE,
Subtenant
Premises:
The Entire 28th Floor
at Tower 49
12 East 49th Street
New York, New York
Dated: As of February 15, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION PAGE
------- ----
1. DEMISE AND TERM......................................................... 1
2. SUBORDINATE TO OVERLEASE................................................ 2
3. INCORPORATION BY REFERENCE.............................................. 2
4. PERFORMANCE BY SUBLESSOR................................................ 4
5. NO BREACH OF OVERLEASE.................................................. 6
6. NO PRIVITY OF ESTATE.................................................... 6
7. INDEMNITY............................................................... 6
8. WAIVER OF SUBROGATION................................................... 7
9. FIXED RENT.............................................................. 7
10. LATE CHARGES............................................................ 8
11. ADDITIONAL CHARGES...................................................... 8
12. USE..................................................................... 10
13. CONDITION OF SUBLEASED PREMISES......................................... 10
14. CONSENTS AND APPROVALS.................................................. 11
15. NOTICES................................................................. 12
16. TERMINATION OF OVERLEASE................................................ 12
17. ASSIGNMENT AND SUBLETTING............................................... 13
18. INSURANCE............................................................... 15
19. ESTOPPEL CERTIFICATES................................................... 16
20. ALTERATIONS............................................................. 16
i
<PAGE>
SECTION PAGE
------- ----
21. RIGHT TO CURE SUBTENANT'S DEFAULTS....................................... 16
22. BROKERAGE................................................................ 17
23. WAIVER OF JURY TRIAL AND RIGHT TO COUNTERCLAIM........................... 17
24. NO WAIVER................................................................ 17
25. COMPLETE AGREEMENT....................................................... 17
26. SUCCESSORS AND ASSIGNS................................................... 17
27. INTERPRETATION........................................................... 18
28. WAIVER OF IMMUNITY AND CONSENT TO JURISDICTION........................... 18
29. SECURITY DEPOSIT......................................................... 18
30. CLEANING AND OTHER SERVICES.............................................. 20
31. SUBTENANT ELECTRICITY.................................................... 21
32. ENVIRONMENTAL MATTERS.................................................... 22
33. QUIET ENJOYMENT.......................................................... 22
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
ii
<PAGE>
SUBLEASE
--------
THIS SUBLEASE (this "Sublease"), dated as of the ____ day of
February, 1996, by and between CS FIRST BOSTON CORPORATION, a Massachusetts
corporation having an address at 55 East 52nd Street, New York, New York 10055
(herein called "Sublessor"), and MICHAEL STRAUSS, INC., a New York corporation,
doing business as American Home Mortgage, having an address at 60 East 42nd
Street, New York, New York (herein called "Subtenant").
WITNESSETH:
-----------
WHEREAS, by lease dated May 17, 1984 by and between Solstead
Associates, a New York limited partnership, predecessor in interest to Kato Real
Estate Corporation (which latter entity and any subsequent landlord under the
Overlease are hereinafter collectively referred to as "Overlandlord"), as
landlord, and Sublessor, as tenant, as amended by that certain First
Modification of Lease Agreement, dated as of September 15, 1984 (the "First
Modification"), that certain Second Modification of Lease Agreement, dated as of
December 16, 1986 (the "Second Modification"), that certain Third Modification
of Lease Agreement, dated as of September 1, 1990 (the "Third Modification"),
and that certain First Supplement to Lease, dated as of July 29, 1994 (the
"First Supplement"; as so amended, the "Overlease"), Overlandlord leased to
Sublessor certain space located in the building more particularly described in
the Overlease and known as Tower 49, and having the street address 12 East 49th
Street, New York, New York (the "Building"); and
WHEREAS, Subtenant desires to lease from Sublessor certain space
consisting of the entire twenty-eighth (28th) floor of the Building, all as more
particularly described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. DEMISE AND TERM. (a) Subject to the terms of this Sublease,
---------------
Sublessor hereby leases to Subtenant, and Subtenant hereby hires from Sublessor,
those certain premises (herein called the "Subleased Premises") consisting of
the entire twenty-eighth (28th) floor of the Building, as more particularly
identified on Exhibit A annexed hereto and made a part hereof, containing those
items of office furniture presently located in the Subleased Premises which are
identified on Exhibit C annexed hereto and made a part hereof (the "Furniture").
The term of this Sublease shall be the period commencing on February 15, 1996
(the "Commencement Date") and expiring at midnight on September 13, 1999 (the
"Expiration Date"), unless sooner terminated as herein provided. In the event
that Subtenant shall occupy any portion of the Subleased Premises prior to the
Commencement Date, Subtenant agrees to be bound by all of the terms and
conditions of this Sublease with
<PAGE>
2
respect to such use and occupancy. Sublessor and Subtenant shall, upon the
request of either such party, promptly execute and deliver a statement setting
forth the Commencement Date.
(b) Subtenant expressly waives any right to rescind this Sublease
under Section 223-a of the New York Real Property Law ("Section 223-a") or any
other present or future law of similar import then in effect with respect to all
or any portion of the Subleased Premises, and further expressly waives any right
to recover any damages which may result from Sublessor's failure or inability to
deliver possession of all or any portion of the Subleased Premises on the
Commencement Date. Subtenant agrees that the provisions of this Section are
intended to constitute "an express provision to the contrary" within the meaning
of Section 223-a.
2. SUBORDINATE TO OVERLEASE. This Sublease is and shall be subject
------------------------
and subordinate to the Overlease, and to the matters to which the Overlease is
or shall be subject and subordinate. A true and correct copy of the Overlease
(with certain deletions of rental information set forth therein) (a) has been
delivered to and examined by Subtenant, (b) is annexed hereto as Exhibit B, and
(c) is made a part hereof.
3. INCORPORATION BY REFERENCE. (a) The terms, covenants and
--------------------------
conditions of the Overlease are incorporated herein by reference so that, except
to the extent that they are modified by the provisions of this Sublease for the
purpose of incorporation by reference, each and every term, covenant and
condition of the Overlease binding or inuring to the benefit of Overlandlord
with respect to the Subleased Premises shall, in respect of this Sublease, bind
or inure to the benefit of Sublessor, and each and every term, covenant and
condition of the Overlease binding or inuring to the benefit of the tenant
thereunder with respect to the Subleased Premises shall, in respect of this
Sublease, bind or inure to the benefit of Subtenant with the same force and
effect as if such terms, covenants and conditions were completely set forth in
this Sublease, except to the extent that any such terms, covenants or conditions
by their nature or intent relate to premises other than the Subleased Premises,
and as if (i) references in the Overlease to the "Premises" shall be deemed to
refer to the "Subleased Premises" hereunder, (ii) references in the Overlease to
"Landlord" and to "Tenant" shall be deemed to refer to "Sublessor" and
"Subtenant" hereunder, respectively, (iii) references in the Overlease to the
"Fixed Rent" and "Additional Rent" shall be deemed to refer to the "Fixed Rent"
and "Additional Charges" hereunder, respectively, and (iv) references in the
Overlease to the "Term" shall be deemed to refer to the "term of this Sublease".
It is further understood and agreed that where reference is made in the
Overlease to the "Lease" the same shall be deemed to refer to this "Sublease".
The time limits contained in the Overlease for the giving of notices, making of
demands or performing of any act, condition or covenant on the part of the
tenant thereunder, or for the exercise by the tenant thereunder of any right,
remedy or option, are changed for the purposes of incorporation herein by
reference by shortening the same in each instance by three (3) days, so that in
each instance Subtenant shall have three (3) days less time to observe or
perform hereunder than Sublessor has as the tenant under the Overlease. If the
Overlease, as incorporated herein, only allows five (5) days or less for
Subtenant to perform
<PAGE>
3
any act or to correct any failure relating to the Subleased Premises or this
Sublease, then. except in the event of an emergency, Subtenant shall
nevertheless be allowed three (3) days to perform any such act or to correct any
such failure.
(b) The following provisions of the Overlease and Exhibits annexed
thereto shall be deemed deleted for the purposes of incorporation by reference
in this Sublease:
the preamble; Article 1; Section 2.02(r) (references to Exhibits B, D, E, G
and H only); Section 3.01; Article 4; Section 5.02(a)(iv) (reference to
Work Letter in the second sentence only); Section 5.06 (reference to
Landlord's Work in the first sentence only); Section 6.01(a); Section
6.01(b); Section 6.01(f); Section 6.01(h); Section 6.02(e); Section 8.03
(amounts of insurance only); Section 10.01 (reference to Article 4, Exhibit
D and right to make "structural changes" in first sentence only); Section
10.08; Section 12.01 (second, third and fourth sentences only); Section
12.03; Section 13.05; Section 14.03 (second sentence only); Section 22.01;
Section 22.02; Section 22.03; Section 22.04; Section 22.05; Section 23.06;
Section 30.02(d); Article 31; Section 34.01 (last sentence only); Section
35.01; Article 36; Section 39.01; Section 39.02; Article 40; Section 42.01;
Section 42.04; Section 42.05; Article 43; Article 44; Section 45.02;
Section 45.03; Section 45.05;. Section 45.06; Section 45.07 (second
sentence only); Article 46; Exhibit B; Exhibit D; Exhibit E; Exhibit G;
Exhibit H; the First Modification; the Second Modification; and the Third
Modification.
For purposes of incorporation by reference of the Overlease, the following
provisions shall apply: the words "to be" in the first sentence of Section 13.01
shall be deemed deleted; and all references in Article 14 and elsewhere in the
Overlease to the "Cleaning Contract" shall be deemed to mean that certain
Cleaning Contract, dated of even date with the Overlease, between Solstead
Associates ("Solstead") and Sublessor, as the same has been assigned by Solstead
(the "Cleaning Agreement").
(c) For purposes of incorporation by reference of the Overlease,
where reference is made in the following Sections, Article and Exhibit to
"Landlord", the same shall be deemed to mean "Overlandlord":
Section 5.06 (first sentence only); Section 8.05; Section 11.01; Section
11.02; Section 12.01 (first sentence only); Section 12.02; Section 13.02
(fifth and sixth sentences only); Section 14.06; Section 15.01; Section
15.02 (the first use of the word "Landlord" in the first sentence only);
Section 15.03(b); Section 16.03 (first sentence only); Section 16.05;
Section 24.04; Article 32; Section 39.03; and Exhibit C.
(d) For purposes of incorporation by reference of the Overlease,
where reference is made in the following Sections and Article to "Landlord", the
same shall be deemed to mean "Overlandlord" and "Sublessor":
<PAGE>
4
Section 5.06 (third and fourth sentences only); Section 8.02(a); Section
8.08; Section 10.01; Section 10.02(a); Section 10.02(b); Section 10.02(c);
Section 10.04: Section 10.05; Section 10.07; Section 14.04; Section 14.05;
Section 14.08; Section 15.03(a); Section 15.04; Section 15.05; Section
16.03 (the first use of the word "Landlord" in the second sentence only);
Section 16.06; Section 17.01(d)(iii); Section 21.05(b); Section 23.01;
Section 23.02; Section 23.03; Section 23.04; Section 23.05; Section 24.01;
Section 24.02; Section 24.03; Section 25.01; Section 25.02; Section 30.01
(and the reference therein to "Exhibit C" shall be deemed to refer to
"Exhibit F"); Section 33.01; Section 34.01; Section 37.01; and Article 20;
where reference is made in any provision of the Overlease to the renewal or
extension option, each such provision shall be construed as though there
were no renewal or extension option set forth in the Overlease; and where
reference is made in any provisions of the Overlease to the Work Letter or
use of the roof or basement space, each such provision shall be construed
as though there were no Work Letter or use of the roof or basement space
set forth in the Overlease.
(e) If any of the express provisions of this Sublease shall conflict
with any of the provisions incorporated by reference, such conflict shall be
resolved in every instance in favor of the express provisions of this Sublease.
4. PERFORMANCE BY SUBLESSOR. (a) Any obligation of Overlandlord under
------------------------
the Overlease which, pursuant to the incorporation by reference set forth in
Section 3 hereof, is to be performed by Sublessor, shall be observed or
performed by Sublessor using reasonable and diligent efforts to cause
Overlandlord to observe and/or perform the same, and Sublessor shall have a
reasonable time within which to enforce its rights to cause such observance or
performance. Any obligation of Sublessor under this Sublease, to the extent that
it is (i) not an obligation of Overlandlord under the Overlease (as incorporated
herein by reference), and (ii) specifically set forth in this Sublease as an
obligation of Sublessor and not of Overlandlord, shall be observed and performed
by Sublessor. Subtenant shall not in any event have any rights in respect of the
Subleased Premises greater than Sublessor's rights under the Overlease. Except
as otherwise set forth in Section 3 hereof or elsewhere in this Sublease,
Sublessor agrees that Subtenant shall have and enjoy the same rights which
Sublessor, as tenant under the Overlease, has to performance by Overlandlord of
any service, repair, alteration or other similar obligation which is the
obligation of Overlandlord to perform in respect of the Subleased Premises
pursuant to those provisions of the Overlease incorporated herein by reference;
provided, however, that, except for Sublessor's obligation to use reasonable and
diligent efforts to cause Overlandlord to observe or perform its obligations
pursuant to the Overlease, as set forth herein, and except as expressly set
forth to the contrary in this Sublease, in no event shall Sublessor have any
obligation or responsibility whatsoever to provide or perform any such service,
repair, alteration or other similar obligation including, but not limited to,
the obligation of Overlandlord to (i) make restorations or repairs after damage
to the Building or the Subleased Premises by fire or other casualty or after
condemnation pursuant to Articles 15 and 16 of the Overlease, (ii) make the
repairs or alterations referred to in
<PAGE>
5
Article 11 of the Overlease, or (iii) provide the services specified in Article
12, Section 13.05, Article 14 and Article 25 of the Overlease. Subtenant further
acknowledges and agrees that each such obligation shall be provided or performed
by Overlandlord and not by Sublessor. No failure to furnish, or interruption of,
any such services or facilities shall give rise to any (x) abatement, diminution
or reduction of Subtenant's obligations under this Sublease, except as set forth
in Subsection 4(b) hereof, (y) constructive eviction, whether in whole or in
part, or (z) liability on the part of Sublessor.
(b) If Overlandlord does not perform or observe any of the
agreements, covenants, obligations, terms, provisions or conditions under the
Overlease on its part to be performed or observed (collectively, "Overlandlord's
Obligations") (including any obligation for the payment of money or any failure
or delay on Overlandlord's part in providing any services or in making any
repairs or alterations, or in performing or observing any similar obligation of
Overlandlord under the Overlease), Sublessor shall have no liability therefor to
Subtenant and shall be excused from performance of the corresponding obligations
which may be owed by Sublessor to Subtenant under this Sublease. However,
Subtenant, pursuant to the provisions of Section 4(c) hereof, may fully enforce
Sublessor's rights against Overlandlord in respect of any such default insofar
as the same relate to the Subleased Premises, and if and to the extent that
Sublessor shall receive any abatement of Fixed Rent or Additional Rent in
respect of the Subleased Premises, the Fixed Rent and Additional Charges due
under this Sublease shall abate to any such extent, less any costs or expenses
incurred by Sublessor in obtaining any such abatement.
(c) If Subtenant shall notify Sublessor that Overlandlord is not
supplying services to the Subleased Premises or otherwise not performing any of
Overlandlord's Obligations as required under the Overlease, Sublessor shall use
all reasonable efforts to cause Overlandlord to comply with Overlandlord's
Obligations; provided, however, that (unless otherwise expressly provided
herein) in no event shall Sublessor be obligated to (i) commence or maintain any
action or proceeding at law or in equity, or (ii) otherwise expend any sums of
money to compel Overlandlord to perform or observe its obligations under the
Overlease. If, following a reasonable time within which Sublessor has expended
such reasonable efforts as aforesaid, Overlandlord shall fail to perform such
Overlandlord's Obligations, Sublessor shall, upon notice, permit Subtenant, at
Subtenant's sole cost and expense, to enforce Sublessor's rights against
Overlandlord with respect to the Subleased Premises in Sublessor's name or in
Subtenant's name as agent for Sublessor, and Subtenant shall and hereby does
agree to indemnify Sublessor in respect thereof in accordance with the terms of
Section 7 hereof. Sublessor shall, at no expense to Sublessor, provide its
reasonable cooperation to Sublessee.
5. NO BREACH OF OVERLEASE. (a) Sublessor represents and warrants to
----------------------
Subtenant that (i) the Overlease is in full force and effect and, except as
otherwise set forth herein, has not been modified or amended, (ii) Sublessor has
not received any notice of default from Overlandlord, (iii) to the best of
Sublessor's knowledge, Overlandlord is not in material default on the date
hereof in its respective obligations
<PAGE>
6
pursuant to the terms of the Overlease, (iv) Sublessor has not received notice
of any occurrence which, with the giving of notice or the passage of time, or
both, would constitute a material default on the part of either Sublessor or
Overlandlord, respectively, pursuant to the terms of the Overlease, (v)
Sublessor is in compliance with Sections 22.04(b) and (d) of the Overlease, (vi)
Sublessor has good title to the items of office furniture identified on Exhibit
C annexed hereto and may license the use of the same to Subtenant and (vii) as
of the date hereof, Sublessor has no claims, counterclaims, offsets or
deductions against Fixed Rent payable under the Overlease or otherwise with
respect to Overlandlord in respect of the Overlease; provided, however, that the
representation and warranty made pursuant to the preceding subsection (iv)
hereof does not constitute a waiver of any such claims, counterclaims, offsets
or deductions, and is made solely for the benefit of Subtenant and may not be
relied upon by any third party including, but not limited to, Overlandlord.
(b) Neither party hereto shall do or permit to be done any act or
thing which may constitute a breach or violation of any term, covenant or
condition of the Overlease by the landlord or tenant thereunder, as applicable,
with respect to the Subleased Premises, whether or not such act or thing is
permitted under the provisions of this Sublease.
6. NO PRIVITY OF ESTATE. Nothing contained in this Sublease shall be
--------------------
construed to create private of estate or of contract between Subtenant and
Overlandlord.
7. INDEMNITY. (a) Subtenant shall and hereby does indemnify, defend
---------
and hold harmless Sublessor from and against any and all losses, costs, damages,
expenses and liabilities (including, but not limited to, attorneys' fees and
expenses), which Sublessor incurs or pays out by reason of (i) any accidents,
damages or injuries to persons or property occurring in, on or about the
Subleased Premises, (ii) any work done in or to the Subleased Premises by or on
behalf of, or at the direction of, Subtenant, (iii) any act, omission or
negligence on the part of Subtenant and/or its officers, employees, agents,
customers, invitees, licensees, or permitted further subtenants or assigns, or
any person claiming through or under Subtenant and/or its officers, employees,
agents, customers, invitees, licensees, or permitted further subtenants or
assigns with respect to the Building or the Subleased Premises, (iv) Subtenant's
enforcement of Sublessor's rights against Overlandlord with respect to the
Subleased Premises in Sublessor's name or in Subtenant's name as agent for
Sublessor pursuant to Section 4 or Subsection 11(b) hereof, (v) Subtenant's
failure to comply with the covenants set forth in Subsection 5(b) hereof, (vi)
Subtenant's use, maintenance or removal of the Furniture (as such term is
defined in Section 1 hereof), (vii) any violation of Subtenant's covenants set
forth herein, or (viii) any other breach or default hereunder on Subtenant's
part. Notwithstanding anything to the contrary set forth herein, the foregoing
indemnification shall not apply to any loss, cost, damage or expense suffered by
Sublessor solely as a result of Sublessor's willful misconduct or willful
default hereunder. The indemnification set forth in this Section 7 shall survive
the Expiration Date or sooner termination of the term of this Sublease.
<PAGE>
7
(b) Sublessor shall and hereby does indemnify, defend and held
harmless Subtenant from and against any and all losses, costs, damages, expenses
and liabilities (including, but not limited to, attorneys' fees and expenses),
which Subtenant incurs or pays out by reason of (i) breach of the
representations and warranties of Sublessor as set forth in Section 5 hereof,
(ii) any violation of Sublessor's covenants set forth in Section 30, (iii) any
act, omission or negligence on the part of Sublessor and/or its officers,
employees, agents, customers, invitees, licensees, or any person claiming
through or under Sublessor and/or its officers, employees, agents, customers,
invitees, licensees, with respect to the Subleased Premises, (iv) Sublessor's
failure to comply with the covenants set forth in Subsection 5(b) hereof, or (v)
any other breach or default hereunder on Sublessor's part.
8. WAIVER OF SUBROGATION. Subtenant agrees to cause its insurance
---------------------
carriers to include any classes or endorsements in favor of Overlandlord
including, but not limited to, waivers of the right of subrogation, which
Sublessor is required to provide pursuant to the provisions of the Overlease.
9. FIXED RENT. (a) Except as provided in Section 9(b), Subtenant
----------
shall pay to Sublessor rent (herein called "Fixed Rent") hereunder at the rate
of Three Hundred Fifty Thousand Seven Hundred Fifty and 00/100 Dollars
($350,750.00) per annum in equal monthly installments of Twenty-Nine Thousand
Two Hundred Twenty-Nine and 16/100 Dollars ($29,229.16) in advance on the first
day of each month during the term of this Sublease, commencing on the
Commencement Date (such date is referred to herein as the "Rent Commencement
Date").
(b) Sublessor shall abate one hundred percent (100%) of the monthly
Fixed Rent for the first eight full months and the thirteenth month of the term
of this Sublease.
(c) Fixed Rent shall be paid in advance to Sublessor on the first day
of each and every month during the term of this Sublease in lawful money of the
United States by check drawn on a bank which is a member of the New York
Clearing House Association at the address of Sublessor set forth in the first
paragraph of this Sublease to the attention of the Secretary and Manager of
Facilities, or to such other person and/or at such other address as Sublessor
may from time to time designate by notice in writing to Subtenant. All other
amounts payable by Subtenant to Sublessor under the terms of this Sublease
(hereinafter called "Additional Charges") shall be paid within ten (10) days of
notice of same from Sublessor to Subtenant in the manner set forth aforesaid. If
for any reason whatsoever the term of this Sublease shall expire or be sooner
terminated on a date which is not the last day of the month, Fixed Rent shall be
prorated based upon the number of days in any such month. Fixed Rent and
Additional Charges shall be paid promptly when due, without notice or demand
therefor, and without deduction, abatement, counterclaim or setoff of any amount
or for any reason whatsoever. Unless otherwise expressly permitted pursuant to
the terms of this Sublease, no payment by Subtenant or receipt by Sublessor of
any lesser amount than the amount stipulated to be paid hereunder shall be
deemed other than on account of the earliest stipulated Fixed Rent or Additional
Charges, nor shall any endorsement or statement on any
<PAGE>
8
check or letter be deemed an accord and satisfaction, and Sublessor may accept
any check or payment without prejudice to Sublessor's right to recover the
balance due, if any, or to pursue any other remedy available to Sublessor.
10. LATE CHARGES. If payment of any Fixed Rent or Additional Charges
------------
shall not have been paid within ten (10) days after the date on which such
amount was due and payable hereunder, a late charge calculated by multiplying an
annual rate equal to one percent (1%) over the rate of interest publicly
announced from time to time by Citibank, N.A. in New York, New York as its base
rate by the sum so due and owing shall be added to the sum due and shall be
deemed Additional Charges hereunder. Nothing in this Section contained and no
acceptance of late charges by Sublessor shall be deemed to extend or change the
time for payment of Fixed Rent or Additional Charges.
11. ADDITIONAL CHARGES. (a) In addition to the Fixed Rent reserved in
------------------
Section 9 hereof, Subtenant covenants and agrees to pay to Sublessor, as
Additional Charges, the following:
(i) Subtenant's Proportionate Share (as hereinafter defined) of all
sums which Sublessor is required to pay to Overlandlord with respect to the
Overlease Space (as hereinafter defined) pursuant to (x) Article 6 of the
Overlease with respect to the term of this Sublease in respect of (A)
Operating Expenses (as defined in Exhibit C to the Overlease) in excess of
Base Operating Expenses (as hereinafter defined) and (B) Taxes (as defined
in Subsection 6.01(g) of the Overlease) in excess of Base Taxes (as
hereinafter defined), (y) Article 7 of the Overlease in respect of Building
Electricity Costs (as defined in Section 7.01(a) of the Overlease) in
excess of Building Electricity Costs for the base calendar year 1996, and
(z) subject to Section 30 hereof, Article 4 of the Cleaning Agreement (or
in the event of the termination of the Cleaning Agreement, pursuant to
Subsection 14.0 1(b)(ii) of the Overlease) in respect of cleaning cost
escalation in excess of cleaning costs for the base calendar year 1996. For
purposes hereof, the term "Base Taxes" as used in the Overlease, as
incorporated herein by reference, shall mean all Taxes applicable to the
Building for fiscal tax year 1996-1997, and the term "Base Operating
Expenses" as used in the Overlease, as incorporated herein by reference,
shall mean all Operating Expenses applicable to the Building for calendar
year 1996. The term "Tax Year" as used in the Overlease, as incorporated
herein by reference, shall mean each period of twelve (12) months
commencing on January 1st of each year. Increases in Taxes during the term
of this Sublease, if any, shall be effective as of January 1 of each year
during the term of this Sublease. The term "Subtenant's Proportionate
Share" shall mean that fraction, the numerator of which is the rentable
area of the Subleased Premises and the denominator of which is the rentable
area of all of the space leased by Sublessor under the Overlease (the
"Overlease Space"). The parties hereto irrevocably agree that Subtenant's
Proportionate Share, expressed as a percentage, is five percent (5%);
<PAGE>
9
(ii) All sums payable for or on account of additional cleaning
services in respect of the Subleased Premises including, without being
limited to, pursuant to Sections 1 and 16 of the Cleaning Agreement; and
(iii) Any other sums which become due and payable by Sublessor to
Overlandlord as Additional Rent (as such term is used in the Overlease) or
otherwise which would not have become due and payable but for the acts
and/or failures to act of Subtenant under this Sublease, including, but not
limited to: (x) any increase in Overlandlord's fire, rent or other
insurance premiums as provided in Subsection 8.02(a) of the Overlease
resulting from any act or omission of Subtenant; (y) any additional charges
to Sublessor on account of Subtenant's use of heating, ventilation or air
conditioning as provided in Section 12.02 of the Overlease; and (z)
elevator service after hours or in excess of normal usage in respect of the
Subleased Premises, as provided in Sections 45.05 and 45.07 of the
Overlease.
(b) The parties hereto agree that Sublessor shall in no event be
liable to Subtenant nor shall Subtenant be excused from the performance or
observance of any of its obligations to be performed or observed under this
Sublease, or entitled to terminate this Sublease or to receive any reduction in
or abatement of the annual Fixed Rent, Additional Charges and other charges
provided for in this Sublease, because of any error in any statement submitted
by Overlandlord, except as may be permitted to Sublessor as tenant under the
Overlease. If Overlandlord shall fail to correct any such statement which is
contested by Subtenant, Sublessor shall, upon notice, permit Subtenant, at
Subtenant's sole cost and expense, to enforce Sublessor's rights against
Overlandlord with respect to such statement in Sublessor's name or in
Subtenant's name as agent for Sublessor, provided that Subtenant indemnifies
Sublessor therefor in accordance with the terms of Section 7 hereof. Sublessor
agrees to cooperate with Subtenant in such action and shall execute any and all
documents reasonably required in furtherance of such action. In the event that
as a result of Subtenant's action Sublessor shall receive a refund relating to
such contested statement, Sublessor shall pay to Subtenant, out of such refund,
an amount equal to the reasonable costs and expenses incurred by Subtenant in
connection therewith upon presentation of receipted bills therefor, and
Subtenant's proportionate share of the balance of such refund, as applicable. If
Sublessor receives any notice or demand from Overlandlord in respect of the
Subleased Premises, Sublessor shall promptly forward a copy thereof to
Subtenant. In the event of any dispute concerning the accuracy of any Additional
Charges imposed upon Subtenant, Subtenant agrees to pay any such disputed
Additional Charges promptly upon demand therefor.
(c) Sublessor shall provide Subtenant with copies of all relevant
statements with respect to Additional Charges, Additional Rent and other charges
provided for in this Sublease, together with survey results of Overlandlord
received by Sublessor relating, directly or indirectly, to the Subleased
Premises, and any item of Additional Charges payable by Sublessor pursuant to
the provisions of the Overlease, together with a statement or statements, with
appropriate computations, of such amounts, if any, which Subtenant is
<PAGE>
10
thereafter required to pay hereunder. Any failure or delay on the part of
Sublessor to bill Subtenant (or send copies of relevant statements or survey
results of Overlandlord received by Sublessor) shall not operate as a waiver of
Sublessor's rights hereunder to collect any such Additional Charges.
(d) Subtenant's obligations to pay any Additional Charges during the
use and occupancy of the Subleased Premises by Subtenant or its successors and
assigns, and Sublessor's obligation to refund any overpayment, if any, hereunder
shall survive the Expiration Date or sooner termination of the term of this
Sublease and, except as may be herein provided, all sums payable by Subtenant to
Sublessor pursuant to this Sublease as Additional Charges shall be collectible
by Sublessor at the same time and in the same manner as Fixed Rent.
(e) In the event that the Building air-cooling and/or heating system
is divided into zones within the Building and Subtenant requests any additional
or off-hour services, Subtenant shall pay the entire cost of such services as
Additional Charges, notwithstanding the fact that other tenants or subtenants in
the service zone may benefit from such services. However, in the event that
another tenant or subtenant requests such off-hour services and Subtenant
receives the benefit thereof as a consequence of being within the same service
zone as such other tenant, and Subtenant has not requested any such services,
Subtenant shall have no obligation to pay for any portion of such services. In
the event that both Subtenant and another tenant or subtenant request additional
or off-hour services of air-cooling and/or heating, the cost of such services as
described above shall be paid by Subtenant and such other tenant or subtenant on
a pro rata basis in accordance with the square footage of each party's premises
--- ----
within the same service zone of the Building.
12. USE. Subject to the terms of Section 3 hereof, Subtenant shall
---
use and occupy the Subleased Premises for any use permitted pursuant to Article
5 of the Overlease, as the same has been incorporated herein, and for no other
purpose. Subtenant shall comply with the temporary or permanent certificate of
occupancy relating to the Subleased Premises and with all Legal Requirements (as
such term is defined in Section 2.01 of the Overlease), and requirements of the
board of fire underwriters and/or the fire insurance rating organization or
similar organization performing the same or similar functions, whether now or
hereafter in force, having or claiming authority over the Subleased Premises.
13. CONDITION OF SUBLEASED PREMISES. (a) Supplementing the terms of
-------------------------------
Section 42.02 of the Overlease, and except as otherwise expressly set forth in
this Sublease, Subtenant acknowledges and agrees that it is leasing the
Subleased Premises "as is" and Sublessor is not required to perform any work or
expend any monies in connection with the space demised pursuant to the terms of
this Sublease. In making and executing this Sublease, Subtenant has relied
solely on such investigations, examinations and inspections of the Subleased
Premises as Subtenant has chosen to make or has made. Subtenant acknowledges
that Sublessor has afforded Subtenant the opportunity for full and complete
investigations, examinations and inspections of the Subleased Premises.
<PAGE>
11
(b) The parties hereto agrees that (i) Subtenant shall accept
possession of the Furniture in its "as is, where is" condition and (ii)
Sublessor has made no representations or warranties of any kind (including, but
not limited to, warranties of fitness for any particular use or purpose) with
respect to the Furniture. Subtenant agrees to maintain the Furniture in the
condition accepted and, subject to the next succeeding sentence, upon the
Expiration Date or termination of this Sublease, to surrender possession of the
Furniture to Sublessor in the same condition, subject to ordinary use, wear and
tear and natural deterioration. Subtenant shall have the option, upon written
notice to Sublessor given no earlier than sixty (60) days and no later than
thirty (30) days prior to the expiration of this Sublease, to purchase the
Furniture at such cost equal to the fair market value of the Furniture on the
day such Notice is deemed given pursuant to this Sublease, as such cost is
agreed upon by the parties. In the event the parties are unable to agree upon
the fair market value of the Furniture, such fair market value shall be
determined by a reputable independent appraiser designated by Sublessor and
reasonably approved by Subtenant. The fees and disbursements of such appraiser
shall be borne equally by Sublessor and Subtenant. Subtenant shall repair or
replace at its own expense any Furniture accepted in accordance herewith not in
the condition required to be maintained hereunder and, in the event Subtenant
fails to do so, Subtenant agrees that Sublessor shall have the right, but not
the obligation, to so repair or replace and to charge Subtenant therefor as and
for Additional Charges. Sublessor and Subtenant agree that Subtenant shall in no
event violate the terms of the Overlease in connection with the use and
maintenance of the Furniture. Subtenant agrees promptly to repair any damage to
the Subleased Premises (or reimburse Sublessor for the reasonable cost thereof)
caused by the use and maintenance of the Furniture. Subtenant further agrees to
indemnify, defend and hold harmless Sublessor from any suit, claim, damage,
judgment, loss, cost or expense arising out of Subtenant's use of the Furniture.
(c) Sublessor represents to Subtenant that, to the best of
Sublessor's knowledge, the Building elevators, air conditioning, heating,
ventilating, plumbing, water, lighting and electrical power facilities used in
connection with the Subleased Premises are in good working order on the date
hereof; provided, however, that the foregoing representation (i) shall not
constitute a warranty of any nature whatsoever, and (ii) does not modify or
otherwise affect in any manner Sublessor's obligation to deliver and Subtenant's
obligation to sublease the Subleased Premises in their "as is" condition as set
forth in Subsection 13(a) hereof.
14. CONSENTS AND APPROVALS. Supplementing the terms of Article 38 of
----------------------
the Overlease, in any instance when Sublessor's consent or approval is required
under this Sublease, Sublessor's refusal to consent to or approve any matter or
thing shall be deemed reasonable if, inter alia, such consent or approval has
----- ----
not been obtained from Overlandlord.
15. NOTICES. All notices, consents, approvals, demands and requests
-------
which are required or desired to be given by either party to the other hereunder
shall be in writing, addressed as hereinafter set forth, and shall be sent by
(a) United States registered or
<PAGE>
12
certified mail and deposited in a United States post office, return receipt
requested and postage prepaid. (b) hand delivery or (c) overnight courier
service. Notices, consents, approvals, demands and requests which are served
upon Sublessor or Subtenant in the manner provided herein shall be deemed to
have been given or served for all purposes hereunder on the third (3rd) day
following the date on which such notice, consent, approval, demand or request
shall have been delivered for deposit in a United States post office, addressed
as provided herein, or when received by hand or courier as aforesaid by the
addressee hereinafter set forth. All notices, consents, approvals, demands and
requests given to Subtenant shall be addressed to Subtenant at the following
address, or at such other place or to such other addressee as Subtenant may,
from time to time, designate in a notice given in accordance with the provision
of this Section: 12 East 49th Street, New York, New York with a copy addressed
to: Robinson Brog Leinwand Greene Genovese & Gluck P.C., 1345 Avenue of the
Americas, New York, New York 10105-0143, Attention: Roy A. Jacobs, Esq. All
notices, consents, approvals, demands and requests given to Sublessor shall be
in duplicate, and until such time as Sublessor shall designate otherwise, one
such duplicate shall be addressed to Sublessor at its address set forth in the
first paragraph of this Sublease to the attention of the Director of Corporate
Services, and the other duplicate shall be addressed to Shearman & Sterling,
Citicorp Center, 153 East 53rd Street, New York, New York 10022, Attention: Real
Estate Notices CMS 2962/2496. Sublessor may from time to time change the names
and/or addresses to which notices, consents, approvals, demands and requests
given to Sublessor shall be addressed and sent as aforesaid, by designating such
other names and/or addresses in a notice given in accordance with the provisions
of this Article.
16. TERMINATION OF OVERLEASE. If for any reason the term of the
------------------------
Overlease shall terminate prior to the Expiration Date, this Sublease shall
thereupon be terminated. Notwithstanding the foregoing (but subject to the terms
of the Overlease), Subtenant covenants and agrees that if for any, reason the
term of the Overlease shall terminate prior to the Expiration Date or
Overlandlord shall otherwise succeed to the estate of Sublessor in respect of
the Subleased Premises, Subtenant shall and hereby does waive any right to
surrender possession of the Subleased Premises or to terminate this Sublease
and, at Overlandlord's election, Subtenant agrees to be bound to Overlandlord
for the balance of the term of this Sublease and to attorn to and recognize
Overlandlord as its landlord under all of the then executory terms of this
Sublease, except that Overlandlord shall not be (a) liable for any previous act,
omission or negligence of Sublessor under this Sublease, (b) subject to any
counterclaim, defense or offset not expressly provided for in this Sublease
theretofore accruing to Subtenant against Sublessor, (c) bound by any previous
modification or by any previous prepayment of more than one month's Fixed Rent
and Additional Charges unless paid as provided in this Sublease, or (d)
obligated to perform any repairs or other work in the Subleased Premises or the
Building beyond Overlandlord's obligations under the Overlease, and Subtenant
agrees to execute and deliver such instruments as Overlandlord may reasonably
request to evidence and confirm such attornment.
17. ASSIGNMENT AND SUBLETTING. (a) Except as expressly provided in
-------------------------
this Article 17, Subtenant shall not, by operation of law or otherwise, assign,
<PAGE>
13
sell, mortgage, pledge or in any manner transfer this Sublease or any interest
herein, or sublet the Subleased Premises or any part or parts thereof, or grant
any concession or license or otherwise permit occupancy of all or any portion of
the Subleased Premises by any person, without the consent of (i) Sublessor,
which consent shall not be unreasonably withheld or delayed if such proposed
assignment or subletting is in accordance with the terms of Subsections 17(b)
through (g) hereof or, if not in accordance with such provisions, may be
withheld for any reason whatsoever, and (ii) Overlandlord, as set forth more
fully in Article 22 of the Overlease. Subtenant shall pay, upon demand, (i) any
cost, expense or fee of Overlandlord which is required to be paid in connection
with any assignment, subleasing or occupancy pursuant to this Section 17, and
(ii) any cost or expense of Sublessor which is incurred by Sublessor in
connection with any request for consent to any assignment, subletting or
occupancy pursuant to this Section 17. For purposes of this provision, unless
Subtenant shall be a "public corporation," the sale or transfer of fifty percent
(50%) of the stock of Subtenant, whether in a single transfer or in transfers of
lesser amounts which, when aggregated together, equal fifty percent (50%), shall
be deemed an assignment of Subtenant's interest under this Sublease.
(b) In the event that Subtenant shall desire Sublessor's consent to
an assignment of this Sublease or to a subletting of all or any portion of the
Subleased Premises, Subtenant shall request such consent by submitting to
Sublessor a statement of the material terms and conditions of such proposed
assignment or sublease and such other information as Sublessor may reasonably
require. Provided that Subtenant shall not be in default under any of the terms,
covenants or conditions of this Sublease, Sublessor shall not unreasonably
withhold or delay its consent to any such proposed assignment or subletting if
any proposed assignee or subtenant of Subtenant shall have a net worth
reasonably acceptable to Sublessor. Sublessor shall notify Subtenant whether it
consents to the proposed assignment or subletting within thirty (30) days from
the receipt by Sublessor of Subtenant's statement as required herein.
(c) Subject to Subsection 17(b) hereof, if Subtenant shall sublet all
or any portion of the Subleased Premises, Subtenant shall pay to Sublessor, as
Additional Charges hereunder, on a monthly basis, fifty percent (50%) of the
amount by which (a) any rents, additional charges or other consideration payable
in connection with the subletting by Subtenant (including, but not limited to,
sums paid for the sale or rental of leasehold improvements and personal property
in excess of, in the case of leasehold improvements and personal property
actually purchased by Subtenant, the unamortized or undepreciated value thereof)
exceeds (b) the sum of (i) the pro rata portion (on a rentable square foot
basis) of the amount payable for Fixed Rent and Additional Charges hereunder for
such portion of the Subleased Premises during the term of the subletting, (ii)
any amounts paid by Subtenant under Section 17(a) hereof and (iii) any amounts
paid by Subtenant on account of reasonable brokerage commissions incurred by
Subtenant in connection with the particular subletting in question (amortized
over the term of the subletting).
<PAGE>
14
(d) Subject to the terms of this Section 17, Subtenant shall not
publicly advertise (except by listing with a broker) space in the Subleased
Premises at a rental rate less than the rent at which Overlandlord or Sublessor.
as the case may be, is then offering to lease comparable space in the Building,
if any; provided, that the foregoing restriction shall not be deemed to prohibit
Subtenant from privately offering space, or negotiating a sublease, at a lower
rental rate.
(e) Neither the consent of Sublessor to an assignment, subletting,
concession or license nor the references in this Sublease to assignees,
subtenants concessionaires or licensees shall in any way be construed to relieve
Subtenant of the requirement of obtaining the consent of Sublessor to any
further assignment or subletting or to the making of any assignment, subletting,
concession or license for all or any part of the Subleased Premises. In the
event Sublessor consents to any assignment of this Sublease, the assignee shall
execute and deliver to Sublessor an agreement, in form and substance
satisfactory to Sublessor, whereby the assignee shall assume all of Subtenant's
obligations under this Sublease. Notwithstanding any assignment or subletting,
including, without limitation, any assignment or subletting permitted or
consented to, the original Subtenant named herein and any other person(s) who at
any time was or were Subtenant shall remain fully liable on this Sublease, and
if this Sublease shall be amended, modified, extended or renewed, the original
Subtenant named herein and any other person(s) who at any time was or were
Subtenant shall remain fully liable on this Sublease as so amended, modified,
extended or renewed; provided, however, that no such amendment or other
modification to this Sublease following any such assignment shall adversely
affect Subtenant's rights or responsibilities under this Sublease. Any violation
of any provision of this Sublease by any assignee, subtenant or other occupant
shall be deemed a violation by the original Subtenant named herein, and the then
Subtenant and any other person(s) who at any time was or were Subtenant, it
being the intention and meaning that the original Subtenant named herein, the
then Subtenant and any other person(s) who at any time was or were Subtenant
shall all be liable to Sublessor for any and all acts and omissions of any and
all assignees, subtenants and other occupants of the Subleased Premises. If this
Sublease shall be assigned or if the Subleased Premises or any part thereof
shall be sublet or occupied by any person or persons other than the original
Subtenant named herein, Sublessor may collect rent from any such assignee and/or
any subtenants or occupants, and apply the net amounts collected to Fixed Rent
and Additional Charges, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of this Section, or
the acceptance of the assignee, subtenant or occupancy as Subtenant, or a
release of any person from the further performance by such person of the
obligations of Subtenant under this Sublease.
(f) Notwithstanding anything to the contrary set forth in this
Section 17, so long as Subtenant shall not be in default under any of the terms,
covenants or conditions of this Sublease, Subtenant may, without the prior
written consent of Sublessor but subject to the terms of the Overlease and
following written notice thereof to Sublessor, permit all or any portion of the
Subleased Premises to be used by an entity which is an affiliate (as such term
is defined in Subsection 2.02(n) of the Overlease) of Subtenant upon such terms
and
<PAGE>
15
conditions (but subject to the terms of this Sublease) as Subtenant and any such
affiliate may mutually agree.
(g) If, for any reason whatsoever, the ownership of or by Subtenant
of an affiliate set forth in Subsection 17(f) hereof which is a corporation is
reduced to less than a majority of the shares of all classes of voting stock
therein, such reduction shall constitute a prohibited assignment of this
Sublease or a sublease of all or a portion of the Subleased Premises, as the
case may be, and Subtenant shall cause any such affiliate to vacate that portion
of the Subleased Premises which it occupies simultaneously with the occurrence
of any such reduction. The failure of the affiliate promptly to vacate that
portion of the Subleased Premises promptly which it occupies shall constitute a
substantial default under the terms of this Sublease and Sublessor shall have
all the rights and remedies set forth herein in the event of a default by
Subtenant.
18. INSURANCE. Notwithstanding anything to the contrary set forth in
---------
Section 8.03 of the Overlease, Subtenant shall maintain throughout the term of
this Sublease comprehensive general public liability insurance in respect of the
Subleased Premises and the conduct and operation of business therein, with
Sublessor and Overlandlord listed as additional insureds, with limits of not
less than One Million Dollars ($1000,000.00) for bodily injury or death to any
one person and One Million Dollars ($1000,000.00) for bodily injury or death to
any number of persons in any one occurrence, and One Million Dollars
($1,000,000.00) for property damage, including water damage and sprinkler
leakage legal liability, with no penalty to Sublessor or Overlandlord resulting
from deductibles or self-insured retentions effected in Subtenant's insurance
coverage. Any such comprehensive general public liability insurance shall be
written on the 1973 ISO occurrence format with no "claims made" provisions
applying if such ISO occurrence format is then available and, if not available,
any successor thereto or otherwise comparable format. Subtenant agrees that upon
notice of Sublessor the aforesaid amounts of insurance shall be increased to
such reasonable amounts as may be then customary in New York City for comparable
space in comparable buildings. Subtenant shall deliver to Sublessor and
Overlandlord a fully paid-for policy or certificate evidencing the foregoing
coverage promptly following the date hereof and in any event prior to the
Commencement Date. Subtenant shall procure and pay for renewals of such
insurance from time to time before the expiration thereof, and Subtenant shall
deliver to Sublessor and Overlandlord such renewal policy or certificate at
least thirty (30) days before the expiration of any existing policy. In the
event Subtenant fails so to deliver such renewal policy or certificate at least
thirty (30) days before the expiration of any existing policy, Sublessor shall
have the right, but not the obligation, to obtain the same and the cost thereof
shall constitute Additional Charges payable hereunder. All such policies shall
be issued by companies licensed to do business in the State of New York, and
shall be rated "A" or better by Best's Insurance Guide, and all such policies
shall contain a provision whereby the same cannot be canceled or modified unless
Sublessor and Overlandlord are given at least twenty (20) days' prior written
notice of such cancellation or modification. Notwithstanding anything to the
contrary set forth herein, Subtenant acknowledges and agrees that Sublessor
shall have no obligation or responsibility whatsoever, to Subtenant to obtain or
<PAGE>
16
maintain the insurance referenced in Sections 8.05, 8.06 and 8.07 of the
Overlease: Subtenant further acknowledges and agrees that such insurance shall
be obtained or maintained by Overlandlord and not by Sublessor.
19. ESTOPPEL CERTIFICATES. Subtenant shall, within ten (10) days
---------------------
after each and every request by Sublessor, execute, acknowledge and deliver to
Sublessor, without cost or expense to Sublessor, a statement in writing (a)
certifying that this Sublease is unmodified and, to the best knowledge of
Subtenant, is in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified, and stating such
modifications), (b) specifying the dates to which Fixed Rent and Additional
Charges have been paid, (c) stating whether or not, to the best knowledge of
Subtenant, Sublessor is in default in performance or observance of its
obligations under this Sublease and, if so, specifying each such default, (d)
stating whether or not, to the best knowledge of Subtenant, any event has
occurred which, with the giving of notice or passage of time, or both, would
constitute a default by Sublessor under this Sublease, and, if so, specifying
each such event, and (e) containing such other information with respect to the
Subleased Premises or this Sublease as Sublessor shall reasonably request. Any
such statement delivered pursuant to this Section may be relied upon by any
prospective assignee, transferee or mortgagee of the leasehold estate under the
Sublessor.
20. ALTERATIONS. Notwithstanding anything to the contrary set forth
-----------
in Article 10 of the Overlease, as the same has been incorporated herein by
reference, Subtenant shall not make or cause, suffer or permit the making of any
alteration, addition, change, replacement, installation or addition in or to the
Subleased Premises without obtaining the prior consent of Sublessor and, if
required, Overlandlord in each instance.
21. RIGHT TO CURE SUBTENANT'S DEFAULTS. If Subtenant shall at any
----------------------------------
time fail to make any payment or perform any other obligation of Subtenant
hereunder, then Sublessor shall have the right, but not the obligation, after
the lesser of five (5) days' notice to Subtenant or the time within which
Overlandlord may act on Sublessor's behalf under the Overlease, or without
notice to Subtenant in the case of any emergency, and without waiving or
releasing Subtenant from any obligations of Subtenant hereunder, to make such
payment or perform such other obligation of Subtenant in such manner and to such
extent as Sublessor shall deem necessary, and in exercising any such right, to
pay any incidental costs and expenses, employ attorneys and other professionals,
and incur and pay attorneys' fees and other costs reasonably required in
connection therewith. Subtenant shall pay to Sublessor upon demand all sums so
paid by Sublessor and all incidental costs and expenses of Sublessor in
connection therewith, together with interest thereon at the Interest Rate (as
such term is defined in Section 2.01(g) of the Overlease), or the then maximum
lawful interest rate, whichever shall be less, from the date of the making of
any such expenditures.
22. BROKERAGE. Subtenant represents and warrants to Sublessor that no
---------
broker or other person had any part, or was instrumental in any way, in bringing
about this
<PAGE>
17
Sublease, other than Colliers ABR, Inc. (the "Broker"). Subtenant agrees to
indemnify, defend and hold harmless Sublessor from and against any claims made
by any broker or other person other than the Broker for a brokerage commission,
finder's fee, or similar compensation by reason of or in connection with this
Sublease, and any loss, liability, damage, cost and expense (including, without
limitation, attorneys' fees and expenses) in connection with such claims if such
broker or other person claims to have had dealings with Subtenant with respect
to the Subleased Premises. Sublessor agrees to pay the commission of the Broker
earned in connection with this transaction, if any, in accordance with the terms
of the agreement between Sublessor and the Broker.
23. WAIVER OF JURY TRIAL AND RIGHT TO COUNTERCLAIM. In addition to
----------------------------------------------
the covenants set forth in Article 26 of the Overlease, as incorporated herein
by reference, the parties hereto hereby waive all right to trial by jury in any
summary action or other action, proceeding or counterclaim arising out of or in
any way connected with this Sublease, the relationship of Sublessor and
Subtenant, the Subleased Premises and the use and occupancy thereof, and any
claim of injury or damages. Subtenant also hereby waives all right to assert or
interpose a counterclaim in any summary proceeding or other action or proceeding
to recover or obtain possession of the Subleased Premises.
24. NO WAIVER. The failure of either party hereto to insist in any
---------
one or more cases upon the strict performance or observance of any obligation of
the other party hereto hereunder or to exercise any right or option contained
herein shall not be construed as a waiver or relinquishment for the future of
any such obligation of such other party or any right or option of such party.
Sublessor's receipt and acceptance of Fixed Rent or Additional Charges, or
Sublessor's or Subtenant's acceptance of performance of any other obligation by
Subtenant or Sublessor, as the case may be, with knowledge of Subtenant's or
Sublessor's breach of any provision of this Sublease, shall not be deemed a
waiver of such breach. No waiver by either party hereto of any term, covenant or
condition of this Sublease shall be deemed to have been made unless expressed in
writing and signed by both parties hereto.
25. COMPLETE AGREEMENT. There are no representations, agreements,
------------------
arrangements or understandings, oral or written, between the parties relating to
the subject matter of this Sublease which are not fully expressed in this
Sublease. This Sublease cannot be changed or terminated orally or in any manner
other than by a written agreement executed by both parties hereto.
26. SUCCESSORS AND ASSIGNS. The provisions of this Sublease, except
----------------------
as herein otherwise specifically provided, shall extend to, bind and inure to
the benefit of the parties hereto and their respective personal representatives,
heirs, successors and permitted assigns. In the event of any assignment or
transfer of the leasehold estate under the Overlease by Sublessor or any
successor in interest thereto, the transferor or assignor, as the case may be,
shall be and hereby is entirely relieved and freed of all obligations under this
Sublease.
<PAGE>
18
27. INTERPRETATION. Notwithstanding the place of execution or
--------------
performance of this Sublease, this Sublease shall be governed by, construed and
enforced in accordance with the internal laws of the State of New York without
reference to principles of conflict of laws. If any provision of this Sublease
or application thereof to any person or circumstance shall, for any reason and
to any extent, be invalid or unenforceable, the remainder of this Sublease and
the application of that provision to other persons or circumstances shall not be
affected, but rather shall be enforced to the maximum extent permitted by law.
The captions, headings and titles in this Sublease are solely for convenience of
reference and shall not affect its interpretation. This Sublease shall be
construed without regard to any presumption or other rule requiring construction
against the party causing this Sublease to be drafted. Each covenant, agreement,
obligation or other provision of this Sublease shall be deemed and construed as
a separate and independent covenant of the party bound by, undertaking or making
the same, which covenant, agreement, obligation or other provision shall be
construed and interpreted in the context of the Sublease as a whole. All terms
and words used in this Sublease, regardless of the number or gender in which
they are used, shall be deemed to include any other number and any other gender
as the context may require. The word "person" as used in this Sublease shall
mean a natural person or persons, a partnership, a corporation or any other form
of business or legal association or entity.
28. WAIVER OF IMMUNITY AND CONSENT TO JURISDICTION. To the extent
----------------------------------------------
that Subtenant or any of its property has, or may hereafter acquire, directly or
indirectly, any right of immunity from the jurisdiction of any court or from any
legal process (including immunity from attachment prior to judgment) on the
grounds of diplomatic status or sovereignty, Subtenant hereby irrevocably waives
any such right of immunity in respect of its obligations arising under or in
connection with this Sublease or Subtenant's occupancy of the Subleased
Premises. Subtenant represents and warrants to Sublessor that it is not now
entitled, directly or indirectly, to any such diplomatic or sovereign immunity
and should Sublessor or Overlandlord bring any suit, action or proceeding in the
State of New York or any other jurisdiction to enforce any obligation or
liability of Subtenant arising under or in connection with this Sublease or
Subtenant's occupancy of the Subleased Premises, no such immunity shall be
claimed by or on behalf of Subtenant.
29. SECURITY DEPOSIT. (a) Subtenant has deposited with Sublessor on
----------------
the date of execution and delivery of this Sublease a check, subject to
collection, in the amount of Fifty-Eight Thousand Four Hundred Fifty-Eight and
33/100 Dollars ($58,458.33) (the "Security Deposit") as security for the full
and punctual performance by Subtenant of all of its obligations under this
Sublease. Sublessor covenants and agrees that it shall invest the Security
Deposit in U.S. Treasury Bills having reasonable maturities taking into account
the proposed Expiration Date of this Sublease at such a yield as shall be
available. If the U.S. Treasury Bills held by Sublessor do not mature before the
Expiration Date, Sublessor shall either deliver said U.S. Treasury Bills to
Subtenant or shall sell them prior to maturity. For purposes of this Agreement,
a transfer of U.S. Treasury Bills to Subtenant shall be deemed to constitute
delivery thereof. Subtenant acknowledges and agrees that Sublessor shall have
<PAGE>
19
no liability for any loss occasioned by investment of the Security Deposit as
aforesaid, or for any failure to obtain the maximum possible yield from the
Security Deposit.
(b) In the event of any default by Subtenant hereunder, Sublessor
shall have the right, but shall not be obligated, to use, apply or retain all or
any portion of the security deposit for (i) the payment of any Fixed Rent,
Additional Charges or any other sum as to which Subtenant is in default, (ii)
the payment of any amount which Sublessor may spend or become obligated to spend
to repair damage to the Subleased Premises or the Building for which repairs
Subtenant is liable, or (iii) the payment of any amount Sublessor may spend or
become obligated to spend, or for the compensation of Sublessor for any losses
incurred, by reason of Subtenant's default, including, but not limited to, any
damage or deficiency arising in connection with the reletting of the Subleased
Premises and all associated legal fees. If any portion of said deposit is so
used or applied, then, within three (3) business days after written notice to
Subtenant of such use or application, Subtenant shall deposit with Sublessor
cash or a check in an amount sufficient to restore the Security Deposit to its
original amount, and Subtenant's failure to do so shall constitute a default
under this Sublease.
(c) Within thirty (30) days after the expiration of the term of this
Sublease, and provided Subtenant has vacated the Subleased Premises and is not
in default hereunder, Sublessor shall return such Security Deposit to Subtenant,
less such portion thereof as Sublessor shall have appropriated to satisfy any
default by Subtenant hereunder. The use, application or retention of the
Security Deposit, or any portion thereof, by Sublessor shall not prevent
Sublessor from exercising any other right or remedy provided by this Sublease or
by law, and shall not limit any recovery to which Sublessor may otherwise be
entitled. The Security Deposit shall not be assigned or encumbered by Subtenant.
(d) In the event of the sale or transfer of Sublessor's interest in
the Subleased Premises, Sublessor shall have the right to transfer the Security
Deposit to the purchaser or transferee, in which event Subtenant shall look only
to the purchaser or transferee for the return of the Security Deposit, and
Sublessor shall be released from all liability to Subtenant for the return of
such Security Deposit.
30. CLEANING AND OTHER SERVICES. (a) Notwithstanding anything to the
---------------------------
contrary contained herein, Subtenant acknowledges and agrees that any and all
cleaning services to be provided to the Subleased Premises shall be performed by
Overlandlord or the Cleaning Contractor (as defined in the Cleaning Agreement)
in accordance with the terms of Article 14 of the Overlease and the Cleaning
Agreement, a true and complete copy of which is annexed hereto as Exhibit D.
Sublessor and Subtenant agree that the Fixed Rent set forth in Section 9 hereof
shall include Subtenant's Proportionate Share of the fixed annual cleaning fee
for the Subleased Premises payable pursuant to Section 3(a) of the Cleaning
Agreement, but shall not include any cleaning cost escalation payable pursuant
to Section 4 of the Cleaning Agreement in excess of cleaning costs incurred by
Sublessor in respect of the Subleased Premises for calendar year 1996, and
Subtenant shall
<PAGE>
20
pay, as and for Additional Charges in accordance with the terms of this
Sublease, any and all escalations or additional charges levied by Overlandlord
or the Cleaning Contractor, as the case may be, in excess of any sums payable in
respect of cleaning services for calendar year 1996 in respect of the Subleased
Premises. Sublessor agrees that Subtenant shall have and enjoy the same rights
which Sublessor, as tenant under the Overlease, has to performance by
Overlandlord or the Cleaning Contractor of any service to be provided pursuant
to Article 14 of the Overlease or pursuant to the Cleaning Agreement,
respectively. In no event shall Sublessor be liable to Subtenant for the failure
of Overlandlord or the Cleaning Contractor to perform any such services;
provided, however, that Sublessor agrees to use all reasonable efforts to cause
Overlandlord or the Cleaning Contractor to perform any such services.
(b) Subject to the terms of Section 4 hereof, Sublessor covenants and
agrees that it shall make available to the Subleased Premises from 8:00 a.m. to
8:00 p.m. on Business Days (as such term is defined in Section 2.01 of the
Overlease) and from 8:00 a.m. to 1:00 p.m. on Saturdays no less than Subtenant's
Proportionate Share of the capacity of the Building's HVAC systems allocated to
Sublessor pursuant to the Overlease, including chilling, ventilation and air
volume capacities and CFMs. Such availability shall include, in the case of air
conditioning, no less than twenty-five (25) tons of condenser water in the
Building's cooling towers and cells.
(c) Subject to the terms of Section 4 hereof, Sublessor further
agrees that it shall make available at all times to the Subleased Premises no
less than Subtenant's Proportionate Share of hot and cold water provided by
Overlandlord for the operation of any lavatories and drinking fountains located
in the Subleased Premises.
(d) Sublessor covenants and agrees that it shall promptly forward to
Overlandlord any request of Subtenant that Overlandlord furnish replacement
lighting, tubes, lamps, starters, bulbs and ballasts (collectively, "Lighting
Equipment") required by Subtenant in the Subleased Premises; provided, however,
that (i) Subtenant shall reimburse Overlandlord for the cost of any such
Lighting Equipment promptly following demand therefor, and (ii) Sublessor shall
have no liability to Subtenant in the event that Overlandlord shall fail to
comply with any such request, or in the event of any loss, cost, damage or
expense resulting from the inadequacy or failure of any such Lighting Equipment.
Nothing set forth herein shall be construed to obligate Subtenant to purchase
any such Lighting Equipment from either Sublessor or Overlandlord.
(e) Upon the written request of Subtenant and other tenants or
subtenants leasing greater than sixty percent (60%) in the aggregate of the
space leased to Sublessor pursuant to the Overlease, Sublessor shall request
that Overlandlord, within the respective times prescribed by law for such
purposes and in accordance with the terms of the Overlease,
<PAGE>
21
(i) file an application with the Tax Commission of the City of New
York, or with such other body as shall have the power to fix or review
assessed valuations, for reduction of the assessed valuation of the Real
Property (as such term is defined in the Overlease), and, unless a
reduction acceptable to Overlandlord is made,
(ii) file a petition or other appropriate pleading for the purpose of
obtaining a judicial review of such assessed valuation.
Sublessor agrees to provide to Subtenant the information supplied by
Overlandlord to Sublessor pursuant to Subsection 6.02(e) of the Overlease. Any
charges incurred by Sublessor or Overlandlord in connection with the
application, petition, or other pleading set forth in this Section 30 shall be
payable as and for Additional Charges by Subtenant and any other tenants or
subtenants requesting the filing or maintaining of any such application,
petition or other pleading pro rata in accordance with the square footage of
--- ----
space in the Building leased or subleased to such parties.
(f) Sublessor agrees to cause Overlandlord to provide Subtenant no
less than Subtenant's Proportionate Share of space, but in no event fewer than
four (4) listings, on the Building directory in the ground floor lobby of the
Building for the purpose of identifying Subtenant and its employees.
(g) Sublessor shall not be obligated to provide or maintain any
security patrol or security system with respect to the Subleased Premises but
will permit Subtenant, at its sole cost and expense, to use the card reader
systems currently mounted on the doors located in the Subleased Premises which
card reader systems Sublessor shall disconnect from Sublessor's existing
security system.
31. SUBTENANT ELECTRICITY. The parties hereto acknowledge and agree
---------------------
that the Subleased Premises are separately metered for electrical energy and
that any and all electrical energy to be supplied to the Subleased Premises
shall be supplied directly by the public utility company then serving the
Building with such service and Subtenant shall be responsible for making all
such arrangements therefor with such public utility company. Subtenant shall pay
the amount set forth on each month's bill for electrical energy directly to the
utility company supplying such electrical energy. In no event shall Sublessor be
liable to Subtenant for the failure of such utility company to supply such
electrical energy to the Subleased Premises.
32. ENVIRONMENTAL MATTERS. Subtenant covenants and agrees that it
---------------------
shall not permit any materials to be used in the Subleased Premises in violation
of any applicable environmental law, and hereby indemnifies Sublessor for any
loss incurred by Sublessor as a result of the breach of the foregoing covenant
and agreement in accordance with the terms of Section 7 hereof. Each of the
parties hereto agrees promptly to notify the other in the event that it becomes
aware of any violation of any applicable environmental law affecting the
Subleased Premises.
<PAGE>
22
33. QUIET ENJOYMENT. If, and so long as, Subtenant pays the Fixed
---------------
Rent and Additional Charges and keeps, observes and performs each and every
term, covenant and condition of this Sublease on the part or on behalf of
Subtenant to be kept, observed and performed, Subtenant shall peaceably and
quietly enjoy the Subleased Premises throughout the term of this Sublease
without hindrance by Sublessor, subject to the provisions of this Sublease, the
Overlease, and any matter to which this Sublease and the Overlease are or may be
subject and subordinate.
IN WITNESS WHEREOF, Sublessor and Subtenant have hereunto executed
this Sublease as of the day and year first above written.
CS FIRST BOSTON CORPORATION
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
---------------------------- ----------------------------
Title: Managing Director Title: Director
MICHAEL STRAUSS, INC. D/B/A
AMERICAN HOME MORTGAGE
By: /s/ Michael Strauss
----------------------------
Title: President
<PAGE>
EXHIBIT A
---------
Subleased Premises
------------------
<PAGE>
[GRAPH OF CS FIRST BOSTION FURNITURE PLAN APPEARS HERE]
CS First Boston: Corporate Services: Furniture Plan T49 - 028
<PAGE>
EXHIBIT C
---------
<PAGE>
Exhibit C
CLEANING AGREEMENT
------------------
AGREEMENT dated May 17. 1984 by and between Solstead Associates, a New York
limited partnership having an office c/o Solomon Equities, Inc., Suite 1401, 400
Madison Avenue, New York, New York 10017 ("Contractor"), and THE FIRST BOSTON
CORPORATION, a Massachusetts corporation having an office at 55 East 52nd
Street, New York, New York 10055 ("Tenant").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Tenant is the tenant of the entire twenty-fifth through
forty-fourth rental floors (the "Premises") of the building (the "Building")
know as Tower 49 erected by Solstead Associates on East 49th Street, between
Fifth Avenue and Madison Avenue, New York, New York, pursuant to that certain
agreement of lease dated concurrently herewith between Solstead Associates and
Tenant (the "Lease""); and
WHEREAS, Tenant desires to obtain cleaning services for the Premises during
the term of the Lease; and
WHEREAS, Solstead Associates is desirous and willing to furnish the
cleaning services requested by Tenant throughout the term of the Lease or, at
the option of Solstead Associates, to assign this agreement to the manager of
the Building or to some other entity performing or arranging for such cleaning
services in the Building;
<PAGE>
2
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
Contractor and Tenant for themselves, their successors and assigns covenant and
agree as follows:
1. Contractor shall perform the cleaning services on business days (as
defined in Article 13 hereof) in the Premises as provided in (i) the Cleaning
Specifications which are annexed hereto, made a part hereof and incorporated
herein by reference and (ii) Article 16 hereof. Notwithstanding the foregoing,
Contractor will not be required to furnish any services:
(a) except as provided in the Cleaning Specifications and Article 16
hereof; and
(b) in any kitchen or food preparation area of the Premises, provided,
however, that any areas available to persons utilizing the food services
provided by such kitchen or food preparation area shall not be considered
part of the kitchen or food preparation area.
If Tenant shall desire additional cleaning services, Tenant shall pay
Contractor, as an additional cleaning fee hereunder, within ten (10) days after
demand therefor from Contractor, Contractor's actual out-of-pocket expenses
for such additional cleaning services plus fifteen percent (15%) of such
expenses for Contractor's administration costs. Contractor will furnish Tenant
with copies of such data as
<PAGE>
3
Tenant may reasonably request to verify such out-of-pocket expenses. Contractor
represents that the quality of the cleaning services to be furnished hereunder
shall be comparable to that of the services of other contractors in first class
office buildings in the area of the Building. Contractor reserves the right to
employ such subcontractors as Contractor may from time to time determine.
2. The term of this agreement shall commence on the Commencement Date of
the Lease (as that term is defined therein) and shall expire upon the expiration
or sooner termination of the Lease (as provided therein). Tenant shall promptly
notify Contractor in writing if Tenant elects to renew the Lease after the
initial 15-year term thereof as provided in Section 1.03 of the Lease.
3. (a) Subject to the provisions of subdivision (b) of this Article
providing for adjustments of the fixed annual cleaning fee, Tenant shall pay to
Contractor a fixed annual cleaning fee for the services provided hereunder at
the annual rate of $610,000.00, which Tenant agrees to pay in equal monthly
installments in advance on the first day of each and every calendar month during
the term of this agreement. The fixed annual cleaning fee and any cleaning cost
escalation (as provided in Article 4 of this agreement) and all other charges
herein reserved or payable shall be payable to Contractor at the office of
Contractor or at such
<PAGE>
4
other place as Contractor may designate, by a good and sufficient check draw on
a New York City bank which is a member of the New York Clearing House or a
successor thereto, without demand therefor and without any deduction, off-set or
abatement whatsoever, except as expressly provided herein. The fixed annual
cleaning fee shall be prorated and adjusted for any month during the term hereof
which is less than a full calendar month on a per diem basis.
(b) The fixed annual cleaning fee has been computed at the rate of $2.00
per year for each square foot of rentable space within the Premises. Contractor
and Tenant acknowledge that the Lease now provides that each full rental floor
in the Premises contains 15,250 rentable square feet. If pursuant to the
provisions of the Lease there shall be any redetermination of the rentable
square footage in the Premises and as a result thereof the fixed annual rental
under the Lease is adjusted. Contractor and Tenant shall make a corresponding
adjustment of the fixed annual cleaning fee payable hereunder at the rate of
$2.00 per square foot of rentable space in the Premises as so redetermined. The
fixed annual cleaning fee shall also be reduced at the rate of $2.00 for each
square foot of rentable space within Premises which shall be used as a kitchen
or food preparation area and for any portion of the Premises prior to the
initial occupancy thereof by Tenant or any other occupant claiming by
<PAGE>
5
or through Tenant, so long as Contractor shall not be required by Tenant to
furnish cleaning services therein. The determination of the number of square
feet of rentable space contained within such kitchen or food preparation area or
such unoccupied area shall be made jointly by Contractor and Tenant as soon as
possible after the Commencement Date of the Lease and thereafter if there is any
change in such kitchen or food preparation area or such unoccupied area in which
Contractor shall not furnish cleaning services. If Contractor and Tenant are
unable to agree on such determination, either of them shall have the right to
have any dispute with respect to the foregoing determined by arbitration
pursuant to Article 8, which arbitration shall be by three (3) architects each
of whom shall have at least ten (10) years experience in the design,
construction and finishing of major office buildings in the City of New York.
Contractor and Tenant shall execute any amendment of this agreement which
may be required to effect the intent of this paragraph.
(c) If Tenant shall elect to occupy any portion of the Premises prior to
the Commencement Date as provided in Section 1.05 of the Lease, within five (5)
business days after receipt from Tenant of a written request therefor,
Contractor shall commence providing the cleaning services called for in this
agreement in those portions of the
<PAGE>
6
Premises designated by Tenant in such request; provided that Tenant shall pay
Contractor for such services at the rate of $2.00 per year per rentable square
foot of such designated areas (which shall not include kitchen or food
preparation areas or unoccupied areas), payable in equal monthly installments,
in advance, on the first day of each calendar month (prorated on a per diem
basis for periods of less than a full calendar month) and shall also pay any
cleaning cost escalation, appropriately prorated on a per square foot basis for
such areas, which would have been payable had the term of this agreement
commenced, Any redetermination of or disagreement as to the number of square
feet in the areas so designated by Tenant shall be dealt with in accordance with
paragraph (b) of this Article as if the term of this agreement had commenced.
4. Tenant shall also pay to Contractor cleaning cost escalation in
accordance with this Article.
(a) Definitions: For the purpose of this Article, the following definitions
shall apply:
(i) Base Labor Rate" shall mean the Labor Rate (as defined in
subsection (ii) of this Section) for calendar year 1983 as presently contained
in the agreement between the Realty Advisory Board on Labor Relations, Inc. and
Local 32B-32J of the Building Service Employees International Union AFL-CIO,
which
<PAGE>
7
Base Labor Rate shall not be changed in the event of any change hereafter made
in such agreement with respect to said labor rate for calendar year 1983 nor
affected by any cost of living adjustments provided for in such agreement.
(ii) "Labor Rate" shall mean the average hourly cost, inclusive of
allocations and apportionments of taxes and fringe benefits incident,
applicable, allocable or related thereto, for an hour's work by a porter engaged
to work full time, based on the minimum regular hourly wage rate for such
employment, determined as follows:
(x) The minimum regular hourly wage rate shall be the rate for
employment of porters in Class A office buildings from time to time
established by agreement between the Realty Advisory Board on Labor
Relations, Inc. and Local 32B-32J of the Building Service Employees
International Union AFL-CIO or by the successors to either or both of
them, which rate shall be used in computations under this Article 4 whether
or not porters' wages are actually paid by or for Contractor or by
independent contractors who furnish such services to the Premises.
<PAGE>
8
(y) The term "porters" shall mean that classification of employee
engaged in the general maintenance and operation of office buildings most nearly
comparable to that classification now applicable to porters in the agreement in
force in 1983 with said Local 32B-32J (which classification is presently termed
"others" in said agreement).
(z) The term "fringe benefits" shall mean all fringe benefits,
including amounts for, allocable to or attributable to: pensions and welfare
funds; vacations, holidays, sick days, birthdays, jury duty, medical checkup,
lunch hours, relief time, "personal" days and other paid time off; bonuses; and
social security, unemployment, disability benefits, health, life, accident,
workmen's compensation and other types of insurance. If length of service shall
be a factor in determining any element of fringe benefits, it shall be
conclusively presumed that all employees have completed one year of service on
the last day of the calendar year reflected in the date of this agreement, plus
one additional year of service at the end of each calendar year thereafter
during the term hereof.
<PAGE>
9
If there is no such union agreement in effect at any time during the term
hereof, then all computations and payments called for in this Article shall
nevertheless be made, but shall be made on the basis of the regular hourly wage
rates, plus taxes and fringe benefits incident, allocable, or applicable
thereto, actually being paid or accrued at such time by the Contractor, or by
the contractor performing the cleaning services for Contractor, for such
porters, and appropriate retroactive adjustment shall thereafter be made if and
when the minimum regular hourly wage rate pursuant to such agreement is finally
determined. If any such union agreement shall require the regular employment of
porters on days or during hours when overtime or other premium pay rates are in
effect, then the "regular hourly wage rate", as used above, shall be deemed to
mean the actual weekly wage rate, divided by the actual hours in a calendar week
during which such porters are required to be employed (if, for example, as of
October 1, 1985, such an agreement shall require the regular employment of
building porters for forty (40) hours during a calendar
<PAGE>
10
week at a regular hourly wage rate of $4.00 for the first thirty (30)
hours, and premium or overtime hourly wage rate of $5.50 for the remaining
ten hours, then the "regular hourly wage rate" under this Article 4, as of
October 1, 1985, shall be deemed to be the total weekly wage rate of
$175,000 divided by forty (40), the total number of required hours of
employment, which equals $4,375).
(iii) "Contractor's Statement" means a statement certified by
Contractor or containing a computation of or information relating to any
cleaning cost escalation.
(iv) "Operation Year" means each calendar year that includes any part
of the term hereof.
(b) In the event that the Labor Rate in effect on the first day of any
Operation Year shall exceed the Base Labor Rate, Tenant shall pay to Contractor,
as an additional cleaning fee for such Operation Year, cleaning cost escalation
in an amount equal to the product obtained by multiplying (i) the percentage
increase between the said Labor Rate in effect on the first day of such
Operation Year and the Base Labor Rate by (ii) the fixed annual cleaning fee, By
or after the start of the first Operation Year and by or after the start of each
<PAGE>
11
Operation Year thereafter, Contractor shall furnish to Tenant a Contractor's
Statement setting forth in reasonable detail a calculation of the Labor Rate in
effect on the first day of such Operation Year and the cleaning cost escalation,
if any, which shall be due hereunder from Tenant to Contractor, Any such
cleaning cost escalation shall be paid as provided in (c) below.
(c) Each annual amount of cleaning cost escalation due by reason of the
foregoing shall commence to be payable, in equal monthly installments, as of the
first day of the period for which the Labor Rate shall exceed the Base Labor
Rate. After Contractor shall furnish Tenant with a Contractor's Statement
relating to any increase in the Labor Rate, such monthly installments of
cleaning cost escalation, equal to one-twelfth (1/12) of the annual amount
determined above, shall be paid by Tenant to Contractor until a new change takes
place in the Labor Rate. In the event that the Contractor's Statement is
furnished to Tenant after the commencement of the relevant Operation Year, there
shall be promptly paid by Tenant to Contractor any additional amount of cleaning
cost escalation theretofore accrued or allocable to the period prior to the
furnishing of the said Contractor's Statement. In the event Tenant shall have
made any overpayment of cleaning cost escalation because
<PAGE>
12
a Contractor's Statement is furnished to Tenant after a downward change in the
Labor Rate, the amount of such overpayment shall be promptly refunded to Tenant.
In the event that the Labor Rate shall be changed or shall change more
frequently than once a year, the adjustment hereunder shall similarly be made by
Contractor in an additional Contractor's Statement furnished by Contractor, so
as to reflect such change in the monthly installments of cleaning cost
escalation, as of the effective date of each such change. In the event the fixed
annual cleaning fee shall be adjusted pursuant to Article 3(b), from and after
the effective date of such adjustment, the cleaning cost escalation, if any, for
the remaining portion of the relevant Operation Year shall be recalculated using
such new fixed annual cleaning fee and Contractor shall furnish Tenant with a
Contractor's Statement setting forth such recalculation. Any additional amount
or overpayment of cleaning cost escalation resulting from such recalculation
shall be promptly paid by or refunded to Tenant, as applicable.
(d) The Contractor's Statements thus furnished to Tenant shall constitute a
final determination as between Contractor and Tenant of the Labor Rate and
cleaning cost escalation for the periods represented thereby, unless Tenant
within six (6) months after they are furnished
<PAGE>
13
shall give a notice to Contractor that it disputes their accuracy, which notice
shall specify the respects in which the statement is inaccurate. Pending the
resolution of such dispute, Tenant shall pay the cleaning cost escalation to
Contractor in accordance with the statements furnished by Contractor. Any such
dispute as to the accuracy of the calculations in said statements shall be
resolved by arbitration in accordance with the provisions of Article 8 hereof,
which arbitration shall be by three (3) arbitrators each of whom shall have at
least ten (10) years' experience in the supervision of the operation and
management of major office buildings in Manhattan. Whenever a dispute is to be
determined by arbitration as provided anywhere in this agreement, pending such
determination, Tenant shall pay to Contractor the full amount claimed without
diminution, abatement or offset. If the dispute is determined favorably to
Tenant. Contractor shall be obligated to pay to Tenant, within ten (10) days
after service upon Contractor of the notice of such determination, the full
amount of such diminution, abatement or offset to which the Tenant was entitled,
together with interest thereon at the rate publicly announced by Citibank, N.A.
as its "base rate" on the date on which Tenant paid the amount being recovered,
from the date Tenant paid such amount to
<PAGE>
14
Contractor to the date Tenant is paid the entire amount due to Tenant, failing
which Tenant shall have the right to offset such amount against the installments
of fixed annual cleaning fee next falling due hereunder.
(e) If the commencement date of the term of this agreement is not the first
day of an Operation Year, then, subject to any later changes in the Labor Rate,
the cleaning cost escalation due hereunder for the Operation Year in which such
commencement date occurs shall be a proportionate share of said cleaning cost
escalation for the entire Operation Year, said proportionate share to be based
upon the length of time that the term hereof shall be in existence during such
Operation Year. Upon the date of any expiration or termination of this
agreement, whether the same be the date hereinabove set forth for the expiration
of the term hereof or any prior or subsequent date, a proportionate share of
said cleaning cost escalation for the Operation Year during which such
expiration or termination occurs shall immediately become due and payable by
Tenant to Contractor, if it was not theretofore already billed and paid. The
said proportionate share shall be based upon the length of time that the term
hereof shall have been in existence during such Operation Year. Any cleaning
cost escalation paid by Tenant in respect of the period from and after
<PAGE>
15
such expiration or termination shall be promptly refunded to Tenant. Prior to or
promptly after said expiration or termination, Contractor shall compute the
cleaning cost escalation, if any, due from or payable to Tenant, as aforesaid,
which computations shall either be based on that Operation Year's Labor Rate(s)
or, if the same shall then be unavailable for any reason beyond Contractor's
control, on an estimate based upon the most recent Contractor's Statements. If
an estimate is used then Contractor thereafter, when the same becomes known,
shall cause statements to be prepared on the basis of that Operation Year's
Labor Rate(s). Upon Contractor's furnishing such statement to Tenant, Contractor
and Tenant shall make appropriate adjustments of amounts then owing.
(f) Contractor's and Tenant's obligation to make the adjustments and
payments referred to in subdivisions (c), (d) and (e) above shall survive any
expiration or termination of this agreement. Any delay or failure of Contractor
in billing for any cleaning cost escalation payable as hereinabove provided
shall not constitute a waiver of or in any way impair the continuing obligation
of Tenant to pay such cleaning cost escalation hereunder. In no event shall the
fixed annual cleaning fee as set forth in Article 3 of this agreement be reduced
by virtue of this Article 4.
<PAGE>
16
5. In the event that Tenant claims that Contractor has not or is not
complying with each and all of the terms and provisions of Article 1 of this
agreement, Tenant may serve notice to that effect upon Contractor, specifying
the respects in which such non-compliance is claimed. If at the expiration of
ten (10) days after the giving of such notice, Tenant is still of the opinion
that Contractor has not cured the non-compliance, or at any time thereafter
Tenant is of the opinion that the non-compliance has recurred, Tenant may demand
that the question of whether or not Contractor is so complying be settled by
arbitration in accordance with the provisions of Article 8 hereof. If a majority
of the arbitrators shall determine that Contractor is not so complying, then
Contractor shall have ten (10) days after the rendering of such decision in
which to effect such compliance. If the arbitrators shall specifically hold in
their decision that the performance of an affirmative act or acts required by
Contractor in order to effect such compliance is not reasonably possible within
the said ten (10) days and shall certify the time within which Contractor must
comply, then Contractor shall comply within the time so specified. In the event
that Contractor shall fail to effect such compliance as hereinbefore provided,
then Tenant may serve upon Contractor a ten (10) day notice of cancellation of
this agreement. Upon the expiration of said ten (10)
<PAGE>
17
days, this agreement and the term hereunder shall end and expire as fully and
completely as if the date of expiration were the day herein fixed for the end
and expiration of this agreement and the term hereof. In such event, the fixed
annual cleaning fee and all cleaning cost escalation payable hereunder shall be
adjusted and prorated between Contractor and Tenant as of the date of
termination. Upon such termination, Tenant acknowledges that the provisions of
Section 14.01 of the Lease shall become operative and Contractor shall have no
further responsibility to Tenant hereunder.
6. If Tenant defaults in making any payment of the fixed annual cleaning
fee or cleaning cost escalation as provided in Articles 3 and 4 hereof,
Contractor shall have the right to serve a fifteen (15) day notice upon Tenant
specifying said default and upon the expiration of said fifteen (15) days, if
Tenant shall have failed to remedy such default, then Contractor may serve a ten
(10) day notice of cancellation of this agreement upon Tenant, and, upon the
expiration of said ten (10) days, this agreement and the term hereof shall end
and expire as fully and completely as if the date of expiration of such ten (10)
day period were the day herein definitely fixed for the end and expiration of
this agreement and the term hereof. In such event, the fixed annual cleaning fee
and all cleaning cost escalation payable
<PAGE>
18
hereunder shall be adjusted and pro rated between Contractor and Tenant as of
the date of such termination. Upon such termination, Tenant acknowledges that
the provisions of Section 14.01 of the Lease shall become operative and neither
party shall have any further responsibility to the other accruing hereunder
thereafter, except that Tenant shall remain liable to Contractor for any fixed
annual cleaning fee and cleaning cost escalation which shall have accrued prior
to such termination and shall not have been paid by Tenant to Contractor.
7. Any notice or demand, consent, approval or disapproval, or statement
required to be given by the terms and provisions of this agreement, or by any
law or governmental regulation, either by Contractor to Tenant or by Tenant to
Contractor, shall be in writing. Unless otherwise required by such law or
regulation such notice or demand shall be given, and shall be deemed to have
been served and given by Contractor and received by Tenant, upon actual receipt
by Tenant or, if earlier, on the second day following the day when Contractor
shall have deposited such notice or demand by registered or certified mail
enclosed in a securely closed post-paid wrapper, in a United States Government
general or branch post office, or official depository with the exclusive care
and, custody thereof, addressed to Tenant, attention of the Corporate Secretary,
at the address set
<PAGE>
19
forth after Tenant's name of page 1 of this agreement. After Tenant shall occupy
the Premises, the address of Tenant for notices, demands, consents, approvals or
disapprovals shall be the Building. Such notice, demand, consent, approval or
disapproval shall be given, and shall be deemed to have been served and given by
Tenant and received by Contractor, upon actual receipt by Contractor or, if
earlier, on the second day following the day when Tenant shall have deposited
such notice or demand by registered or certified mail enclosed in a securely
closed post-paid wrapper, in a United States Government general or branch post
office, or official depository with the exclusive care and custody thereof,
addressed to Contractor at the address set forth after Contractor's name on page
one of this agreement. Either party may, by notice as aforesaid, designate a
different address or addresses and an additional party for notices, demands,
consents, approvals or disapprovals.
8. (a) Every dispute between the parties which is expressly provided
in this agreement to be determined by arbitration shall be resolved in the
manner provided in this Article.
(b) Either party may request arbitration of any such matter in
dispute. The party requesting arbitration shall do so by giving notice to that
effect to the other party, specifying in said notice the name and address of the
<PAGE>
20
person designated to act as an arbitrator on its behalf. Within fifteen (15)
days after the service of such notice, the other party shall give notice to the
first party specifying the name and address of the person designated to act as
an arbitrator on its behalf. If the second party fails to notify the first party
of the appointment of its arbitrator, as aforesaid, within the time above
specified, then the appointment of the second arbitrator shall be made in the
same manner as hereinafter provided for the appointment of a third arbitrator in
a case where the two arbitrators appointed hereunder and the parties are unable
to agree upon such appointment. The two arbitrators so chosen shall meet within
ten (10) days after the second arbitrator is appointed. If the two arbitrators
shall not agree upon the question in dispute, they shall together appoint a
third arbitrator. In the event of their being unable to agree upon such
appointment within thirty (30) days after the appointment of the second
arbitrator, the third arbitrator shall be selected by the parties themselves if
they can agree thereon within a further period of fifteen (15) days. If the
parties do not so agree, then either party, on behalf of both and on notice to
the other, may request such appointment by the American Arbitration Association
(or any organization successor thereto) in accordance with its rules then
prevailing or if the American Arbitration Association (or
<PAGE>
21
such successor organization) shall fail to appoint said third arbitrator within
fifteen (15) days after such request is made, then either party may apply, on
notice to the other, to the Supreme Court in the County of New York (or any
other court having jurisdiction and exercising functions similar to those now
exercised by said Court) for the appointment of such third arbitrator, and the
other party shall not raise any question as to such court's full power and
jurisdiction to entertain the application and make the appointment. Each
arbitrator chosen or appointed pursuant to this Section shall be a person having
at least ten (10) years experience in the County of New York in a calling
connected with the dispute and the third arbitrator shall be disinterested and
such arbitrator shall be the only arbitrator who must be disinterested.
(c) The arbitration shall be conducted, to the extent consistent with this
Article, in accordance with the then prevailing rules of the American
Arbitration Association (or any organization successor thereto) in the City and
County of New York. The arbitrators shall have the right to retain and consult
experts and competent authorities skilled in the matters under arbitration. The
arbitrators shall render their decision and award, upon the concurrence of at
least two of their number, within sixty (60) days after the appointment of the
third arbitrator. Such decision and award
<PAGE>
22
shall be in writing and counterpart copies thereof shall be delivered to each of
the parties. In rendering such decision and award, the arbitrators shall not add
to, subtract from or otherwise modify the provisions of this agreement.
Judgment may be had on the decision and award of the arbitrators so rendered and
may be enforced in accordance with the laws of the State of New York. If for any
reason whatsoever the written decision and award of the arbitrators shall not be
rendered with sixty (60) days after the appointment of the third arbitrator,
either party may apply to the Supreme Court of the State of New York or to any
other court having jurisdiction and exercising the functions similar to those
now exercised by such court, by action, proceeding or otherwise (but not by a
new arbitration proceeding) as may be proper to determine the question in
dispute consistently with the provisions of this agreement. Each shall pay the
fees and expenses of the one of the two original arbitrators appointed by or for
such party and the fees and expenses of the third arbitrator and all other
expenses of the arbitration shall be borne by the parties equally. However, each
party shall bear the expense of its own counsel, experts and presentation of
proof.
9. (a) If, by reason of (1) strike, (2) labor troubles, (3)
governmental pre-emption in connection with a national emergency, (4) any rule,
order or regulation of any
<PAGE>
23
governmental agency, (5) conditions of supply or demand which are affected by
war or other national, state or municipal emergency, or (6) any cause beyond
Contractor's control, Contractor shall be unable to fulfill its obligations
under this agreement or shall be unable to supply any service which Contractor
is obligated to supply, this agreement shall in no way be affected except that
Tenant shall be entitled to (i) an abatement of the fixed annual cleaning fee
and cleaning cost escalation to the extent of the allocable charge per square
foot and the related cleaning cost escalation for any space covered hereunder in
which Contractor shall be unable to fulfill its obligations or supply the
services required hereunder for any period during which such condition shall
exist and/or (ii) an equitable reduction of the fixed annual cleaning fee and
cleaning cost escalation for any space covered hereunder in which Contractor
shall perform some, but not all, of its obligations and services for any period
during which Contractor shall be unable to supply such services or fulfill such
obligations. Any dispute as to the amount of equitable reduction of fixed
annual cleaning fee and cleaning cost provided for hereunder shall be resolved
by arbitration in accordance with the provisions of Article 8 hereof. As
Contractor shall learn of the happening of any of the foregoing conditions,
Contractor shall promptly notify Tenant of such event and, if ascertainable, its
estimated
<PAGE>
24
duration and will proceed promptly and diligently with the fulfillment of its
obligations as soon as reasonably possible.
(b) If and for so long as all or any portion of the Premises shall
be Untenantable, as such term is defined in the Lease, if Tenant shall notify
Contractor of such condition and shall request Contractor to suspend cleaning in
such areas, Contractor shall so suspend such cleaning for the duration of such
condition and there shall be an equitable abatement of the fixed annual cleaning
fee and any cleaning cost escalation payable in respect of such Untenantable
space for the duration of such suspension.
10. (a) Contractor shall supply competent supervisory personnel,
proper cleaning materials, implements, machinery and cleaning supplies (except
as may be herein other wise specified) for the satisfactory performance of all
services. Contractor agrees to supply all of its employees with clean and neat
uniforms and to keep these uniforms in good condition and repair, replacing them
at sufficient intervals to maintain a constant, well-groomed appearance.
(b) It is understood that, on infrequent occasions, certain cleaning
in certain limited areas involving less than an entire floor, such as a meeting
or board room, conference room, private dining room, auditorium, cafeteria or
the offices of the top management of Tenant, may be required by Tenant other
than or the regularly scheduled times therefor.
<PAGE>
25
Tenant shall use reasonable efforts to communicate to Contractor's supervisory
personnel Tenant's special knowledge and awareness of cleaning which
unexpectedly becomes necessary from time to time and Contractor shall cause its
supervisory personnel to cooperate fully with Tenant so as to seek to achieve
the desired results of having all areas of the Premises clean and presentable.
(c) All labor, materials, equipment and supervision shall be to the
reasonable satisfaction of Tenant.
11. Except for claims arising out of acts caused by the negligence of
Tenant or its agents, servants, employees or representatives, Contractor hereby
indemnifies and agrees to hold harmless and defend Tenant against any claims,
expenses and liabilities arising out of the furnishing of Contractor's services
hereunder or out of any default by Contractor hereunder or out of any act of
negligence of Contractor or its agents, employees or licensees in connection
with this agreement. This indemnity agreement shall also include the defense of
Tenant by counsel, reasonably satisfactory to Tenant, and the payment of all
reasonable legal fees by Contractor. The foregoing provisions of this Article
shall survive the expiration or termination of this agreement.
12. Contractor shall supply Workmen's Compensation Insurance,
Disability Insurance, Commercial Blanket Fidelity
<PAGE>
26
Bond and Comprehensive General Public Liability Insurance, including Contractual
Liability Insurance, in amounts reasonably satisfactory to Tenant, and
certificates evidencing such insurance and payment of the premiums therefor
shall be furnished to Tenant upon request. Such insurance shall be issued by
companies qualified to do business in New York and reasonably satisfactory to
Tenant. Contractor shall comply with all requirements of governmental
authorities and shall furnish to Tenant upon request copies of all permits and
licenses required.
13. As used herein "business days" shall mean all days except
Saturdays, Sundays and the days observed by the Federal or the New York State or
City governments as legal holidays and such other days as shall be designated as
holidays by the applicable operating engineers union or building service
employees union contract. Notwithstanding the foregoing, any day on which the
New York Stock Exchange or commercial banks in the City of New York are open for
business shall constitute a business day.
14. If Tenant shall not pay any fixed annual cleaning fee or cleaning
cost escalation within ten (10) days after the same shall be due hereunder,
Tenant shall pay to Contractor a late charge in an amount equal to the rate of
interest publicly announce, from time to time, by Citibank, N.A. as its "base
rate", on the date on which such payment
<PAGE>
27
was due for the period from the date on which the fixed annual cleaning fee or
cleaning cost escalation, as the case may be, was due until the date of payment
thereof by Tenant to Contractor.
15. At the request of Tenant, Contractor shall endeavor to employ a
limited number of individuals designated by Tenant for the purpose of providing
certain of the cleaning services specified hereunder, provided that such
individuals shall comply with all union and other legal requirements for
employment by Contractor.
16. Contractor shall remove all refuse and rubbish including, without
limitation, refuse commonly referred to as "wet garbage", related to Tenant's
vending machines and eating facilities requiring special handling ("Wet
Garbage") in connection with the cleaning services to be provided hereunder upon
and subject to the following terms and conditions:
(a) All Wet Garbage shall be deposited by Tenant in a location in the
Building designed by the landlord under the Lease adjacent to the freight
elevator on the floor on which Tenant's kitchen, food service or food
preparation area is located;
(b) All Wet Garbage shall be contained in sealed reinforced bags or
receptacles of customary office size for Wet Garbage; and
<PAGE>
28
(c) Tenant shall pay to Contractor, as an additional cleaning fee
hereunder, within ten (10) days after demand therefor from Contractor,
Contractor's actual out-of-pocket expenses for carting the Wet Garbage
plus fifteen percent (15%) of such expenses for Contractor's administration
costs. Contractor will furnish Tenant with copies of such data as Tenant
may reasonably request to verify the carting expenses specified in this
subparagraph (c).
17. This agreement shall bind, and inure to the benefit of, the
parties hereto and their respective successors and assigns, and shall be
construed in accordance with the laws of the State of New York.
18. This agreement sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof and this agreement may not be
amended or modified, nor may any provision hereof be waived, except by a writing
signed by the party to be charged. Any such amendment, modification or waiver
shall be effective only in the specific instance and for the purpose for which
given.
19. It is expressly agreed and understood that Solstead Associates, as
the initial Contractor and the initial landlord under the Lease, shall have the
right to assign its rights and obligations under this agreement to (a) any
affiliate (as such term is defined in the Lease) of
<PAGE>
29
Solstead Associates that is acting as manager of the Building or supplying
cleaning services to the Building or (b) any reputable independent cleaning
contractor capable of providing the cleaning services called for in this
agreement in a manner commensurate with the status of the Building as a
first-class office building in the midtown east area of Manhattan; provided that
any such assignee shall assume in writing the obligations of the Contractor
hereunder.
IN WITNESS WHEREOF, Contractor and Tenant have duly executed this agreement on
the date first above written.
SOLSTEAD ASSOCIATES
By: Plaza 49 Associates, a General Partner
By /s/ David S. Solomon
----------------------------------
David S. Solomon
General Partner
THE FIRST BOSTON CORPORATION
By /s/ William E. Mayer
----------------------------------
William E. Mayer
Managing Director
<PAGE>
Cleaning Specifications
-----------------------
GENERAL CLEANING:
NIGHTLY - BUSINESS DAYS
General Offices:
1. All hardsurfaced flooring to be swept using approved dustdown
preparation.
2. Carpet sweep all carpeted areas, moving only light furniture
(desks, file cabinets, etc. not to be moved).
3. Hand dust and wipe clean all furniture, fixtures, baseboards and
window sills.
4. Empty and wipe clean all ash trays and screen all sand urns.
5. Empty all wastepaper receptacles and remove wastepaper.
6. Dust interiors of all wastepaper disposal cans and baskets.
7. Wash clean all water fountains and coolers.
8. Sweep all private stairways.
Lavatories:
1. Sweep and wash all floors, using an odorless detergent.
2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
6. Paper towel and sanitary receptacles emptied and cleaned.
7. Fill toilet tissue holders and soap dispensers.
<PAGE>
2
WEEKLY
1. Vacuum clean all carpeting and rugs, including those on stairs, if any.
2. dust all vertical surfaces such as walls, partitions, door louvers and
other surfaces within a person's reach.
3. Wipe clean all interior metal and remove fingermarks.
EVERY OTHER MONTH
High dust premises if required, including the following:
1. Dust all pictures, frames, charts, graphs and similar wallhangings not
reached in nightly cleaning.
2. Dust clean all vertical surfaces such as walls, partitions, doors, ducts
and other surfaces not reached in nightly or weekly cleaning.
3. Dust all pipes, ventilating and air-conditioning louvers, ducts, high
mouldings and other high areas not reached in nightly or weekly cleaning.
4. Dust all venetian blinds and window frames.
<PAGE>
EXHIBIT 10.9
SUBLEASE
between
SUNTORY INTERNATIONAL CORP.,
Sublandlord,
and
MICHAEL STRAUSS, INC. D/B/A
AMERICAN HOME MORTGAGE
Subtenant
Premises: Portion of 29th Floor
12 East 49th Street
New York, New York
<PAGE>
TABLE OF CONTENTS
CAPTIONS PAGE
- -------- ----
1. Subleasing and Use..................................................... 1
2. Term................................................................... 2
3. Base Rent.............................................................. 2
4. Additional Rent........................................................ 3
5. Electricity............................................................ 5
6. Assignment and Subletting.............................................. 6
7. Condition of the Premises.............................................. 9
8. Incorporation of Overlease............................................. 9
9. Subtenant's Covenants and Liability Insurance.......................... 10
10. Articles of Overlease.................................................. 11
11. Overlandlord's Obligations............................................. 12
12. Sublandlord's Covenants................................................ 13
13. Consent of Sublandlord................................................. 13
14. Liability of Sublandlord............................................... 14
15. Notices................................................................ 14
16. Entire Agreement, Modifications, Successors............................ 15
17. Broker................................................................. 15
18. Listings............................................................... 15
19. Security............................................................... 16
20. Overlease Provision.................................................... 17
21. Subordination.......................................................... 17
22. Overlandlord's Consent................................................. 17
<PAGE>
SUBLEASE
--------
SUBLEASE, made the 17th day of December, 1997 by and between SUNTORY
INTERNATIONAL CORP., a California corporation having an office at 12 East 49th
Street, New York, New York 10017 ("Sublandlord"), and MICHAEL STRAUSS, INC.,
d/b/a AMERICAN HOME MORTGAGE, a New York corporation having an office at 12 East
49th Street, New York, New York 10017 ("Subtenant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, by lease dated February 15, 1997 (the "Overlease"), Kato Real
Estate Corporation ("Overlandlord") leased to Sublandlord, as tenant, the entire
29th floor (the "Overlease Premises") of the building known as Tower 49 located
at 12 East 49th Street in the Borough of Manhattan, City and State of New York
(the "Building") and consisting of 15,250 rentable square feet; and
WHEREAS, a copy of the Overlease has been delivered to Subtenant; and
WHEREAS, Subtenant desires to lease from Sublandlord a portion of the
Overlease Premises consisting of 4,180 rentable square feet as shown unhatched
on Exhibit A annexed hereto (the "Sublet Premises");
NOW, THEREFORE, the parties hereto, for themselves, their successors and
assigns, hereby covenant and agree as follows:
1. Subleasing and Use: (a) Sublandlord hereby leases to Subtenant,
------------------
and Subtenant hereby hires from Sublandlord, the Sublet Premises for the term
hereinafter stated, for the rent
<PAGE>
hereafter reserved and upon and subject to the covenants, agreements, terms and
conditions herein set forth.
(a) Subtenant shall use and occupy the Sublet Premises for general and
executive office suites, and for no other purpose.
2. Term. The term of this Sublease shall commence on the date that is
----
three business days after the Overlandlord's written consent has been delivered
to Subtenant as hereinafter provided (the "Commencement Date") and shall end on
the day preceding the tenth (10th) anniversary of the Commencement Date (the
"Expiration Date"), or until said term shall sooner cease and terminate as
provided herein.
3. Base Rent. The annual base rent hereunder shall be at the rate of
---------
(i) $175,560 per annum (or $42.00 per sq. ft) from the Commencement Date to the
day preceding the fifth anniversary of the Commencement Date, payable in advance
in equal monthly installments of $14,630 on the first day of each calendar month
during said period, and (ii) $183,920 per annum (or $44.00 per sq. ft) for the
balance of the term of this Sublease, payable in advance in equal monthly
installments of $15,326.67 on the first day of each calendar month during said
period. The base rent, additional rent and other charges herein reserved and
payable shall be paid to Sublandlord at 12 East 49th Street, New York, New York
10017, or at such other place as Sublandlord may designate, in lawful money of
the United States of America, as and when the same becomes due and payable,
without demand therefor and without any deduction, set-off or abatement
whatsoever except as otherwise provided in this Sublease. Notwithstanding the
foregoing, Sublandlord hereby grants to
-2-
<PAGE>
Subtenant a six (6) month base rent concession to be applied to the following
installments of base rent becoming due hereunder: first (1st), second (2nd),
third (3rd), thirteenth (13th), fourteenth(14th) and fifteenth (15th) (amounting
to $87,780 in the aggregate). Base rent for the fourth installment of base rent
shall be payable upon the execution hereof.
4. Additional Rent. (a) In addition to the annual base rent reserved
---------------
in Section 3 hereof, Subtenant covenants and agrees to pay to Sublandlord as
additional rent 27.4% of all sums which Sublandlord is required to pay to
Overlandlord pursuant to (i) Article 5 of the Overlease (Taxes and Operating
Expenses) except that in Section 1.1 of the Overlease (x) Taxes Base Period
shall be the period commencing on July 1, 1997 and ending on June 30, 1998, and
(y) Operating Expenses Base Period shall be the period commencing on January 1,
1998 and ending on December 31, 1998; (ii) Section 5.3 of the Overlease
(cleaning) except that the Base Labor Rate shall be the Labor Rate for calendar
year 1998; (iii) Section 5.4 of the Overlease (Building electricity); and (iv)
Section 6.9 of the Overlease (Skylobby). The parties hereto agree that
Sublandlord shall have all of the rights and remedies with respect to the
nonpayment by Subtenant of the additional rent provided for in this Section 4
and all other costs, charges and expenses provided for in this Sublease
(collectively, "additional rent") as are provided for in this Sublease or by law
in case of the nonpayment of base rent provided for herein.
(b) Subtenant shall pay Sublandlord the additional rent set forth in
paragraph (a) of this Section 4 within fifteen
-3-
<PAGE>
(15) days after the presentation of a statement therefor by Sublandlord to
Subtenant from time to time; provided, however, that if the additional rent is
payable by Sublandlord to Overlandlord upon demand, Subtenant shall pay the
additional rent to Sublandlord upon demand. Subtenant covenants to pay the
additional rent when due, and in lawful money of the United States. Any delay
by Sublandlord in billing additional rent shall not constitute a waiver of or in
any way impair Subtenant's obligation to pay the same in accordance with the
terms of this Sublease.
(c) Subtenant's obligation to pay the additional rent for the term of
this Sublease shall survive the expiration or earlier termination of this
Sublease for a period of two years.
(d) The statement or statements referred to in clause (b) of this
Section 4 shall be accompanied by copies of all statements received by
Sublandlord from Overlandlord on which such statement or statements are
based (provided Sublandlord has received such copies from Overlandlord on which
such statement or statements are based (provided Sublandlord has received such
copies from Overlandlord) (and, during the first year, shall send Subtenant
copies of sufficient documentation establishing the respective base amounts) and
shall constitute a final determination as between Sublandlord and Subtenant
unless Subtenant, within ninety (90) days after they are furnished to Subtenant
(but in no event, beyond the time, if any, prior to which Sublandlord could
contest same pursuant to the Overlease), shall in writing challenge the accuracy
or appropriateness of any such statement, in which case, pending the resolution
of such dispute, Subtenant shall pay the additional rent provided for in this
Section 4 to Sublandlord in accordance with the statement(s) furnished by
Sublandlord.
-4-
<PAGE>
(e) In no event shall Subtenant be obligated to make a payment of
additional rent under this Article 4 for a year or for a category of additional
rent for which Sublandlord is not obligated to make such a payment to
Overlandlord, nor shall Subtenant be obligated to make any such payment in
excess of the payment required to be made by Sublandlord for the applicable year
or the applicable category of additional rent.
(f) If Sublandlord has received a refund or credit for overpayments of
additional rent under the Overlease attributable to a year or category of
expense paid by Subtenant to Sublandlord, Subtenant shall be entitled to
receive its proportionate share of such refund or credit.
5. Electricity. (a) Subtenant shall pay as additional rent 27.4% of
-----------
the amount payable by Sublandlord for electricity pursuant to Section 6.1 of the
Overlease, and the provisions of Section 4(b), (c), and (d) above shall be
applicable with respect thereto.
(b) Sublandlord shall not in any way be liable or responsible to
Subtenant for any loss or damage or expense which Subtenant may sustain or incur
by reason of any change, failure or defect in the supply or character of the
electric energy furnished to the Sublet Premises or if the quantity or character
of the electrical energy is no longer available or suitable for Subtenant's
requirements, except that Subtenant shall be entitled to 27.4% of any abatement
received by Sublandlord to the extent the Sublet Premises was affected
applicable, however, only to any period during which Subtenant was occupying the
Sublet Premises pursuant to the terms of this Sublease. Subtenant covenants and
agrees that at all times its use of electric current shall never
-5-
<PAGE>
exceed the capacity of existing feeders to the Building or the risers or wiring
installation.
6. Assignment and Subletting. (a) Subtenant shall not assign this
-------------------------
Sublease, sub-sublet the Sublet Premises, or any part thereof, suffer or permit
the occupancy of the Sublet Premises, or any part thereof, by any party other
than Subtenant, or in any other manner encumber this Sublease without the prior
written consent of Sublandlord and Overlandlord in each instance. Provided it
has obtained Overlandlord's consent, Sublandlord's consent shall not be
unreasonably withheld. The consent by Sublandlord to any assignment of this
Sublease or to any sub-sublease or occupancy of the Sublet Premises, or any part
thereof, shall not be deemed to be a consent to any other assignment, sub-
subletting or occupancy, and shall not be deemed (i) to relieve or release
Subtenant from the full performance and observance by Subtenant of all of its
obligations pursuant to this Sublease, or (ii) to relieve or release Subtenant
or any assignee or sub-sublessee of Subtenant from the obligation of obtaining
the consent in writing of Sublandlord and Overlandlord to any further
assignment, sub-sublease or occupancy.
(b) If this Sublease shall be assigned without the consent of
Sublandlord and Overlandlord, or if the Sublet Premises, or any part thereof,
shall be sublet or occupied by any person or persons other than Subtenant,
Sublandlord may, after default by Subtenant, collect rent from assignee, sub-
subtenant or occupant and apply the net amount collected to the rent herein
reserved, but no such assignment, sub-subletting, occupancy or collection of
rent shall be deemed a waiver of any of the covenants, terms or provisions
contained in this Section.
-6-
<PAGE>
6, nor shall it be deemed an acceptance of the assignee, sub-subtenant or
occupant as Subtenant hereunder, or a release of Subtenant from the full
performance and observance by Subtenant of all the covenants and obligations
contained in this Sublease on the part of Subtenant to be performed or observed.
(c) A transfer of a majority of the voting stock of Subtenant shall be
deemed an assignment of this Sublease and shall require the consent of
Sublandlord and Overlandlord. The provisions of Section 19.2 of the Overlease
shall apply to this Sublease, except that the successor to Subtenant must have a
net worth equal to or greater than the net worth of Subtenant immediately prior
to such merger, consolidation or transfer. The provisions of Section 19.12 also
shall apply to this Sublease.
(d) If Sublandlord should consent to a subletting or assignment,
Subtenant agrees that Sublandlord shall be entitled to receive an amount equal
to fifty percent (50%) of the Net Profit (as hereinafter defined) received by
Subtenant in connection with any subletting of the Sublet Premises or any
assignment of this Sublease during the term of this Sublease. Such amounts shall
be determined and shall be payable to Sublandlord as follows:
(i) "Net Profit" shall mean the excess, if any, of Income over
Expenses (as such terms are hereinafter defined) as of a given date.
With respect to each sublease or assignment, "Income" shall mean the sum
of all rents, additional rents and other considerations paid by any
subtenant or assignee under any such sublease or assignment, as the case
may be, as of a given date. "Expenses", with respect to each sublease or
assignment, shall mean the sum
-7-
<PAGE>
as of a given date of (1) that portion of the rents, additional rents and other
considerations paid by Subtenant under this Sublease that are allocable, on a
rentable square foot basis, to the space covered by any such sublease or
assignment, and (2) reasonable advertising costs, brokerage commissions, legal
fees, the cost of improvements or work allowances made in connection with such
transactions paid by Subtenant and reasonable rental concessions granted in
connection with any such sublease or assignment.
(ii) Net Profit, Income and Expenses with respect to each sublease or
assignment shall be cumulative and shall be determined on a cash basis as of
each Determination Date (hereinafter defined). "Determination Date" shall mean
(A) the first day of each calendar month occurring during the term of any
sublease or assignment, and (B) the expiration date of any such sublease or
assignment.
(iii) Within fifteen (15) days after each Determination Date, Subtenant
shall pay to Sublandlord with respect to each sublease or assignment an amount
equal to fifty percent (50%) of Net Profit, if any, as of such Determination
Date. Such Payment shall be accompanied by a reasonably detailed statement
showing the calculation of Net Profit and the amount payable to Sublandlord
pursuant hereto. It is understood and agreed that Subtenant shall not be
required to make any payments hereunder until Subtenant has been reimbursed for
all Expenses of Subtenant in connection with any such sublease or assignment.
Thereafter, all Net Profit shall be shared equally by
-8-
<PAGE>
Sublandlord and Subtenant with respect to each such sublease or
assignment.
(iv) Amounts payable under this Paragraph 6(d) shall be deemed
to be additional rent payable under this Sublease.
7. Condition of the Premises. Subtenant represents that it has made
-------------------------
or caused to be made an examination and inspection of the Sublet Premises and is
familiar with the condition thereof. Subtenant agrees that it enters into this
Sublease without any representations or warranties by Sublandlord, Overlandlord,
their agents, representatives, employees or servants or any other person as to
the condition of the Sublet Premises, and Subtenant agrees to accept the Sublet
Premises "As Is" and in the condition existing at the date of this Sublease,
except that Sublandlord, at its expense, shall provide one (1) ladies restroom
at the location shown in the attached plan and in accordance with the
specifications annexed to this Sublease. Sublandlord shall construct the ladies
restroom in accordance with the laws and shall complete such work no later than
June 30, 1998. Subtenant may have access to Sublandlord's ladies restroom until
the construction of the ladies restroom has been completed.
8. Incorporation of Overlease. To the extent applicable to the Sublet
--------------------------
Premises this Sublease is subject to all of the terms, covenants, conditions and
agreements contained in the Overlease and the matters to which the Overlease is
subject and subordinate, subject to the provisions of Section 10 hereof. Except
as otherwise provided in this Sublease, all of the terms, covenants, conditions
and agreements of the Overlease including,
-9-
<PAGE>
among other things, definitions and constructions therein contained, except such
as by their nature or purpose are inapplicable or inappropriate to the
subleasing of the Sublet Premises pursuant to this Sublease or are inconsistent
with any of the provisions of this Sublease or are inconsistent with any of the
provisions of this Sublease, are hereby incorporated in and made part of this
Sublease with the same force and effect as though set forth at length herein, it
being understood that references in the Overlease to (i) the "Premises" shall be
deemed to refer to the "Sublet Premises" hereunder, (ii) "Landlord" and "Tenant"
shall be deemed to refer to "Sublandlord" and "Subtenant" hereunder,
respectively, (iii) the "term of this Lease" or words of similar import shall be
deemed to refer to the "term of this Sublease", and (iv) "this Lease" shall be
deemed to refer to "this Sublease". Sublandlord represents that a true and
complete copy of the Overlease is annexed to this Lease as Exhibit B.
---------
9. Subtenant's Covenants and Liability Insurance.
---------------------------------------------
(a) Subtenant covenants and agrees (i) not to do or suffer or permit any act or
thing to be done or suffered which would or might cause the Overlease of the
rights of Sublandlord as tenant thereunder to be cancelled, terminated or
forfeited or cause Sublandlord to become liable for any damages, claims or
penalties; and (ii) to indemnify and hold harmless Sublandlord and Overlandlord
from and against any and all liability, loss, damage, suits, penalties, claims
and demands of every kind or nature (including, without being limited thereto,
reasonable attorneys fees and expenses by reason thereof) arising from the use,
occupancy or management of the Sublet Premises or of any business conducted
therein, or from any work or thing whatsoever
-10-
<PAGE>
done or any condition created by or any other act or omission of Subtenant, its
assignees or sub-subtenants, or their respective employees, agents, contractors,
visitors or licensees, in or about the Sublet Premises or any other part of the
Building or from a failure of Subtenant to observe the provisions of this
Sublease.
(b) Subtenant shall pay, satisfy and discharge any judgments, orders
and decrees which may be recovered against Sublandlord or Overlandlord in
connection with the foregoing.
(c) Subtenant shall provide on or before it enters the Sublet Premises
for any reason and shall keep in force during the term of this Sublease for the
benefit of Sublandlord, Overlandlord and Subtenant, the insurance required to be
maintained by Sublandlord under Article 7 of the Overlease with respect to the
Sublet Premises, except that the limits of Subtenant's liability coverage shall
be $3,000,000.
10. Articles of Overlease. For the purposes of this Sublease, the
---------------------
provisions of the Articles of the Overlease, as incorporated herein, are subject
to the following modifications or deletions:
(a) In all provisions requiring the approval or consent of Sublandlord,
Subtenant first shall be required to obtain the approval or consent of
Overlandlord and then to obtain like approval or consent of Sublandlord.
Sublandlord shall forward to Overlandlord such requests as Subtenant may submit
for approval or consent from Overlandlord. Sublandlord shall not unreasonably
withhold its approval or consent so long as Overlandlord's approval or consent
shall have been obtained.
-11-
<PAGE>
(b) The time limits provided in the Articles of the Overlease for the
giving of notice, making demands, performance of any act, conditions or
covenant, or the exercise of any right, remedy or option, are amended for the
purposes of this Sublease by lengthening or shortening the same in each instance
by five (5) days, as appropriate, so that notices may be given, demands made, or
any act, condition or covenant performed, or any right, remedy or option
hereunder exercised, by Sublandlord or Subtenant, as the case may be, within the
same limit relating thereto contained in the Overlease, except that Subtenant's
time for performance shall not be reduced below two days.
(c) The following provisions of the Overlease shall not be incorporated
here by reference: Articles 1 and 2, Sections 4.1 through 4.5, Article 5,
Section 8.11 (except to the extent of any payment actually required to be paid
to Overlandlord), Section 6.1.1, Articles 19 (except as provided above), 22, 25
and 127 Exhibit A.
11. Overlandlord's Obligations. Notwithstanding anything contained in
this Sublease to the contrary, Subtenant agrees and understands that
Sublandlord shall have no obligation or responsibility whatsoever to provide or
perform any service, repair, alteration or other similar obligation which is the
obligation of Overlandlord to provide or perform pursuant to the provisions and
terms of the Overlease incorporated herein including, but not limited to, the
obligation of Overlandlord to (i) make restorations or repairs after damage to
the Building or the Sublet Premises by fire or other casualty or after
condemnation, (ii) provide the services specified in Article 6 of the
Overlease, or (iii) make the repairs pursuant to Section 10.1
-12-
<PAGE>
of the Overlease. Subtenant further agrees and understands that each such
obligation shall be provided or performed by Overlandlord and not by
Sublandlord; provided, however, that where Subtenant shall notify Sublandlord
that Overlandlord is not supplying services to the Sublet Premises as required
under the Overlease, Sublandlord will request Overlandlord to perform such
services. Sublandlord shall in no event be liable to Subtenant nor shall
Subtenant's obligations under this Sublease be impaired or reduced or the
performance thereof excused because of any failure or delay on Overlandlord's
part in providing any such services or in making any such repairs, or in
performing or observing any similar obligation of Overlandlord pursuant to the
Overlease. If Overlandlord shall default in any of its obligations to
Sublandlord with respect to the Sublet Premises, Sublandlord shall permit
Subtenant, at Subtenant's sole cost and expense and without cost to Sublandlord,
to enforce Sublandlord's rights against Overlandlord with respect to the Sublet
Premises in Sublandlord's name, provided, however, that Subtenant shall
indemnify and hold Sublandlord harmless from and against all liability, loss,
claims, demands, penalties or damage which Sublandlord may incur or suffer by
reason of such action (including, but not limited to, reasonable attorney's
fees). Sublandlord agrees to cooperate with Subtenant in such action and shall
execute any and all documents reasonably required in furtherance of such action.
12. Sublandlord's Covenants. Sublandlord represents that the Overlease
-----------------------
is in full force and effect and that neither Sublandlord nor Overlandlord is in
default thereunder. Sublandlord agrees that it will not cause any default
thereunder.
-13-
<PAGE>
13. Consent of Sublandlord. Whenever Sublandlord's consent is
----------------------
required pursuant to this Sublease, it is agreed that Sublandlord may withhold
or delay its consent if Overlandlord shall have delayed or refused to give any
consent which may be required of it relating to the same or related matter.
14. Liability of Sublandlord. All property (whether real, personal
------------------------
or mixed) at any time located in or upon the Sublet Premises shall be at the
risk of the Subtenant only, and Sublandlord shall not become liable for any
damage to said property or to Subtenant, or to any other person or property,
caused by water leakage, steam, sewerage, gas or odors or for any damage done or
occasioned by or from any boiler, plumbing, gas, water, steam or other piping,
or any fixtures or equipment or appurtenances, or for any damage arising from
any act or neglect or arising by reason of the use of, or any defect in, the
Sublet Premises or any of the fixtures, equipment or appurtenances therein
contained, or by the act or neglect of any other person or caused in any other
manner.
15. Notices. All notices, demands, consents, approvals, requests or
-------
other communication which Sublandlord or Subtenant may desire or be required to
give hereunder (collectively, "Notices") shall be in writing and shall be given
by registered or certified mail, return receipt requested, with postage prepaid,
as follows:
If to Subtenant, to: 12 East 49th Street
New York, New York 10017
Attn: Mr. Michael Strauss
With a copy to: Corbin Silverman & Sanseverino LLP
805 Third Avenue
New York, New York 10022
Attn: Kenneth W. Sold, Esq.
If to Sublandlord, to: 12 East 49th Street
-14-
<PAGE>
New York, New York 10017
With a copy to: Noumair & Riad, P.C.
200 Park Avenue, Suite 4514
New York, New York 10166
Attn: Maged F. Riad, Esq.
A Notice given hereunder by counsel to either party shall be deemed to have been
given by such party. Sublandlord or Subtenant may change its address for
Notices hereunder by a Notice given pursuant to this Section. A Notice mailed in
compliance with the provisions or this Section shall be deemed given on the
third (3rd) business day next succeeding the day on which it is mailed.
16. Entire Agreement, Modifications, Successors. This Sublease
-------------------------------------------
contains the entire agreement between the parties and any agreement hereafter
made shall be ineffective to change, modify or discharge it in whole or in part
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification or discharge is sought. Subject to
the provisions hereof, this Sublease shall bind, and inure to the benefit or,
the parties and their respective successors, representatives, heirs and assigns.
17. Broker. Subtenant represents that it did not deal with any broker
------
in relation to this Sublease other than CB Commercial and Colliers ABR, Inc.
(collectively, the "Broker"). Subtenant agrees to indemnify and hold the
Sublandlord harmless from and against any and all liabilities, claims, suits,
demands, judgments, costs, interest and expense (including reasonable attorney's
fees) to which Sublandlord may be subject or suffer by reason of any claim made
by any person, firm or corporation other than the Broker for any commission,
expense or other compensation as a result of the execution and delivery of this
Sublease and
-15-
<PAGE>
based on alleged conversations or negotiations by Subtenant with said person,
firm or corporation. Sublandlord shall pay Broker their commissions pursuant to
one or more separate agreements.
18. Listings. Subtenant shall have the right to the use of its
--------
proportionate share (27.4%) of the listings on the directory board granted to
Sublandlord under Section 24.13 of the Overlease.
19. Security. Subtenant has deposited with Sublandlord the sum of
--------
$29,260.00 as security for the faithful performance and observance by Subtenant
of the terms, provisions and conditions of this Sublease. In the event
Subtenant defaults in respect of any of the terms, provisions and conditions of
this Sublease, including, but not limited to, the payment of base rent and
additional rent, which default continues after the expiration of any applicable
grace period, Sublandlord may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any base rent
and additional rent or any other sum as to which Subtenant is in default or for
any sum which Sublandlord may expend or may be required to expend by reason of
Subtenant's default in respect of any of the terms, covenants and conditions of
this Sublease, including, but not limited to, any demages or deficiency in the
reletting of the Sublet Premises, whether such damage or deficiency accrued
before or after summary proceedings or other re-entry by Sublandlord. In the
event that Subtenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this Sublease, the security shall be
returned to Subtenant within thirty (30) days after the date fixed as the end of
this Sublease and after delivery of entire possession of the Sublet Premises to
-16-
<PAGE>
Sublandlord. Subtenant further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security and that
neither Sublandlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
Sublandlord shall hold the security deposit in an interest-bearing account and
shall pay the interest to Subtenant annually, so long as Subtenant is not in
default under this Sublease.
20. Overlease Provision. Pursuant to Section 19.7.5 of the Overlease,
-------------------
(i) this Sublease is subject and subordinate to the Overlease and all interests
to which the Overlease is subordinate; (ii) on termination of the Overlease or
re-entry or repossession of the Overlease Premises by Overlandlord, Overlandlord
may, at it option, take over all of the right, title and interest of Sublandlord
under this Sublease, and Subtenant shall, at Overlandlord's option, attorn to
Overlandlord but that nevertheless Overlandlord shall not be: (x) liable for
any previous act or omission of Sublandlord under this Sublease; (y) subject to
any defense or offset previously accrued in favor of Subtenant against
Sublandlord; or (z) bound by any previous modification of this Sublease made
without Overlandlord's written consent or by any previous prepayment of more
than one (1) month's rent.
21. Subordination. Subtenant acknowledges that this Sublease is
-------------
subject and subordinate to the Overlease and to all the terms, covenants and
conditions contained therein. This Sublease is also subject and subordinate to
all underlying leases which may now or thereafter affect the real property of
which the Overlease Premises forms a part and to all mortgages which might
-17-
<PAGE>
now or hereafter affect such leases or such real property, and to any and all
renewals, modifications, consolidations, replacements and extensions thereof.
22. Overlandlord's Consent. This sublease is subject to and conditional
----------------------
upon the written consent of the Overlandlord, and if the Overlandlord shall not
have so consented to this Overlease within sixty (60) days after the date of
this Sublease, this Sublease shall thereupon become null and void. In such
event, Sublandlord shall return to Subtenant all monies paid by Subtenant to
Sublandlord on account of this Sublease. Sublandlord shall diligently and in
good faith seek Overlandlord's consent to this Sublease.
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this
Sublease the date first mentioned above.
Sublandlord: SUNTORY INTERNATIONAL CORP.
By: /s/ Taniyama
------------------------------
Name: Taniyama
Title: President
Subtenant: MICHAEL STRAUSS, INC. D/B/A
AMERICAN HOME MORTGAGE
By: /s/ Michael Strauss
------------------------------
Name: Michael Strauss
Title: President
-18-
<PAGE>
Exhibit A
---------
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT 10.10
MORTGAGE WAREHOUSING
LOAN AND SECURITY AGREEMENT
FIRST UNION NATIONAL BANK
to
MICHAEL STRAUSS, INC. d/b/a AMERICAN HOME MORTGAGE
<PAGE>
TABLE OF CONTENTS
1 DEFINITIONS............................................................ 1
2 THE LOAN............................................................... 6
2.01 Separate Bank Advance............................................ 6
2.02 The Note......................................................... 6
2.03 Use of Proceeds.................................................. 6
2.04 Advance Rates.................................................... 6
2.05 Payment of Interest and Principal................................ 7
2.06 Rate of Interest................................................. 7
2.07 [Intentionally omitted].......................................... 7
2.08 Automatic Charges to Borrower's Account.......................... 7
2.09 Banker's Year.................................................... 8
2.10 [Intentionally omitted........................................... 8
3 CONDITIONS OF LENDING.................................................. 8
3.01 Documentation Required Prior to First Advance Only............... 8
3.02 Documentation Required Prior to All Advances..................... 9
3.03 Funding of Separate Bank Advances................................ 9
3.04 Post Closing Delivery of Mortgage Notes.......................... 9
3.05 Post Closing Delivery of Additional Documents.................... 10
3.06 Delivery of Take-Out Commitment.................................. 10
3.07 Continuing Warranties............................................ 10
3.08 Other Requested Documents........................................ 10
3.09 Trade Confirmations.............................................. 10
4 CONTINUING REPRESENTATIONS AND WARRANTIES.............................. 10
4.01 Borrower's Organization.......................................... 10
4.02 Financial Statements............................................. 11
4.03 Authority........................................................ 11
4.04 Title to Collateral.............................................. 11
4.05 Warranties as to Each Mortgage Loan.............................. 11
4.06 Compliance with Laws of Applicable Jurisdiction.................. 12
4.07 Borrower's Locations............................................. 12
4.08 No Subsidiaries.................................................. 12
4.09 No Default....................................................... 12
4.10 Outstanding Judicial Proceedings................................. 12
4.11 Accuracy of Submitted Information; No Material Omissions......... 12
4.12 Loan Not Usurious................................................ 12
5 COLLATERAL............................................................. 13
5.01 Security Interest................................................ 13
5.02 Separate Assignment of Mortgages................................. 13
5.03 Financing Statements............................................. 14
<PAGE>
5.04 Limited Power of Attorney......................................... 14
5.05 Perfecting BANK's Lien............................................ 14
6 AFFIRMATIVE COVENANTS
6.01 Note Payments..................................................... 15
6.02 Circumstances Requiring Immediate Repayment of Separate Bank
Advance........................................................... 15
6.03 Casualty Insurance................................................ 15
6.04 Other Insurance................................................... 15
6.05 Enforcement of Mortgage Notes..................................... 15
6.06 Costs of Collection............................................... 16
6.07 Notation of Mortgage Assignments.................................. 16
6.08 Execution of Additional Documents................................. 16
6.09 Submission of Financial Statements................................ 16
6.09.01 Submission of Quarterly Financial Statements.............. 16
6.09.02 Submission of Year End Financial Statement................ 16
6.09.03 Financial Statement Detail................................ 16
6.09.04 Projections............................................... 16
6.10 Maintenance Books and Records..................................... 16
6.11 Compliance with Administrative Requests of BANK................... 17
6.12 Submission of Pipe Line Report.................................... 17
6.13 Notification of Mortgage Loan Default............................. 17
6.14 Notification of Borrower's Default................................ 17
6.15 Maintenance of Take-Out Commitments............................... 17
6.16 Financial Covenants............................................... 17
6.17 Tax Returns....................................................... 17
6.18 Payment of Taxes.................................................. 17
6.19 New Locations and Subsidiaries.................................... 18
6.20 Changes to Authorizational Documents.............................. 18
6.21 Mortgage Banker's Financial Reporting Form........................ 18
6.22 Additional Reports................................................ 18
6.23 Notification of Mortgage Warehouse Lines.......................... 18
6.24 Demand Deposit Account............................................ 18
6.25 FNMA/FHLMC Certification.......................................... 18
6.26 Compliance With Laws.............................................. 18
6.27 Notice of Litigation.............................................. 18
6.28 Payment of Obligations When Due................................... 18
6.29 Operational Reviews............................................... 19
6.30 Acknowledgment of Security Interest............................... 19
6.31 Third Party Originations.......................................... 19
6.32 Exchange of Information........................................... 19
7 NEGATIVE COVENANTS..................................................... 19
7.01 No Compromise of Collateral....................................... 19
7.02 No Other Liens.................................................... 19
<PAGE>
7.03 No Change in Borrower's Name or Organizational Status............. 19
7.04 No Sale or Pledge of Assets or Capital Stock...................... 19
7.05 Improper Use of Proceeds.......................................... 19
7.06 No Dividends, Advances or Distributions........................... 20
7.07 No Additional Indebtedness........................................ 20
7.08 No Misleading Information......................................... 20
7.09 No Guarantees..................................................... 20
7.10 No Change in Management, Ownership or Control..................... 20
8 DEFAULT................................................................ 20
8.01 Events of Default................................................. 20
8.02 Remedies Upon Default............................................. 21
9 SALE OF MORTGAGE NOTES................................................. 22
9.01 Delivery of Mortgage Notes by BANK................................ 22
9.02 Reassignment of Mortgage Notes by BANK............................ 22
10 COLLECTIONS............................................................ 23
11 TERMINATION............................................................ 23
12 MISCELLANEOUS.......................................................... 23
12.01 Notices.......................................................... 23
12.02 Successors and Assigns........................................... 23
12.03 Sale of Collateral by BANK....................................... 23
12.04 Delay - No Waiver................................................ 24
12.05 (a) Entire Agreement-Supplemental Policies and Procedures........ 24
(b) Partial Invalidity........................................... 24
(c) Counterparts................................................. 24
(d) No Assignment by Borrower.................................... 24
(e) Materiality/Reliance by Bank................................. 25
(f) No Third Party Beneficiary................................... 25
(g) Confidentiality.............................................. 25
12.06 Interpretation of Accounting Terms............................... 25
12.07 Pennsylvania Law/Consent to Jurisdiction and Service/Waiver of
Jury Trial....................................................... 25
12.08 Closing by Mail.................................................. 26
<PAGE>
MORTGAGE WAREHOUSING
--------------------
LOAN AND SECURITY AGREEMENT
---------------------------
THIS MORTGAGE WAREHOUSING LOAN AND SECURITY AGREEMENT made and entered into
as of this 8th day of December, 1998. by and between FIRST UNION NATIONAL BANK.
a national banking association with offices at 1339 Chestnut Street. Widener
Building, Mail Code PA4831, 12th Floor, Philadelphia, Pennsylvania 19107
hereinafter called "BANK"), and MICHAEL STRAUSS, INC., a New York corporation
doing business as AMERICAN HOME MORTGAGE with its principal place of business at
12 East 49/th/ Street, New York, NY 10017 (hereinafter called "Borrower").
WITNESSETH
----------
WHEREAS, the Borrower engages in the business of origination, purchase and
sale of Mortgage Loans; and
WHEREAS, Borrower desires to borrow from BANK from time to time in order to
finance its making and purchasing of single family residential Mortgage Loans,
pending sale to Investors; and
WHEREAS, BANK is willing, subject to the terms of this Agreement, to
consider advances to Borrower, up to the maximum amount that shall be determined
from time to time by BANK, with Borrower's obligations for repayment to be
secured, as hereinafter described, by Mortgage Loans:
WHEREAS, Borrower and BANK now desire to enter into Mortgage Warehousing
Agreements stating the rights and obligations of the parties hereto.
NOW, THEREFORE, in consideration of the mutual undertakings herein and of
each advance made by BANK to Borrower hereunder, the parties hereto agree as
follows:
1 Definitions
1.01 For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Paragraph shall have the meanings assigned to them in this Paragraph and include
the plural as well as the singular.
1.02 The terms which follow have the meanings herein ascribed to them:
Agreement means this Agreement as executed as of the date first above
---------
written or, if amended or supplemented as herein provided, as so amended or
supplemented.
Closing Media means a title company, closing attorney or other entity which
-------------
would disburse funds at settlement of the Mortgage.
<PAGE>
Collateral means Mortgage Loans. Mortgage Notes. Mortgages and all other
----------
property rights, proceeds and payments relating to i) Mortgage Loans which have
been pledged to BANK (whether by delivery to BANK, Collateral Custodian, or to a
third party on BANK's behalf or otherwise) or upon which Separate Bank Advances
were made by BANK and ii) all other personal property of Borrower hereinafter
described in Paragraph 5.01. and/or from time to time deposited with, delivered
or to be delivered or held by or for BANK pursuant to this Agreement, and the
proceeds thereof in each case. whether now or hereafter arising.
Collateral Custodian means Bankers Trust Company or any other party so
--------------------
appointed or designated by BANK and mutually agreed to by Borrower.
Committed Purchase Price means, with respect to a Mortgage Loan, the price
------------------------
at which the Investor under the applicable Take-Out Commitment has agreed to
purchase said Mortgage Loan. This may be fixed at the time of issuance of the
Take-Out Commitment, or float to market, to be determined at the time of
settlement.
Conventional Mortgage Loans means Mortgage Loans which meet FNMA, FHLMC, or
---------------------------
other generally accepted underwriting criteria for conforming loans, in addition
to the requirements set forth in the applicable Take-Out Commitment if any, and
which further meet such additional requirements as BANK may impose from time to
time.
Current Ratio means a fraction, determined as of the pertinent financial
-------------
statement date, the numerator of which is the sum total of Borrower's current
assets, as defined by GAAP, less mortgage loans held for resale, prepaid
expenses, and any amounts subtracted from Tangible Stockholder's Equity that are
classified as current assets, and the denominator of which is current
liabilities, as defined by GAAP, less outstanding borrowings under all warehouse
lines.
Custodial Agreement means the Custodial Agreement of even date herewith by
-------------------
and among BANK, Borrower, and Collateral Custodian as amended from time to time.
Eligible Mortgage Loans means single family (1-4 family) Conventional, FHA
-----------------------
or VA, Jumbo, and Non-Conforming Loans payable at either a fixed or variable
rate of interest, which are subject to a Take-Out Commitment at the time the
Loan is made, and which if previously closed, is not in default. Wherever
applicable, such loans shall be insured by a policy of title insurance
acceptable to BANK in its sole discretion.
Eligible Repurchase Mortgage Loans means Mortgage Loans repurchased by
----------------------------------
Borrower from an Investor but which would otherwise meet all requirements of
Eligible Mortgage Loans except as expressly disclosed in writing to BANK and
approved by BANK in its sole and absolute discretion.
Federal Funds Rate means the daily opening Federal Funds Rate as quoted by
------------------
BANK from time to time.
-2-
<PAGE>
FHA Mortgage Loans means Mortgage Loans with in acceptable limits to and
------------------
insured or committed to be insured, by the FHA and evidenced by instruments
and documents which comply and arising from a transaction which complies, in all
respects with the requirements of the FHA.
FHLMC means the Federal Home Loan Mortgage Corporation or its successor.
-----
FNMA means the Federal National Mortgage Association or its successors.
----
Guarantor means Michael Strauss
---------
Guaranty means a duly executed guaranty in form and content satisfactory to
--------
BANK.
Investor means a bank, trust company, savings and loan association, pension
--------
fund. governmental authority, insurance company, institutional investor,
investment brokerage firm, mortgage banker, or other entity, determined by BANK,
in its sole discretion, to be acceptable.
Jumbo Loans means loans which exceed the maximum loan amount permitted by
-----------
then current FNMA or FHLMC purchase guidelines but otherwise meet FHLMC, FNMA or
other generally accepted purchase criteria for conforming loans, but in no event
exceed $1,000,000 at the time the loan was closed unless otherwise pre-approved
by BANK.
Leverage Ratio shall mean a fraction, determined as of the pertinent
--------------
financial statement date, the numerator of which is the sum total of Borrower's
outstanding liabilities and the denominator of which is Tangible Stockholder's
Equity.
Liabilities means all indebtedness that, in accordance with generally
-----------
accepted accounting principles consistently applied, should be classified as
liabilities on a balance sheet of Borrower.
Maximum Loan Amount means $40,000,000.
-------------------
Mortgage means a mortgage, a deed of trust, or security agreement (for
--------
cooperative share loans) on real estate, and securing a Mortgage Loan and also
creating a valid first or second lien on the fee simple title (or leasehold in
the case of cooperative share loans) to real estate referred therein subject
only to (i) liens for taxes, not yet due and payable or similar governmental
charges not yet due and payable or still subject to payment without interest or
penalty, (ii) zoning restrictions, utility easements, covenants, or conditions
and restrictions of record, which shall neither defeat nor render invalid such
lieu or the priority thereof, nor materially impair the marketability or value
of such real estate, nor be violated by the existing improvements or the
intended use thereof; (iii) such other liens as may have been approved in
writing by BANK.
Mortgage Loan means a loan evidenced by a Mortgage Note and secured by a
-------------
Mortgage covering a fee simple interest (or leasehold in the case of cooperative
share loans) in residential (1-4 family) real property and all improvements
located thereon located in the United States, which loan meet all FNMA , FHLMC
or other generally accepted conditions for purchase at the time that it was
-3-
<PAGE>
made, excepting only as to amount in the case of "Jumbo Loans". Mortgage Loans
may be Conventional. FHA or VA Loans.
Mortgage Note means a valid and binding note, bond or other evidence of
-------------
indebtedness evidencing a Mortgage Loan and secured by a Mortgage, which (i) was
executed by a bona fide third person who has capacity to contract; (ii) is
payable in accordance with terms acceptable to FNMA or FHLMC or other generally
acceptable investors at the time the Loan is closed and otherwise acceptable to
BANK; (iii) matures in 30 years or less unless otherwise agreed to by BANK, and
(iv) complies with any other terms as may be required in writing in advance of
the closing date by BANK, from time to time.
Non-conforming Loans means Mortgage Loans which do not comply with all of
--------------------
the requirements for Conventional Mortgage Loans as defined by FNMA, FHLMC or
other generally accepted criteria for conforming loans, but are underwritten in
accordance with guidelines stipulated in Schedule A, which have a loan to value
ratio not exceeding 90%, (other than where permitted elsewhere in this
Agreement) and which constitute a valid first or second lien on the real estate
referred to in the Mortgage.
Non-conforming Loan Sublimit means the aggregate amount of all
----------------------------
Non-conforming Loans outstanding at any one time shall not exceed twenty percent
(20%) of the Maximum Loan Amount or $8,000,000.
Obligations means all duties required of Borrower arising out of the terms
-----------
of this Loan and Security Agreement, or the promissory note or any other
document required by BANK in connection with the granting of this credit
facility, including but not limited to, monetary payments and performance of all
covenants and conditions.
Reduced Documentation Loan means Eligible Mortgage Loans which meet an
--------------------------
Investor's purchase criteria under a reduced documentation loan program which
must be satisfactory to BANK.
Repurchase Loan Sublimit means an amount not to exceed $750,000 at any one
------------------------
time. Advances under this sublimit shall be at the sole and absolute discretion
of BANK.
Separate Bank Advance means each separate advance of the Loan remaining
---------------------
unpaid hereunder from time to time together with interest accrued thereon.
Stockholder's Equity means the sum of the following accounts set forth in
--------------------
Borrower's balance sheet prepared in accordance with generally accepted
accounting principles consistently applied: (a) the par or stated value of all
outstanding capital stock; (b) capital surplus; and (c) retained earnings.
Subsidiary means a corporation of which 50% or more of the outstanding
----------
voting stock (except for directors' qualifying shares, if and to the extent
required by law) is owned, at the time of determination, directly or indirectly,
by the Borrower.
-4-
<PAGE>
Take-Out Commitment means an existing written commitment to Borrower in
-------------------
form and substance satisfactory to BANK from an Investor satisfactory to BANK
under the terms of which the such Investor agrees to purchase Mortgage Notes or
a specific Mortgage Note.
Tangible Stockholder's Equity means, at any time. Stockholders'Equity less
the -----------------------------
sum of:
(a) Any surplus resulting from any write-up of assets;
(b) Goodwill including any amounts. however designated on a balance sheet
of the Borrower, representing the excess of the purchase price paid for assets
or stock acquired over the value assigned thereto on the books of the Borrower;
(c) Patents, trademarks, trade names and copyrights;
(d) Any amount at which shares of capital stock of the Borrower appear as
an asset on the Borrower's balance sheet;
(e) Loans and advances to stockholders, directors, officers, employees or
affiliated companies;
(f) Deferred expenses;
(g) Capitalized purchased servicing;
(h) Capitalized excess servicing;
(i) Assets, the marketability, and/or liquidity value of which are not
readily ascertainable, in BANK's sole discretion;
Termination Date means the earlier of (i) December 7, 1999 or (ii) the date
----------------
on which BANK notifies Borrower of the occurrence of an Event of Default
hereunder.
VA Mortgage Loans means Mortgage Loans within acceptable limits to and
-----------------
guaranteed by the VA, and evidenced by instruments and documents which comply,
and arising from a transaction which complies, in all respects, with the
requirements of the VA.
Wet Settlement Sublimit means 50% of the Maximum Loan Amount; provided that
-----------------------
during the first and last five (5) business days of each month the Wet
Settlement Sublimit shall be 65% of' the Maximum Loan Amount.
-5-
<PAGE>
2 The Loan
2.01 Separate Bank Advance: Borrower may from time to time, until the
---------------------
Termination Date, request BANK to advance and lend to Borrower an amount, in
connection with any Eligible Mortgage Loan acceptable as Collateral to BANK, of
which Separate Bank Advance BANK, in its sole discretion may agree to make to
Borrower, not to exceed at any one time the Maximum Loan Amount. The aggregate
unpaid principal amount outstanding at any one time, of all the Separate Bank
Advances (hereinafter called the "Loan") shall not exceed the Maximum Loan
Amount. In addition, (i) the aggregate unpaid principal amount of all Separate
Bank Advances in respect of Non-conforming Loans outstanding at any one time
shall not exceed the Non-conforming Loan Sublimit, and (ii) the aggregate unpaid
principal amount of all Separate Bank Advances in respect of Eligible Repurchase
Mortgage Loans outstanding at any one time shall not exceed the Repurchase Loan
Sublimit.
2.02 The Note: The Loan, which shall be in the form of a revolving credit,
--------
shall be evidenced by Borrower's promissory note (hereinafter called the
"Note"), in form and content satisfactory to BANK. All terms of the Note are
incorporated herein. The Note shall be dated the date of this Agreement, shall
bear interest payable at the rate and in the manner provided for in Paragraph
2.06 herein, and shall evidence advances of the Loan as follows:
2.02.01 The Note, which shall be in the principal face amount of the
Maximum Loan Amount, shall evidence advances of the Loan as based on BANK'S
receipt of the Collateral therefor as set forth under Paragraph 3 below;
2.02.02 Borrower agrees that the date and amount of each advance of
the Loan shall be as set forth in the books and records of BANK relating to such
matters which shall be presumed accurate but subject to verification and
correction by Borrower within 45 days of Borrower's receipt of a statement.
2.03 Use of Proceeds: The proceeds of the Loan shall be used by Borrower
---------------
solely to finance its making or purchase of Eligible Mortgage Loans pending sale
thereof to Investors. Use of Loan proceeds for any other purpose, including but
not limited to, the repurchase of loans purchased by an Investor and
subsequently returned to Borrower without the prior written consent of BANK,
shall be a breach of this Agreement.
2.04 Advance Rates: The Borrower may request advances and readvances of the
-------------
Loan subject to the following requirements, limitations and sub-limitations:
(a) all advances made hereunder shall be secured by Eligible
Mortgage Loans;
(b) except as otherwise provided in Subsection (c) hereof, each
advance of the Loan secured by Eligible Mortgage Loans shall not exceed 98% of
the lesser of i) the Committed Purchase Price (if applicable) or ii) the
aggregate original principal balance of the Mortgage Loans securing such
advance; and
-6-
<PAGE>
(c)each advance of the Loan secured by an Eligible Mortgage Loan
that is a Non-conforming Loan shall not exceed 95% of the lesser of (i) the
Committed Purchase Price or (ii) the aggregate original principal balance of the
Mortgage Loans securing such advance; or (iii) the market value as determined
by BANK (provided that BANK supply Custodian with its determination of such
market value prior to any adjustments if based on BANK's market value).
and
(d) the total amount advanced against Eligible Mortgage Loans for
which BANK has not received the original, properly endorsed Mortgage Note shall
not at any time exceed the Wet Settlement Sublimit; and
(e) each advance of the Loan secured by Eligible Repurchase
Mortgage Loans shall not exceed 70% of the lesser of (i) the original principal
amount, (ii) the current outstanding principal balance, or (iii) appraised value
of the real estate referred to in the Mortgage at the time of advance; and
2.05 Payment of Interest and Principal: Until the Termination Date,
---------------------------------
Borrower shall pay monthly installments of interest only, on the first day of
each month, commencing on the first day of the calendar month next succeeding
the date hereof. The Borrower shall be required, upon receipt from an Investor
of proceeds from the sale of Mortgage Loans securing the Loan, which proceeds
shall be held in trust for the benefit of BANK, to make payments to of principal
equal to all amounts advanced by BANK with respect to such Mortgage Loans.
2.06 Rate of Interest: Borrower shall pay to BANK interest on the daily
----------------
outstanding principal balance, of the Loan at a per annum Federal Funds Rate
plus 1.50% (except for those portions of daily outstanding principal amounts
representing advances under the Non-conforming Loan Sublimit which shall bear
interest at the rate of the Federal Funds Rate plus 1.75% and the Repurchase
Loan Sublimit which shall bear interest at the rate of the Federal Funds Rate
plus 2.25%), adjusted daily on the daily outstanding principal balance. Interest
shall continue to accrue on the unpaid principal balance even if all sums due
hereunder are accelerated and reduced to judgment. Upon the occurrence of any
such Event of Default or at any time thereafter, Bank may, begin accruing
interest on the Note, at two percent (2%) per annum in excess of the rate(s) of
interest provided for above; provided, however that no interest shall accrue
hereunder in excess of the maximum rate permitted by law. All such additional
interest shall be payable on demand.
2.07 [Intentionally omitted]
2.08 Automatic Charges to Borrower's Account: Interest shall be due and
---------------------------------------
payable on the first day of each month at which date Borrower shall pay to BANK,
by means of BANK'S direct charge to Borrower's demand deposit account (DDA
account), (i) interest calculated as aforesaid on the daily outstanding
principal balances for the preceding month, (ii) the cost of any operational
reviews conducted during the preceding month pursuant to (P) 6.30 hereof, and
(iii)
-7-
<PAGE>
recording and filing fees incurred by BANK to perfect and maintain its security
interest in the Collateral, (iv) third party fees.
2.09 Banker's Year: All interest calculations shall be based on a 360 day
-------------
year for the actual number of days elapsed.
2.10 [Intentionally omitted]
3 Conditions of Lending.
3.01 Documentation Required Prior to First Advance Only: Delivery by
--------------------------------------------------
Borrower of each of the following to BANK shall be conditions precedent to the
making of the first advance of the Loan:
3.01.01 Borrower's executed Note.
3.01.02 The Custodian Agreement executed by all parties.
3.01.03 An opinion of counsel for Borrower (in a form and content
satisfactory to BANK) as to all the matters referenced in Paragraph 4 hereof,
excepting only 4.02, 4.04, 4.05, 4.07;
3.01.04 A certified copy of a resolution of Borrower's Board of
Directors authorizing the borrowing herein provided for, the execution and
delivery of this Agreement and the Note, and the endorsing and assigning to BANK
of the Collateral as herein provided;
3.01.05 i) A true, complete and correct copy of Borrower's
Certificate or Articles of Incorporation and all amendments thereto; ii) a
true, complete and correct copy of Borrower's By-Laws and all amendments
thereto; iii) a Certification by Borrower's Secretary as to the incumbency and
specimen signatures of each party executing this Agreement and any endorsements
or assignments to be executed in the performance of this Agreement; iv) a
certificate issued by the Secretary of the State of Borrower's state of
incorporation as to the good standing and continued existence of Borrower; v)
certificates of the appropriate officials of each state in which Borrower
conducts business as to the qualification of the Borrower to transact business
and its good standing and continued and existence as a foreign corporation in
said jurisdiction.
3.01.06 The Guaranty Agreement.
3.01.07 Evidence of Borrower's receipt of FNMA seller approval
certification when appropriate.
3.01.08 Evidence of insurance.
-8-
<PAGE>
3.02 Documentation Required Prior to All Advances: Delivery by Borrower of
--------------------------------------------
each of the following to Collateral Custodian at the time set forth in the
Custodial Agreement. (not less than one business day prior to closing for
Eligible Mortgage Loans) shall be conditions precedent to the making of each
Separate Bank Advance (Note - Although BANK may elect to waive some of the
following requirements as part of the Custodial Agreement, BANK will retain the
right to require all such documents at any time in its sole discretion by
written notice to Borrower and Custodian):
3.02.01 A copy of the bank draft or wire instructions to BANK to wire
mortgage proceeds to the Closing Media reflecting the intended amount and
date of disbursement of the proceeds of the Mortgage Loan; and
3.02.02 A copy of Take-Out Commitment, in form and content
satisfactory to BANK, agreeing to purchase that specific Mortgage Loan, or other
documentation that may be acceptable to BANK (which may have been previously
provided); and
3.02.03 A copy of the proposed Mortgage Note to be executed at
settlement; and
3.02.04 A copy of the proposed Mortgage (or security agreement if a
cooperative loan) to be executed at settlement; and
3.02.05 Original assignment in blank in recordable form or, if
assigned directly to Investor at closing, then Borrower shall provide a copy of
the executed assignment; and
3.02.06 A transmittal sheet approved by Investor;
3.02.07 A copy of the instruction letter from Borrower to the Closing
Media regarding the settlement of the Mortgage Loan, and
3.02.08 Any other documents, reasonably requested by BANK or
Collateral Custodian.
3.03 Funding of Separate Bank Advances Subject to timely submission of all
---------------------------------
documentation required by (S)3.02, each Separate Bank Advance shall be made
pursuant to the terms of the Custodial Agreement.
3.04 Post Closing Delivery of Mortgage Notes: Borrower shall deliver to
---------------------------------------
Collateral Custodian within five business days following the date of settlement
of the Mortgage Loan the original executed Mortgage Note evidencing the Mortgage
Loan, duly endorsed in blank, without recourse, by Borrower and subject to all
warranties set forth in this Agreement, together with an
-9-
<PAGE>
assignment of mortgage where required by BANK in blank, in recordable form with
a cony of the Mortgage for security agreement it cooperative loan certified by
the Closing Media to be true and correct.
3.05 Post Closing Delivery of Additional Documents: For each Eligible
---------------------------------------------
Mortgage Loan which is the subject of a Separate Bank Advance, Borrower shall
deliver directly to the Investor within the time frame permitted by the
applicable Take-out Commitment, those documents required to be delivered to the
Investor.
3.06 Delivery of Take-Out Commitment: Each Eligible Mortgage Loan shall be
-------------------------------
delivered accompanied by evidence of a Take-Out Commitment satisfactory to BANK,
except where such documentation was previously provided or is not applicable.
3.07 Continuing Warranties: Each covenant, representation and warranty
---------------------
contained in this Agreement shall be made as of the signing of this Agreement
and shall be deemed to be reaffirmed at the time any Separate Bank Advance is
requested by Borrower, and as a precondition to the making of any advance
hereunder, no default by Borrower shall have occurred and be continuing, and no
event shall have occurred which, with the lapse of time or notice or both, shall
constitute such default; and Borrower shall have paid all fees and charges
payable by Borrower hereunder.
3.08 Other Requested Documents: Borrower shall deliver directly to BANK any
-------------------------
documents pertaining to the Mortgage Loan which BANK reasonably specifically
requests, within a reasonable time frame after request for Separate Bank
Advance.
3.09 Trade Confirmations: Unless otherwise agreed to by BANK, each request
-------------------
for delivery of an Eligible Mortgage Loan to an Investor, in which it is
contemplated that a participation certificate (PC) or mortgage backed security
(MBS) will be issued in lieu of cash, shall be accompanied by a trade
confirmation committing to purchase the PC/MBS identifying the purchaser (which
must be acceptable to BANK) and the purchase price.
4 Continuing Representations and Warranties.
In order to induce BANK to enter into this Agreement and to make each
Separate Bank Advance, Borrower warrants and represents that as of the date
hereof, at the time of the making each Separate Bank Advance hereunder, at the
time each Note is delivered to BANK, at the time assignment of each Eligible
Mortgage Loan to BANK, and at the time of delivery of each Eligible Mortgage
Loan to the Investor that:
4.01 Borrower's Organization: Borrower is a corporation duly organized and
-----------------------
existing and in good standing under the laws of New York, and Borrower is
qualified as a foreign corporation and in good standing in every other
jurisdiction where its business or operations requires such qualification. The
execution, delivery and performance of this Agreement, the Notes and other
documents required of Borrower have been duly authorized by all requisite
-10-
<PAGE>
action and will not violate the charter or by-laws of Borrower or any applicable
statutes or regulations or any; agreements or judgements to which Borrower is a
party. This Agreement and the Note are valid and binding obligations of
Borrower, enforceable in accordance with their terms except as may be limited by
bankruptcy, insolvency, moratorium, reorganization and other similar laws or
equitable principles affecting the enforcement of creditors' rights, and the
consent or approval of governmental authorities or of third parties is not
required for the validity of Borrower's obligations hereunder or thereunder or,
if required, has been obtained; nor does this Agreement or the Note violate any
applicable Federal, state or local law, rule or regulation relating to usury.
4.02 Financial Statements: All financial statements and financial
--------------------
information heretofore delivered to BANK are true and correct in all material
respects as of the date made. As of the date of this Agreement and as of the
date of any borrowing hereunder, there has not been, nor does Borrower
anticipate the occurrence of, any material change of an adverse nature
sufficient to impair Borrower's ability to repay every Separate Bank Advance or
to continue to conduct its business as it is being conducted on the date hereof.
Borrower has no material contingent liabilities or unusual forward or long-term
commitments which are not disclosed by or reserved against in said financial
statements furnished to BANK or have not been disclosed to BANK in writing. At
the date of this Agreement and at the date of each advance requested by Borrower
hereunder, Borrower warrants and reaffirms there are no material unrealized or
anticipated losses from any commitments of the Borrower except as previously
disclosed in writing to BANK.
4.03 Authority: All requisite action for the authorization, execution and
---------
delivery by Borrower of this Agreement and the Note, and for the assigning and
endorsing by Borrower of the Collateral as provided for hereunder, has been duly
taken and has not been rescinded.
4.04 Title to Collateral: Borrower is or will be the legal and beneficial
-------------------
owner (subject only to potential claims of an Investor arising solely out of a
Take-Out Commitment) of the Collateral at the time pledged, free and clear of
all adverse security interests, liens and encumbrances, and has the right to
assign the same to BANK as contemplated by the Agreement.
4.05 Warranties as to Each Mortgage Loan: Each Mortgage Loan is an Eligible
-----------------------------------
Mortgage Loan; is in full force and effect; has not been modified and is free of
default; is not subject to defense or right of set-off on the part of the maker
or makers of the Mortgage Note; is secured by a valid first lien on fee simple
real estate, free from damage or casualty; represents a bona fide transaction
which has been carried out in accordance with all applicable laws and
regulations, including, but not limited to, the making of all required
disclosures correctly to all persons entitled to receive them within the time
specified under such laws or rules and regulations, which shall include but not
be limited to:
(a) Real Estate Settlement Procedures Act of 1974, as amended --
Regulation X;
(b) Fair Credit Reporting Act;
-11-
<PAGE>
(c) Equal Credit Opportunity Act - Regulation B:
(d) Truth-In-Lending Act - Regulation Z:
and applicable regulations of the Office of Thrift Supervision and the
Comptroller of the Currency; and for which the total consideration, to be
advanced by Borrower or other lender, shall in fact have been advanced less
closing and other fees and costs which may customarily be deducted from the loan
proceeds; and shall be the subject of a valid and effective Take-Out Commitment
as previously stipulated.
4.06 Compliance with Laws of Applicable Jurisdiction: Borrower is fully
-----------------------------------------------
familiar with the requirements of the laws of the applicable jurisdiction(s)
from which all Mortgage Loans assigned as Collateral hereunder originate and all
Mortgage Loans assigned as Collateral hereunder have been made in strict
compliance with the provisions of any act, law or regulation which governs
lending practices enacted by the applicable jurisdiction.
4.07 Borrower's Locations: The address of Borrower set forth above in this
--------------------
Agreement is its chief executive office; and the addresses indicated on Exhibit
A, if any, attached hereto are all of the Borrower's offices or locations;
4.08 No Subsidiaries: Borrower has no Subsidiaries other than those
---------------
designated and described in writing to BANK on or prior to the date hereof.
4.09 No Default: Borrower has no knowledge of any default under any
----------
material term or provision of any agreement to which it is a party or by which
it is bound or to which any of its property is subject, which default would have
a material adverse effect on Borrower's creditworthiness. It is agreed that a
breach of the terms of any mortgage warehouse loan agreement with any other
lender shall be deemed to have such a material adverse effect.
4.10 Outstanding Judicial Proceedings: There are no outstanding criminal
--------------------------------
proceedings pending or threatened, or judgements, actions or proceedings pending
or threatened before any court or governmental authority, bureau or agency, with
respect to or affecting the Borrower wherein damages alleged or owed exceed
$50,000.00, nor are there any such actions or proceedings in which Borrower is a
plaintiff or complainant (excepting routine foreclosures) wherein damages
alleged exceed the sum of $50,000.00.
4.11 Accuracy of Submitted Information; No Material Omissions: Neither the
--------------------------------------------------------
Financial Statements, nor any certificate, opinion or any other statement made
or furnished to BANK by or on behalf of the Borrower in connection with this
Agreement or the transaction contemplated herein, contains any untrue statement
of a material fact, or omits a material fact necessary in order to make the
statements contained therein or herein not misleading.
4.12 Loan Not Usurious: The Loan as contemplated herein is not usurious.
-----------------
-12-
<PAGE>
5. Collateral
5.01 Security Interest: Borrower hereby grants to BANK, as one general,
-----------------
continuing collateral security for the Loan and for any other sums owing from
Borrower to BANK under the Note or this Agreement, as well as for any other
present or future indebtedness or liability of Borrower to BANK, a security
interest in all Mortgage Loans now or hereafter made which have been pledged to
BANK (whether by delivery to BANK, to the Collateral Custodian, or to a third
party on BANK's behalf or otherwise) or upon which any advance is made by BANK,
and in the Mortgage Note and Mortgage evidencing said Mortgage Loan, and in all
instruments, general intangibles, property, rights proceeds and payments
relating thereto, including without limitation the following:
5.01.01 All payments and prepayments of principal, interest, and other
income due or to become due thereon and all proceeds therefrom, and all the
right, title and interest of every nature whatsoever of Borrower in and to the
same and every part of such property including, without limitation, the
following:
(a) All rights, liens and security interest existing with respect
thereto or as security therefor;
(b) All hazard insurance policies, title insurance policies or
condemnation proceeds with respect thereto;
(c) All prepayment premiums and late payment charges with respect
thereto;
5.01.02 All real estate acquired by Borrower by deed in lieu of
foreclosure or by foreclosure attributable to any such Mortgage Loan;
5.01.03 All Take-Out Commitments, mortgage backed securities, and/or
pool participation certificates and the proceeds resulting from sales of
same by Borrower;
5.01.04 All right, title and interest of Borrower in and to all files,
surveys, certificates, correspondence, appraisals, computer programs, tapes,
discs, cards, accounting records, and other records, information, and related
data of Borrower;
5.01.05 The proceeds from the sale of any Collateral;
5.01.06 Any other property and proceeds thereof that may, from time to
time hereafter, be subject to the security interests created hereby;
5.01.07 All business records, computer tapes, software, microfiche,
etc., necessary to identify and locate the Collateral.
5.02 Separate Assignment of Mortgages: At the time of making each Separate
--------------------------------
Bank Advance, BANK may require Borrower to deliver a separate assignment to BANK
of all of
-13-
<PAGE>
Borrower's right title and interest in the Mortgage Note and Mortgage and other
property right, proceeds or payment forming part of the Collateral including but
not limited to all Borrower's rights in and to any applicable Take-Out
commitment and insurance policies and proceeds and Borrower will pay the cost of
filing the same in all public offices.
5.03 Financing Statements: Borrower will join with BANK in executing one or
--------------------
more financing statements covering the Collateral pursuant to the Uniform
Commercial Code, in form satisfactory to BANK, and will pay the cost of filing
the same in all public offices. A copy of this Agreement may be recorded as a
financing statement.
5.04 Limited Power of Attorney: From and after the occurrence of an Event
-------------------------
of Default, Borrower hereby irrevocably makes, constitutes and appoints BANK its
attorney-in- fact with full power of substitution for and on behalf and in the
name of Borrower (which BANK is under no obligation to use) to endorse any
checks, instruments or other papers in BANK's possession representing payments
on assigned Mortgage Notes and Mortgages or Take-Out Commitments to purchase
Mortgage Notes and Mortgages; to complete, execute, deliver and record any
assignment or other document, including financing statements covering the
Collateral; to endorse any Mortgage Note in the name of Borrower and do every
other act or thing necessary or desirable to effect transfer of a Mortgage Note,
Mortgage or any related Collateral and/or to protect the interest of BANK in the
Collateral; to take all necessary and appropriate action in Borrower's name with
respect to any Separate Bank Advances hereunder and servicing of Mortgage Notes
and Mortgages or sale of Collateral under any Commitment; to take any and all
action which BANK deems appropriate to commence, prosecute, settle, discontinue,
defend or otherwise dispose of any claim relating to any Commitment, insurance
or guarantee, assigned Mortgage Note, Mortgage or other Collateral; and to sign
Borrower's name whenever and wherever appropriate to the performance of this
Agreement, including, but not limited to, execution in Borrower's name of any
document necessary to perfect or protect BANK's security interest granted
hereunder. This appointment shall be deemed coupled with an interest but shall
only extend to dealings with regard to the Collateral.
5.05 Perfecting BANK's Lien: Borrower hereby agrees, upon BANK's request,
----------------------
to sign any additional documents which BANK, or its counsel, deems necessary to
evidence or perfect BANK's lien on any Collateral, or which may be required by
GNMA, FNMA, FHLMC or other investor in order to secure the investor's
acknowledgement and recognition of BANK's lien on the Collateral.
6 Affirmative Covenants.
Borrower covenants and agrees:
6.01 Note Payments: To pay the Loan (as provided in the Note and this
-------------
Agreement) when due including but not limited to interest upon the Loan on the
first day of each month.
-14-
<PAGE>
6.02 Circumstances Requiring immediate Repayment of Separate Bank
------------------------------------------------------------
Advance. To repay in full immediately to BANK, on demand of BANK, any Separate
- -------
Bank Advance plus accrued interest, if the Mortgage Loan transferred as
Collateral in connection therewith to BANK. (a) shall be rejected as
unsatisfactory for purchase by the permanent Investor and has exceeded the
permissible warehouse period; (b) has not been purchased within sixty days after
funding by BANK (or within ninety days for up to 5% of the Maximum Loan Amount,
or within 270 days for advances under the Repurchase Loan Sublimit) or within
the time permitted under any applicable Take-Out Commitment whichever occurs
first; (c) said Mortgage Loan becomes delinquent or in default for a period of
60 days or more; (d) possession of the Mortgage Note and other documents
evidencing the Mortgage Loan are not delivered to BANK within the time limits
provided in accordance with the terms of Paragraph 3 hereof; or (e) is secured
by premises improvements which have sustained a casualty loss in excess of 5% of
the appraised value of the land and improvements; (f) ceases to be an Eligible
Mortgage Loan; or (g) twenty-one (21) days or more have elapsed from the date of
shipment or delivery of Collateral to an Investor without having received full
payment of the Advance(s) or portions thereof secured hereby.
6.02.01 In the event that BANK received FNMA Certificates, FHLMC
Participation Certificates or GNMA Securities in connection with any Eligible
Mortgage Loans delivered in a pool; as set forth in 6.02.01, Borrower shall be
obligated to purchase, or cause the Investor to purchase, said certificates or
securities from BANK, for cash in an amount equal to all Separate Bank Advances,
plus accrued interest thereon, for such Eligible Mortgage Loans, on the same
business day that said certificates or securities are received by BANK.
6.02.02 In the event that any loan i) loses its takeout commitment,
ii) the takeout commitment's price changes, or iii) the loan remains in the
warehouse line longer than 30 days, BANK, at its option, in addition to other
rights it may have, may adjust the advance rate in the same manner provided in
(P)6.02.01.
6.03 Casualty Insurance: To place, or cause to be placed, and maintained at
------------------
all times, such fire and extended coverage insurance on all real estate forming
the basis of the Collateral as may be required by the Investor or if there is no
Investor, by BANK.
6.04 Other Insurance: To maintain (a) errors and omissions insurance or
---------------
mortgage impairment insurance and blanket bond coverage, with such companies and
in such amounts as satisfy prevailing FNMA, FHLMC and GNMA requirements
applicable to a qualified mortgage originating institution, and (b) liability
insurance and fire and other hazard insurance on its properties, with
responsible insurance companies approved by the BANK, in such amounts and
against such risks as is customarily carried by similar businesses operating in
the same vicinity; and (c) within thirty (30) days after notice from the BANK,
will obtain such additional insurance as the BANK shall reasonably require, all
at the sole expense of the Company. Copies of such policies shall be furnished
to the BANK without charge upon request of the BANK.
6.05 Enforcement of Mortgage Notes: To enforce payment and collection, at
-----------------------------
Borrower's expense, of all Mortgage Notes assigned to BANK hereunder as
Collateral.
-15-
<PAGE>
6.06 Cost of Collection: To pay the reasonable cost of collection including
------------------
attorney's fees of any of the Collateral, the enforcement of collection of which
has been undertaken by BANK.
6.07 Notation of Mortgage Assignments: To make appropriate notations on its
--------------------------------
books of all assignments to BANK hereunder, and to give such notice hereof as
BANK may from time to time reasonably require.
6.08 Execution of Additional Documents: To execute such additional
---------------------------------
instruments or assignments of the Collateral as BANK may from time to time
reasonably require.
6.09 Submission of Financial Statements:
----------------------------------
6.09.01 Submission of Monthly Financial Statements: To furnish to BANK
------------------------------------------
within thirty (30) days after the close of each monthly accounting period in
each fiscal year (other than the final fiscal month of any such year): (a) a
statement of stockholders' equity; (b) an income statement of the Borrower for
such monthly period; (c) a cash flow statement for such monthly period; and (d)
a balance sheet of the Borrower as of the end of such monthly period -- all in
detail, subject to year end audit adjustments and prepared by Borrower, and
certified true and correct by Borrower's chief financial officer, or by
Borrower's President.
6.09.02 Submission of Year End Financial Statement: To furnish to BANK
------------------------------------------
within ninety (90) days after the close of each fiscal year: (a) a statement of
stockholders' equity; (b) an income statement of the Borrower and each Guarantor
for such fiscal year; (c) a cash flow statement for such fiscal period; and (d)
a balance sheet of the Borrower and each Guarantor as of the end of such fiscal
year, all in reasonable detail, including all supporting schedules and comments;
the statements and balance sheet to be audited by an independent certified
public accountant (except for Guarantor's which need not be audited) selected by
the Borrower and acceptable to BANK; and accompanied by such accountant's
opinion letter reasonably satisfactory to BANK and certified true and correct by
Borrower's chief financial officer, Borrower's President, or the Guarantor(s),
whichever may be applicable.
6.09.03 Financial Statement Detail: That each financial statement
--------------------------
submitted pursuant to (S)6.09 shall include (a) the then current Tangible
Stockholders Equity, and (b) Borrower's Leverage Ratio and Current Ratio. All
statements shall be satisfactory to BANK in form, substance and detail and shall
be accompanied by work sheet calculations used to arrive at reported results,
including but not limited to, BANK's then current covenant compliance sheet. All
calculations and supporting data shall be certified true and correct by both
Borrower's chief financial officer or Borrower's President.
6.10 Maintenance Books and Records: To maintain adequate books, accounts
-----------------------------
and records in accordance with generally accepted accounting practices with
appropriate notations thereon of all assignments to BANK; and to permit BANK or
its representatives at any reasonable time to inspect or examine or audit the
books, accounts and records of Borrower.
-16-
<PAGE>
6.11 Compliance with Administrative Requests of BANK: To comply with such
-----------------------------------------------
reasonable administrative directions as BANK may give in order to provide proper
servicing of the Separate Bank Advances hereunder.
6.12 Submission of Pipe Line, Position, and Hedge Reports: To provide when
----------------------------------------------------
requested by BANK, a copy of the Borrower's pipeline, position, and hedge
reports in form and substance satisfactory to BANK.
6.13 Notification of Mortgage Loan Default: In connection with any Mortgage
-------------------------------------
Loan forming part of the Collateral, to notify BANK within two business days of
Borrower's discovery of any default thereunder or any claim asserted in
connection therewith or of the termination of the Take-Out Commitment related
thereto or of the rejection by the Investor under said Take-Out Commitment to
purchase said Mortgage Loan.
6.14 Notification of Borrower's Default: To advise BANK in writing within
----------------------------------
three business days after the expiration of any applicable cure period, of any
uncured material default known to Borrower in connection with any loan or line
of credit whether from BANK or not, in excess of $50,000.00.
6.15 Maintenance of Take-Out Commitments: To keep all Take-Out Commitments
-----------------------------------
in full force and effect and subject to no lien, assignment or other interest
(other than that of BANK).
6.16 Financial Covenants: To maintain at all times and tested as of the
-------------------
last day of each fiscal quarter:
(i) GAAP Stockholder's Equity in the minimum amount of $3,500,000
(ii) Tangible Stockholder's Equity in the minimum amount of
$3,400,000
(iii) a Leverage Ratio not exceeding 12.5:1
6.17 Tax Returns: To furnish BANK with copies of federal income tax returns
-----------
previously filed by the Borrower, within ten (10) days of BANK's written
request.
6.18 Payment of Taxes: To pay or cause to be paid when due, all taxes,
----------------
assessments and charges or levies imposed upon it or on any of its property or
which it is required to withhold and pay over, except where contested in good
faith by appropriate proceedings with adequate reserves therefor having been set
aside on its books provided, however that the Borrower shall pay or cause to be
--------
paid all such taxes, assessments, charges or levies forthwith whenever
foreclosure on any lien that attaches (or security therefor) appears imminent.
-17-
<PAGE>
6.19 New Locations and Subsidiaries: To furnish BANK with the name
------------------------------
and addresses of all new offices, locations, and subsidiaries no later than ten
business days prior to the date Borrower commences occupation of said premises.
6.20 Changes to Authorizational Documents: To promptly furnish to BANK
------------------------------------
copies of any changes to the documents required by Paragraph 3.01.04 hereof,
which copies shall be certified to be true and correct by the applicable
governmental agency responsible for recording such documents.
6.21 Mortgage Banker's Financial Reporting Form: To provide BANK within 60
------------------------------------------
days of the end of each quarterly accounting period, with a copy of the
quarterly Mortgage Banker's Financial Reporting Form (either FNMA Form 1002 or
FHLMC Form 1055, as applicable).
6.22 Additional Reports: To promptly furnish BANK with such reports and
------------------
information as it deems reasonably necessary from time to time.
6.23 Notification of Mortgage Warehouse Lines: To advise BANK of the
----------------------------------------
existence of all other mortgage warehouse lines extended to Borrower and the
amounts thereof as may exist from time to time. Borrower grants BANK the right
to request and share with other warehouse lenders information relating to their
respective loans and collateral.
6.24 Demand Deposit Account: To maintain operating and demand deposit
----------------------
accounts with Bank.
6.25 FNMA/FHLMC Certification: To provide BANK no later than January 31 of
------------------------
each calendar year, satisfactory evidence of current FNMA and/or FHLMC
certification (if applicable), and a copy of the audit letter issued by
Borrower's accountant in conjunction with Uniform Single Audit Program for
Mortgage Bankers, as amended from time to time. Borrower will provide BANK, no
later than 7 days after receipt, copies of all notices received from FNMA or
FHLMC relating to the certification of Borrower.
6.26 Compliance With Laws: To comply with all present and future Laws
--------------------
applicable to it in the operation of its business, and all material agreements
to which it is subject.
6.27 Notice of Litigation: To give immediate notice to the BANK of: (1) any
--------------------
litigation in which it is a party if an adverse decision therein would require
it to pay over more than $50,000 or deliver assets the value of which exceeds
such sum (whether or not the claim is considered to be covered by insurance);
and (2) the institution of any other suit or any administrative proceeding
involving it that might materially and adversely affect its operations,
financial conditions, property or business.
6.28 Payment of Obligations When Due: To pay when due (or within applicable
-------------------------------
grace periods) all indebtedness due third persons, except when the amount
thereof is being contested in good faith, by appropriate proceedings and with
adequate reserves therefor being set aside on the books of the Borrower.
-18-
<PAGE>
6.29 Operational Reviews: To, from time to time, permit access to its
-------------------
premises and records by BANK or its representative, for the purpose of
conducting a review of Borrower's general mortgage business methods, policies,
and procedures, auditing loan files, and reviewing financial and operational
aspects of Borrower's business. Commencing one year from date hereof, Borrower
shall reimburse BANK for all expenses incurred in conducting such review;
provided that the amount for such review shall not exceed $1,000 in any one
year.
6.30 Third Party Originations: BANK reserves the right to advise Borrower,
------------------------
from time to time in its sole discretion, that it elects not to fund Mortgage
Loans originated by any or all third party originator(s).
6.31 Exchange of Information: That so long as any sums due BANK shall
-----------------------
remain outstanding, BANK or its successors may exchange credit and/or collateral
information relating to Borrower with any of Borrower's other creditors.
Borrower hereby authorizes each of its present or future creditors to share such
information with BANK and agrees that each and every such creditor may act in
reliance on this authorization without liability to Borrower for release of such
information.
7 Negative Covenants.
Without the prior written consent of BANK (which shall not be unreasonably
withheld), Borrower will not:
7.01 No Compromise of Collateral: Make any compromise, adjustment or
---------------------------
settlement in respect of any of the Collateral or accept anything other than
cash in payment or liquidation of the Collateral.
7.02 No Other Liens: Permit any lien or financing statement (other than
--------------
warehouse lenders specified on Exhibit B) covering all or any part of the
Collateral to be on file or recorded in any public office.
7.03 No Change in Borrower's Name or Organizational Status: Change its name
-----------------------------------------------------
or liquidate, dissolve, consolidate or merge, reorganize, recapitalize or
reclassify its capital stock, nor permit any Subsidiary to do so, nor acquire,
or permit any subsidiary to acquire, substantially all the assets of another
entity.
7.04 No Sale or Pledge of Assets or Capital Stock: Sell, transfer, lease or
--------------------------------------------
otherwise dispose of or cancel all or (except in the ordinary course of
business) any material part of its assets or capital stock, nor pledge, grant or
permit to exist a security interest or lien upon any of its assets of any kind,
real or personal, tangible, now owned or hereafter acquired, except purchase
money liens on specific equipment, and indebtedness shown on Exhibit B hereof.
7.05 Improper Use of Proceeds: Use the proceeds of the Loan, or permit them
------------------------
to be used, for any purpose other than to finance the making or purchasing of
single family and multiple family residential mortgage loans pursuant to the
terms of this Agreement.
-19-
<PAGE>
7.06 No Dividends, Advances or Distributions: Declare or pay any cash or
---------------------------------------
stock dividends or make any cash advances or distributions or any kind to any of
its stockholders, directors, officers, employees, or affiliated companies, to
the extent that such action would create a default under this agreement or
related documentation in connection thereof.
7.07 No Additional Warehouse Indebtedness: Incur, create, assume or permit
------------------------------------
to exist any indebtedness other than as listed on Exhibit B, attached hereto,
except as owed to BANK.
7.08 No Misleading Information: Furnish to BANK any certificate or
-------------------------
document that contains any untrue statement of material fact or omits a material
fact necessary to make it not misleading in light of the circumstances under
which it was furnished.
7.09 No Guarantees: Become liable directly or indirectly, as guarantor,
-------------
surety, endorser or otherwise for any obligation of any other entity or person
that would have a material effect on the financial condition of Borrower.
7.10 No Change in Management, Ownership or Control: Change its executive
---------------------------------------------
management, ownership or control of its business operations.
8 Default.
8.01 Events of Default: Borrower shall be in default under this Agreement
-----------------
upon the happening of any of the following events or conditions (each, an "Event
of Default"):
8.01.01 Default in the payment of the Note or payment or performance
of any other obligation, covenant or liability of Borrower contained or referred
to herein, or in any other obligation owed by Borrower to BANK;
8.01.02 Any warranty, representation or statement furnished to BANK
by or on behalf of Borrower in connection with this Agreement proves to have
been false in any material respect when made or furnished;
8.01.03 Loss, theft, substantial damage, destruction, abandonment,
sale or encumbrances to or of the Collateral or any substantial part thereof, or
the making of any levy, seizure or attachment thereof, or thereon;
8.01.04 Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver for benefit of creditors by, or the
commencement of any case or proceeding under any bankruptcy or insolvency law by
or against Borrower or any of its Subsidiaries or guarantors unless said
proceeding, if commenced against Borrower or any of its Subsidiaries is
dismissed within 30 days from the date it is filed; or
8.01.05 Occurrence of any material adverse change in the financial
or operating condition of Borrower;
-20-
<PAGE>
8.01.06 Ten (10) days or more shall elapse from the date of release
of any Mortgage Note and any other item of Collateral to Borrower made at BANK's
sole discretion subject to such terms and conditions as BANK may from time to
time require and such Collateral has not been returned to BANK;
8.01.07 The occurrence of any circumstance that would cause any
Mortgage Loan comprising a portion of the Collateral to fail to conform to the
definition of Eligible Mortgage Loan or fail to conform to the documentation
requirements of Paragraphs 3.02, 3.04, and 3.05 and 3.08.
8.01.08 If presently held or later obtained, subsequent loss or
suspension of FNMA and/or FHLMC certification.
8.01.09 Failure of Borrower, or any Guarantor or any shareholder,
director or employee of Borrower to observe or perform any agreement of any
nature whatsoever with BANK.
8.01.10 Borrower's default under the terms and conditions of any
loan or credit agreement with any third party which exceeds $50,000.
8.01.11 The occurrence of an Event of Default under the terms of the
Custodian Agreement.
8.02 Remedies Upon Default: Upon the occurrence of one or more Events of
---------------------
Default, BANK may at its election, refuse to make additional advances, and/or
terminate this Agreement, and/or declare all sums now or hereafter owed by
Borrower to BANK to be immediately due and payable; charge Borrower's DDA
account for any or all sums due and owing to BANK; and BANK shall have the
rights and remedies of a secured party under the Uniform Commercial Code in
addition to the rights and remedies provided herein or in any other instrument
or paper executed by Borrower, including, at its option and in its sole
discretion, until all sums now or hereafter owed to the Bank are paid in full,
the right or rights to:
8.02.01 Communicate with and notify the mortgagors under the
Mortgage Loans comprising the Collateral of Borrower's assignments hereunder,
and note any such assignment on Borrower's records;
8.02.02 Take over the exclusive right to liquidate the Collateral at
the sole expense of the Borrower, without any obligation to preserve rights
against third parties. For any acts done or not done incident to such collection
or liquidation, BANK shall not be liable in any manner. BANK shall have the
right to settle, compromise, or adjust Collateral and the claims or right of
borrower thereunder and accept return of the real estate involved, and in turn
sell and dispose of all said real estate without notice to or approval of
Borrower, BANK may employ agents and attorneys to collect or liquidate any
Collateral, and BANK shall not be liable for such Collateral or defaults of any
such agents and attorneys;
-21-
<PAGE>
8.02.03 To effect collection of any Separate Bank Advance hereunder,
take possession of and open any mail addressed to Borrower whether on Borrower's
premises or elsewhere and to remove, collect, and apply all payments therein
contained and as attorney in fact for Borrower, sign the Borrower's name to any
receipts, checks, notes, agreements, assignments or other instruments or
letters, in order to collect, sell or liquidate the Collateral. This power shall
be irrevocable.
8.02.04 Require Borrower to assemble all books and records of
account relating to the Collateral and make them available to BANK at its office
herein set forth or such other place as may be designated by BANK;
8.02.05 Enter the office of Borrower and take possession of any of
the Collateral including any records that pertain to the Collateral;
8.02.06 Undertake to service any one or more of the Eligible
Mortgage Loans comprising the Collateral and upon the happening of such,
Borrower shall transfer to BANK all escrow funds, records, and any other
documents relating to any such Eligible Mortgage Loans then held by it; and
8.02.07 At BANKS option, rescind any acceleration of the maturity of
the Loan previously declared (but the tender and acceptance of partial payments
of the Loan shall not rescind or affect in any way any such acceleration of
maturity).
8.03 Remedies Cumulative: All remedies available to BANK shall be
-------------------
cumulative not alternate in that the exercise of one or more of them shall not
preclude exercising one or more of the others. Further, nothing in this Default
section or elsewhere in this Agreement shall affect the demand nature of
Borrower's obligations to BANK or preclude BANK from demanding full payment of
all sums due by Borrower to BANK, at any time.
9 Sale of Mortgage Notes.
So long as Borrower is not in default hereunder BANK shall:
9.01 Delivery of Mortgage Notes by BANK: Upon sale or direction by
----------------------------------
Borrower of any Mortgage Loan assigned to BANK hereunder, cause the Collateral
Custodian to deliver the Mortgage Note as requested by Borrower to the Investor
pursuant to the terms of the Custodial Agreement.
9.02 Reassignment of Mortgage Notes by BANK: Reassign to Borrower any
--------------------------------------
Mortgage Note referred to in Paragraph 6.02 hereof, and to deliver all
supporting papers, upon payment in full to BANK of the respective Separate Bank
Advance, plus accrued interest.
-22-
<PAGE>
10 Collections.
Upon an Event of Default if so requested by BANK, in writing, Borrower
shall act, as the representative of, and in trust for, BANK in receiving and
collecting all monies payable on any Mortgage Loan held as part of the
Collateral and after collection thereof shall deposit the same in a special
account at BANK in the name of the Borrower, and the same shall be held by Bank
as part of the Collateral hereunder. BANK, upon deposit in such special account
of any monies payable on any such Mortgage Loan, may, in its sole discretion,
apply all or any part thereof to the payment of Borrower's obligation arising
out of the related Separate Bank Advance. Upon payment in full of that portion
of any Separate Bank Advance applicable to a particular Mortgage Loan, plus
accrued interest, and so long as no default exists hereunder, Borrower may
withdraw from such special bank account the amount of all payments made on
account of that Mortgage Loan and deposited by Borrower in such special bank
account.
11 Termination.
This Agreement shall terminate on the Termination Date. BANK will notify
Borrower not less than ninety days (90) prior to the Termination Date of its
intention to terminate or extend the term of this Agreement.
12 Miscellaneous.
12.01 Notices: Except as to routine business matters, any and all
-------
communications between the parties hereto or notices provided herein to be given
in writing shall be i) delivered in person, ii) sent by both certified or
registered mail, return receipt requested, and by regular mail, or iii) by
overnight courier service that provides for proof of delivery; addressed as
follows: if to BANK: First Union National Bank, Widener Building, Mail Code
PA4831, 1339 Chestnut Street, Philadelphia, PA 19107, Attention: John P. White,
with a copy to Thomas M. Pinney, Esq., Counsel for First Union National Bank;
Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia, PA 19107; and if
to Borrower; Michael Strauss, Inc. 12 East 49th Street, New York, NY 10017.,
Attention: Michael Strauss, President, or to such other addresses either party
may by notice indicate to the other from time to time. Unless sooner received,
all notices shall be deemed delivered two (2) days after mailing, as herein set
forth. Actual knowledge of the contents of the notice, however received, shall
constitute proper notice hereunder.
12.02 Successors and Assigns: 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
(affirmative and negative) and agreements herein contained on the part of
Borrower shall survive the making of any Separate Bank Advance and the execution
of Borrower's Note, and shall be effective as long as any sums remain due and
owing BANK.
12.03 Sale of Collateral by BANK: This Agreement, and the Note issued
--------------------------
hereunder, or any part of the Collateral, may, at any time, be transferred or
assigned by BANK, in whole or in part, or separately, or as an entirety, and any
assignee thereof from BANK may enforce this
-23-
<PAGE>
Agreement, the Note, and such Collateral, provided, however, that no Mortgage
Loan may be separately sold or assigned unless the Borrower shall have failed or
refused for a period of ten (10) days to comply with a demand to pay the
respective Separate Bank Advance, plus accrued interest, pursuant to Paragraph
6.02 hereof or unless Borrower is in default under this Agreement or the Note.
Any Mortgage Loan which is subject of a Take-Out Commitment shall be sold
pursuant to the terms of said Commitment unless rejected by the Investor.
12.04 Delay - No Waiver: No delay in exercising, or failure to exercise
-----------------
any right, power or remedy accruing to BANK through any breach or default of
Borrower under this Agreement, or any acquiescence to any such breach or
default, or to any similar breach or default thereafter occurring, shall impair
any such right, power or remedy of BANK; nor shall any waiver of any single
breach or default be deemed a waiver of any breach or default thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of BANK of any provision or condition of the Agreement, must be in
writing and shall be effective only to the extent of such writing specifically
set forth. The foregoing two sentences shall be deemed to be applicable to both
BANK and Borrower. In the event BANK is required to take any action to collect
sums due under the Note or to enforce, renegotiate, restructure or modify the
terms of this Agreement, or is required to institute, defend or otherwise
participate in any action at law or suit in equity in-relation to this
Agreement, or any Mortgage Loan forming part of the Collateral, Borrower, in
addition to all other sums which it may be called upon to pay, will pay BANK's
attorneys' fees and costs. Nothing in this Agreement shall be deemed any waiver
or prohibition of BANK's right of lien or set-off, except that BANK agrees to
not set-off against any legitimate custodial or escrow account in which Borrower
accumulates funds owned by individual mortgagors or other third parties.
12.05 (a) Entire Agreement-Supplemental Policies and Procedures: This
-----------------------------------------------------
Agreement sets forth the entire agreement among the parties hereto, and there
are no other agreements, express or implied, written or oral, except as set
forth herein. This Agreement may not be amended, altered or changed except in
writing by all parties hereto. It is contemplated that from time to time
Borrower and BANK will enter into supplemental agreements establishing policies
and procedures to carry out the terms of this agreement. Such agreements shall
constitute amendments hereto provided they are signed by both parties.
(b) Partial Invalidity: The inapplicability or unenforceability of
------------------
any provision of this Agreement shall not limit or impair the operation or
validity of any other provisions of this Agreement.
(c) Counterparts: This Agreement may be executed in any number of
------------
counterparts, each of which, when executed and delivered, shall be an original,
but such counterparts shall together constitute one and the same instrument.
(d) No Assignment by Borrower: This Agreement shall not be
-------------------------
assignable by Borrower without the express written approval of BANK.
-24-
<PAGE>
(e) Materiality/Reliance by BANK: All covenants, agreements and
----------------------------
representations made herein and in documents delivered in support of this
Agreement, now or in the future, shall be deemed to have been material and
relied on by BANK and shall not merge with this Agreement.
(f) No Third Party Beneficiary: The parties hereto understand
--------------------------
and agree that there is no intention to confer any benefits upon any person or
legal entity not a party to this Agreement; notwithstanding the foregoing, the
parties hereto acknowledge and agree that the Lender, at its sole discretion,
may participate portions of its interests in the Loan to other parties.
(g) Confidentiality: All information and materials provided to
---------------
BANK by borrower shall be treated with the same degree of confidentiality as
BANK maintains with regard to similar information of its other customers
generally. Nothing contained herein shall prevent BANK from releasing to actual
or proposed loan participants such information regarding Borrower as BANK may
deem pertinent and necessary.
12.06 Interpretation of Accounting Terms: Each accounting term used in
----------------------------------
this Agreement which is not specifically defined shall have the meaning
customarily given to it in accordance with generally accepted accounting
principles.
12.07 Pennsylvania Law/Consent to Jurisdiction and Service/Waiver of
--------------------------------------------------------------
Jury Trial:
----------
A) THIS AGREEMENT AND ALL SUPPLEMENTAL DOCUMENTS EXECUTED IN
CONNECTION HEREWITH HAVE BEEN DELIVERED IN AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
WITHOUT REGARD TO THE LAW OF CONFLICTS.
B) CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE RELATIONSHIP EVIDENCED HERBY, EACH UNDERSIGNED PARTY HEREBY
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN ANY COUNTY OF THE COMMONWEALTH OF PENNSYLVANIA WHERE CBNA
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION
OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH
COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH
PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED
MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
C) WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES
TRIAL BY JURY IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF OR RELATED TO THIS AGREEMENT, THE
-25-
<PAGE>
PROMISSORY NOTE EXECUTED IN CONNECTION HEREWITH, OR THE RELATIONSHIP EVIDENCED
HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR CBNA TO ENTER INTO, ACCEPT
OR RELY UPON THIS AGREEMENT.
12.08 Closing by Mail: This Loan is deemed by the parties to be a
---------------
Pennsylvania transaction. If Borrower or any guarantor shall sign a Note,
Mortgage Warehouse Loan Agreement, financing statement, certification, personal
guaranty, amendment to any of the foregoing, or other document executed in
connection with the Loan outside of the Commonwealth of Pennsylvania, such
document shall be of not force or effect until received and accepted in
Pennsylvania by BANK.
-26-
<PAGE>
IN WITNESS WHEREOF, FIRST UNION NATIONAL BANK, has caused its corporate
name to be hereunto affixed and this instrument to be signed by an authorized
corporate officer and has caused its corporate seal to be hereunto affixed and
attested and Borrower has caused its corporate name to be hereunto affixed and
attested by its Secretary, all as of the day and year first hereinabove written.
FIRST UNION NATIONAL BANK
By: /s/ John P. White
------------------------------------
John P. White, Vice President
Michael Strauss, Inc.
ATTEST:
(affix corporate seal)
[ILLEGILBE SIGNATURE APPEARS HERE] By: /s/ Michael Strauss
- ------------------------------------ ------------------------------------
Michael Strauss, President
<PAGE>
Exhibit A
Mortgage Warehouse Loan and Security Agreement
First Union National Bank
to
Michael Strauss.Inc.
((P)4.07)
Schedule of Borrower's Offices
------------------------------
<PAGE>
American Home Mortgage
Office Locations
12 East 49th Street
New York, NY 10017
4354 White Plains Rd
Bronx, NY 10466
200B South Main Street
New City, NY 10956
45 Executive Drive
Plainview, NY 11803
52A Commack Road
Commack, NY 11725
100 Jericho Quadrangle
Jericho, NY 11753
2025 Richmond Avenue
Staten Island, NY 10314
711 Westchester Avenue
White Plains, NY 10604
200 Connecticut Avenue
Norwalk, CT 06854
2001 Route 46
Parsippany, NJ 07054
1 South Orange Ave
Orlando, FL 32801
3 Neshaminy Interplex
Trevose, PA 19053
<PAGE>
Exhibit B
Mortgage Warehouse Loan and Security Agreement
First Union National Bank
to
Michael Strauss, Inc.
((P)7.07)
Schedule of Additional Indebtedness
-----------------------------------
Creditor Maximum Availability Security
- -------- -------------------- --------
PNC Bank $40,000,000 to be replaced by subject facility
<PAGE>
Schedule A
Credit Underwriting Criteria
Classes of Loans A/1/ B C D
Warehouse Period 60 60 60 60
Debt to Income 50% 50% 50% 50%
Loan to Value 90% 90% 90% 90%
Mortgage Loan Maximum $250,000 on nay non pre-approved Mortgage Loan. Any
loan over $250,000 provided that the loan is
pre-approved by the Bank.
Employment Must be verified on all Loans. The Borrower can
underwrite and close NTQ and NTV Loans.
Property* 1 - 4 Family Dwelling
Appraisal Required on all Loans
Closings Must be closed by counsel or title company
* Multi-family units, in excess of four (4) dwelling units, will not be
eligible to warehouse without prior permission of the Bank.
The Bank it its sole discretion retains the right to accept or reject any
collateral.
From time to time, the Borrower may revise the credit underwriting criteria
contained in Attachment "A" provided (i) the Borrower submits a revised
Attachment "A" to the Bank for its written approval; and (ii) the Bank approves
the revised Attachment "A", in writing, as evidenced by a letter from the Bank
to the borrower.
- ---------------
/1/ With respect to Class A Mortgage Loans, the Bank will permit such Mortgage
Loans to have a loan to value ratio not to exceed one hundred percent (100%) and
a debt to income ratio not to exceed 45%.
[INITIAL APPEARS HERE]
- ----------------------
Initial
<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY is given this 8th day of December, 1998, by Michael Strauss
("Guarantor") to FIRST UNION NATIONAL BANK (the "Bank").
W I T N E S S E T H:
Michael Strauss, Inc., a New York corporation (herein called the
"Principal") has entered into a Mortgage Warehousing Loan and Security Agreement
dated as of December 8th , 1998 with the Bank (which agreement and any
amendments thereto is herein collectively called the "Loan Agreement") which
governs the rights and obligations of the Bank and the Principal with respect to
the loans to be made thereunder, which loans are secured by the Collateral
described in the Loan Agreement.
To induce the Bank to make the Loans to the Principal pursuant to the
provisions of the Loan Agreement and to otherwise extend credit to the
Principal, Guarantor hereby gives the Bank the assurances herein contained.
NOW, THEREFORE, to induce, and in consideration of loans, advances,
obligations or other credit heretofore or hereafter granted by the Bank to the
Principal pursuant to the Loan Agreement and to enable such loans, advances,
obligations or other credit to be maintained and obtained by the Principal, all
of which will be used to the direct, material, economic benefit of the
Guarantor, the Guarantor, intending to be legally bound hereby, does hereby
become surety to the Bank for and guarantees to the Bank the prompt payment when
due of the principal and interest on the Loan, and the due and punctual
performance of, all obligations, liabilities and indebtedness of the Principal
to the Bank, now existing or hereafter arising, whether primary or secondary,
direct or indirect, absolute, contingent or conditional, due or to become due
(herein collectively the "Liabilities"). If any Liabilities are not paid to the
Bank in accordance with the Loan Agreement, Guarantor further agrees forthwith
to pay such Liabilities or, at the sole option of Bank, discharge the obligation
of the Principal hereunder until all Liabilities have been paid to the Bank in
full. Guarantor further agrees to pay to the Bank upon demand all losses and
reasonable costs and expenses, including attorneys' fees, which may be incurred
in attempting to collect the Liabilities, or to enforce Guarantor's liabilities
under this Guaranty Agreement. Guarantor further agrees as follows:
1. Guarantor hereby: (a) assents to all terms and agreements heretofore or
hereafter made with Bank by Principal; (b) consents that Bank may: (i) exchange,
release or surrender to Principal any collateral or waive, release or
subordinate any security interest, in whole or in part, now or hereafter held as
security for any Liabilities of otherwise under this Guaranty Agreement; (ii)
waive or delay the exercise of any rights or remedies of Bank against Principal
or any other surety or guarantor or, with respect to the Liabilities, any
security therefor, or under this Guaranty Agreement; (iii) release the Principal
or any other surety or guarantor; (iv) renew, extend or modify the terms of any
Liabilities or any instrument or agreement evidencing the same; and (v) apply
payments by Principal or Guarantor to any Liabilities guaranteed hereunder; (c)
waives all notices whatsoever in respect to this Guaranty Agreement or with
respect to the Liabilities which are to be sent to Principal including, but not
limited to, notice of: Bank's
<PAGE>
acceptance hereof or its intention to act or its action in reliance hereon; the
present existence or future incurring of any Liabilities or any terms or amounts
thereof or any change therein, any default by Principal or any surety or
guarantor; the obtaining of any guaranty or surety agreement in addition to this
Guaranty Agreement or any pledge, assignment or other security for any
Liabilities; and the release of any surety or guarantor of any Liabilities, or
of any pledgor or assignor whose pledge or assignment has been made as security
for any Liabilities; and (d) agrees that any indebtedness of Principal now or
hereafter held by Guarantor is hereby subordinated to the Liabilities of
Principal to Bank; and such indebtedness of Principal to Guarantor, if Bank so
requests and upon default by Principal to Bank, shall be collected, enforced,
and received by Guarantor as trustee for Bank and shall be paid over to Bank on
account of the Liabilities of Principal to Bank but without impairing or
affecting in any manner the liabilities of Guarantor under the provisions of
this Guaranty Agreement. Guarantor waives notice of presentment, demand, protest
and notice of nonpayment or protest in relation to any instruments evidencing
any Liabilities, and any other demands and notices required by law.
2. The liability of Guarantor under this Guaranty Agreement is absolute and
unconditional, without regard to the liability of any other party or person, and
shall not in any manner be affected by reason of any action taken or not taken
by Bank, which action or inaction is herein consented and agreed to, or of any
lack of prior enforcement or retention of any rights against the Principal,
Guarantor or any other person or any property, or of the partial or complete
unenforceability or invalidity of any other guaranty or surety agreement,
pledge, assignment or other security for any Liabilities. Bank may release all
or part of the Liabilities of any other surety for Principal or Guarantor of any
Liabilities, and any such release shall not affect or release any Liabilities
hereunder of the undersigned. No delay in making demand on Guarantor for payment
of the Liabilities of Guarantor hereunder shall prejudice Bank's right to
enforce such payment. All of Bank's rights and remedies shall be cumulative and
any failure of Bank to exercise any right hereunder shall not be construed as a
waiver of the right to exercise the same or any other right any time and from
time to time thereafter.
3. If any Liability shall not be paid to Bank in accordance with the Loan
Agreement, (herein called a "Failure of Payment") all Liabilities shall, at the
option of Bank, (declared at any time without notice or demand of any kind to
the Guarantor, to Principal or to any other person) be deemed to be due and
payable, and the obligations of Guarantor hereunder shall simultaneously
pursuant to the terms of this Guaranty Agreement also be immediately due and
Bank may forthwith recover from Guarantor the whole amount due hereunder
pursuant to the terms hereof.
4. This Guaranty Agreement shall be a continuing one and be binding upon
Guarantor regardless of how long before or after the date hereof any Liabilities
were or are incurred, provided, however, Guarantor may terminate this Guaranty
Agreement by written notice sent to Bank by registered mail, stating an
effective date of termination not less than ninety (90) days after receipt of
such notice by Bank, and Guarantor shall not be liable to Bank hereunder with
respect to any liability incurred after the effective date of termination stated
in such notice; provided, further that this Guaranty Agreement shall
nevertheless continue with respect to: (a) any Liabilities which were incurred
prior to such date of termination or which are thereafter incurred in renewal,
extension or modification of any such Liabilities; and (b) any
-2-
<PAGE>
Liability incurred after such date of termination pursuant to an agreement
theretofore entered into which bound Bank to permit such Liabilities to be
incurred. In the event this Guaranty Agreement is preceded or followed by any
other agreement of suretyship or guaranty by Guarantor, all thereof shall be
deemed to be cumulative and the liability of Guarantor hereunder shall be in
addition to that stated in any other suretyship or guaranty agreement.
5. Guarantor agrees that this Guaranty Agreements shall be governed by the
substantive law of Pennsylvania.
6. Without limiting the waivers of notice hereunder by the Principal and
Guarantor, any notice or consent required or permitted by this Guaranty
Agreement shall be in writing and shall be deemed delivered if delivered in
accordance with the provisions of the Loan Agreement to the Bank and to
Guarantor care of the Principal at the address specified in the Loan Agreement.
7. This Guaranty Agreement shall inure to the benefit of Bank, its
successors, assigns and any person to whom Bank may grant an interest in any
Liabilities, and shall be binding upon Guarantors, their heirs, successors and
assigns.
8. This Guaranty Agreement is intended to take effect as a document under
seal.
IN WITNESS WHEREOF, the Undersigned, intending to be legally bound, hereby,
have duly executed this Guaranty Agreement the day and year first above written.
/s/ Michael Strauss
-------------------------------
Michael Strauss
Accepted:
FIRST UNION NATIONAL BANK
By: /s/ John P. White
-----------------------------
John P. White
Vice President
-3-
<PAGE>
PROMISSORY NOTE
MICHAEL STRAUSS, INC.
Philadelphia. PA
$40,000,000.00 December 8th, 1998
MICHAEL STRAUSS, INC., a New York corporation (the "Borrower"), for value
received, hereby promises to pay to the order of FIRST UNION NATIONAL BANK
("Bank"), or its registered assigns the principal sum of FORTY MILLION DOLLARS
($40,000,000) or such lesser amount as may be advanced hereunder. The principal
amount of the Note shall bear interest at the rates (including, if applicable,
the Default Rate) specified in the Mortgage Warehousing Loan and Security
Agreement, (as amended from time to time hereafter, the "Warehousing
Agreement,"), dated as of December 8th, 1998 by and between Borrower and Bank.
Capitalized terms used herein and not otherwise defined herein have the meanings
specified in the Warehousing Agreement. Principal and interest in respect of
this Note shall be paid in the manner and at, the times specified in the
Warehousing Agreement. This Note may be voluntarily prepaid, and is subject to
mandatory prepayment, in accordance with the provisions of the Warehousing
Agreement.
Under certain circumstances, as specified. in the Warehousing Agreement,
the principal of this Note and interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Warehousing Agreement.
The Borrower waives presentment, protest and demand, notice of protest,
demand and dishonor upon non-payment of this Note and agrees to pay all
reasonable costs of collection (including, without limitation, reasonable
attorneys' fees) of this Note.
This Note and the Warehousing Agreement are governed by, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
MICHAEL STRAUSS, INC.
By: /s/ Michael Strauss
---------------------------------
Name: Michael Strauss
Title: President
<PAGE>
Amendment to Mortgage Warehousing Loan and Security Agreement
-------------------------------------------------------------
This Amendment dated as of June 23, 1999 shall serve to further amend the
Mortgage Warehousing Loan and Security Agreement ("Agreement") between First
Union National Bank (hereinafter referred to as "Bank") and American Home
Mortgage Corp. (hereinafter referred to as "Borrower") dated December 8, 1998.
Section 1.02 Definitions
The definition of Maximum Loan Amount is deleted in its entirety and the
-------------------
following is substituted:
Maximum Loan Amount means $50,000,000 from the date hereof through and
-------------------
including August 31, 1999; and $40,000,000 thereafter.
Except as expressly modified or amended herein, all other terms and
provisions of the Agreement shall remain in full force and effect. This
amendment will become effective upon our receipt of your executed copy of this
amendment letter and Note for the amended Maximum Loan Amount in Philadelphia,
Pennsylvania.
Agreed & Accepted
American Home Mortgage Corp.
By /s/ Michael Strauss
-------------------------------
Michael Strauss, President
Attest: /s/ illegible
-------------------------------
By: /s/ Michael Strauss
-------------------------------
Michael Strauss, Guarantor
First Union National Bank
By: /s/ John P. White
-------------------------------
John P. White, VP
<PAGE>
PROMISSORY NOTE
AMERICAN HOME MORTGAGE CORP.
$50,000,000.00 Philadelphia, PA
June 23rd, 1999
AMERICAN HOME MORTGAGE CORP., a New York corporation (the "Borrower"),
for value received, hereby promises to pay to the order of FIRST UNION NATIONAL
BANK ("Bank"), or its registered assigns the principal sum of FIFTY MILLION
DOLLARS ($50,000,000) or such lesser amount as may be advanced hereunder. The
principal amount of the Note shall bear interest at the rates (including, if
applicable, the Default Rate) specified in the Mortgage Warehousing Loan and
Security Agreement, (as amended from time to time hereafter, the "Warehousing
Agreement"), dated as of December 8th, 1998 by and between Borrower and Bank.
Capitalized terms used herein and not otherwise defined herein have the meanings
specified in the Warehousing Agreement. Principal and interest in respect of
this Note shall be paid in the manner and at the times specified in the
Warehousing Agreement. This Note may be voluntarily prepaid, and is subject to
mandatory prepayment, in accordance with the provisions of the Warehousing
Agreement.
Under certain circumstances, as specified in the Warehousing Agreement,
the principal of this Note and interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Warehousing Agreement.
The Borrower waives presentment, protest and demand, notice of protest,
demand and dishonor upon non-payment of this Note and agrees to pay all
reasonable costs of collection (including, without limitation, reasonable
attorneys' fees) of this Note.
This Note and the Warehousing Agreement are governed by, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
AMERICAN HOME MORTGAGE CORP.
By: /s/ Michael Strauss
-------------------------------
Name: Michael Strauss
Title: President
<PAGE>
Exhibit 10.11
July 7, 1999
American Home Mortgage Holdings, Inc.
12 East 49th Street
New York, New YOrk 10017
Attention: Michael Strauss, President
Dear Sirs:
This letter (the "Agreement") confirms the understanding between James 0'Reilly
("Licensor") and American Home Mortgage Holdings, Inc. and its subsidiary,
American Home Mortgage Corp., (together, the "Licensee") in connection with
certain interest rate risk management software developed by Licensor:
(1) Definition of Software. For purposes of this letter agreement,
----------------------
"Software" shall mean the computer programs and related documentation and
software designed by Licensor to (a) view in aggregate interest rate commitments
given to mortgage loan customers and the financial instruments held to hedge
these commitments, and (b) evaluate impacts in interest rate changes on the
value of loans and inventory and applications in process.
(2) License. Licensor hereby grants to Licensee a twenty-year, worldwide,
-------
non-exclusive, fully-paid-up right and license to reproduce the Software in
copies, prepare derivative works, perform and display the Software publicly, and
to use the Software. The Licensor hereby agrees to include in any copies of the
Software that it prepares any copyright or other intellectual property rights
notices now present therein.
(3) Maintenance and Other Activities. Licensor shall, for the license
--------------------------------
period, use all reasonable efforts to assist Licensee, at the Licensee's
request, in the Licensee's maintenance and other activities necessary to enable
Licensee to utilize the Software in substantially the manner in which it is
currently used.
(2) Consideration/Royalty Fee. In addition to the execution and delivery of
-------------------------
the employment agreement, dated March 9, 1998, between the Licensor and Licensee
(the "Employment Agreement"), the Licensee shall pay to Licensor a royalty fee
of $100 in consideration of the execution and delivery of this Agreement by
Licensor. No further fee or consideration shall be payable under this Agreement
with respect to the Software.
(3) Representations and Limited Warranties. Licensor represents and warrants
--------------------------------------
to Licensee that Licensor owns, has and will hereby transfer to licensee, good
title to the copies of the Software, free and clear of all liens, claims,
security interests and encumbrances, and that Licensor has full power and
authority to grant the rights and licenses hereinabove granted.
<PAGE>
(4) Entire Agreement. Licensee and Licensor acknowledge that they have read
----------------
this entire Agreement and that this Agreement, along with the Employment
Agreement, constitutes the entire understanding and contract between the parties
and supersedes any and all prior or contemporaneous oral and written
communications regarding the subject matter, all of which communications are
merged herein. Nothing in this Agreement shall be construed as creating a joint
venture or partnership, or employment relationship other than set forth in the
Employment Agreement, between the parties, nor shall either party have the
right, power or authority to create any obligation or duty, express or implied,
on behalf of the other. This Agreement shall not be modified, amended or in any
way altered except by an instrument in writing signed by both parties.
(5) Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of New York, without giving effect to the
conflict of laws rules thereof.
(6) Agreement Copies. This Agreement may be executed 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.
(7) Binding Effect. This Agreement shall be binding upon the parties and
--------------
their successors and assigns.
Very truly yours,
BY /s/ James O'Reilly
--------------------------
Agreed to and Accepted as of the date first
written above:
AMERICAN HOME MORTGAGE HOLDINGS, INC.
BY /s/ Michael Strauss
------------------------------------
Name: Michael Strauss
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT 10.15
- --------------------------------------------------------------------------------
[LOGO] NORWEST FUNDING
Norwest Funding Inc. Loan Purchase
3601 Minnesota Drive - Suite 200 Agreement
Minneapolis, Minnesota 55435
- --------------------------------------------------------------------------------
This Agreement made as of July 8, 1996, by and among Michael Strauss, Inc. dba
American Home Mortgage, dba American Brokers Conduit, a duly organized and
validly existing Corporation with its principal place of business at 12 E. 49th
St., N.Y., N.Y. 10017 (the "Seller") and Norwest Funding, Inc. ("Norwest").
- --------------------------------------------------------------------------------
1. Recitals
- --------------------------------------------------------------------------------
7 | 8 | 96 Norwest desires to purchase and Seller desires to sell to
- ---------- Norwest (check and initial the appropriate box):
[ILLEGIBLE] FHA-insured or VA-guaranteed mortgage loans ("Government Loans")
- ----------- eligible for inclusion in Government National Mortgage
Norwest Association ("GNMA") securities backed by the Government Loans
together with the servicing rights to the Government Loans on
[ILLEGIBLE] the terms and conditions set forth in this Agreement and in the
- ----------- Norwest Government Lender/Seller Operating Manual (the
Seller "Government Manual")
7 | 8 | 96 Pipeline Limits: Mandatory $500K Best Effort: $4M
- ----------
Mortgage loans other than Government Loans ("Conventional
[ILLEGIBLE] Loans")together with the servicing rights to the Conventional
- ----------- Loans on the terms and conditions set forth in this Agreement
Norwest and in the Norwest Conventional Lender/Seller Operating Manual
(the "Conventional Manual")
[ILLEGIBLE]
- ----------- Pipeline Limits: Mandatory $500K Best Effort: $15M
Seller
- --------------------------------------------------------------------------------
2. Consideration
- --------------------------------------------------------------------------------
Norwest and Seller, in consideration of the terms, conditions, promises and
agreement set forth in this Agreement and other good and valuable consideration,
the receipt of which is hereby acknowledged, hereby agree to the terms of this
Agreement.
- --------------------------------------------------------------------------------
3. The Manual
- --------------------------------------------------------------------------------
The Government Manual and the Conventional Manual are collectively referred to
in this Agreement as the Manual. Seller and Norwest agree and understand that
the Government Manual applies to Government Loans and the Conventional Manual
applies to Conventional Loans. Seller acknowledges that it has received and read
the Manual. All provisions of the Manual are incorporated; by reference into
this Agreement and shall be binding upon Seller and Norwest. Any reference in
the Manual to Norwest Mortgage, Inc. shall be construed to mean Norwest.
Specific reference in this Agreement to particular provisions of the Manual and
not to other provisions does not mean that those provisions of the Manual not
specifically cited in the Agreement are not applicable. All terms used herein
shall have the same meaning as the terms have in the Manual, unless the context
clearly requires otherwise. Norwest may amend the Manual from time to time upon
written notice to Seller. In the event of any conflict between the provisions of
this Agreement and the Provisions of the Manual, the provisions of this
Agreement shall control.
- --------------------------------------------------------------------------------
4. Commitments.
- --------------------------------------------------------------------------------
Seller may order Single Loan or Bulk commitments from Norwest in accordance with
the Manual for any Eligible Mortgage Loans which Seller intends to sell to
Norwest. When the commitment is registered, Norwest will send Seller a written
confirmation of the commitment in the form contained in the Manual ("Commitment
Confirmation")
- --------------------------------------------------------------------------------
5. Eligible Mortgage Loans
- --------------------------------------------------------------------------------
Eligible Mortgage Loans are loans which satisfy all of the requirements
contained in the Manual and the product profile for the particular Eligible
Mortgage Loan shown on the Commitment.
- --------------------------------------------------------------------------------
6. Purchase Price
- --------------------------------------------------------------------------------
The Purchase Price for each Eligible Mortgage Loan sold by Seller to Norwest
shall be mutually agreed to by Seller and Norwest in accordance with the Manual.
The Purchase Price will be shown on the Commitment Confirmation relating to the
Eligible Mortgage Loan ("Commitment Confirmation"). Norwest agrees to guarantee
the Purchase Price for the Eligible Mortgage Loan for the time period shown on
the Commitment Confirmation and Seller Agrees to close the Eligible Mortgage
Loan and deliver it to Norwest within the time period.
- --------------------------------------------------------------------------------
7. Delivery Requirements
- --------------------------------------------------------------------------------
Seller will deliver Eligible Mortgage Loans as provided for in the Manual.
- --------------------------------------------------------------------------------
8. Commitment Delivery Deadlines and Funding Dates
- --------------------------------------------------------------------------------
Norwest will notify Seller of the applicable commitment delivery deadline and
funding cutoff date for each commitment obligation and Seller agrees to provide
Norwest with sufficient, prudently and properly underwritten Eligible Mortgage
Loans to fulfill the commitment by the commitment delivery deadline as provided
for in the Manual. For each commitment, Seller must deliver prudently and
properly underwritten Eligible Mortgage Loans with aggregate principal balances
within the tolerance set out in the Manual. Substitutes for rejected mortgage
loan will only be accepted as provided for in the Manual.
- --------------------------------------------------------------------------------
9. Penalties and Fees
- --------------------------------------------------------------------------------
In the event Seller does not comply with the loan delivery procedures contained
in this Agreement and the Manual, Seller shall pay Norwest the applicable late
delivery, late correction or buyout penalties or fees as provided for in the
Manual.
- --------------------------------------------------------------------------------
10. Representations
- --------------------------------------------------------------------------------
A. Seller hereby makes all representations, warranties and covenants set
forth in the Manual and this Agreement with respect to each Eligible
Mortgage Loan delivered to Norwest pursuant to this Agreement as the date
of delivery.
B. Seller represents that it will not select Eligible Mortgage Loans in the
manner materially adverse to Norwest when delivering loans to fulfill a
commitment. Norwest may audit Seller's selection procedures during regular
business hours to assure itself that the selection procedures are not
materially adverse to Norwest: in the event Norwest reasonably
demonstrates that materially adverse selection procedures were used,
Seller shall within 30 days repurchase and/or replace affected loans with
Eligible Mortgage Loans selected in a manner which is not materially
adverse to Norwest.
<PAGE>
- --------------------------------------------------------------------------------
11. Remedies
- --------------------------------------------------------------------------------
A. Seller recognizes that Norwest intends to rely on its commitments from
Seller and will without notice to Seller, make binding commitments in
reliance thereon. Seller agrees that actual delivery of the Loans under
each commitment is the essence of the Agreement and is, therefore,
mandatory within the delivery period as set forth in the Manual. Seller
acknowledges and agrees that Norwest shall be entitled to specific
performance if Seller fails to perform any of Seller's commitments since
money damages may not adequately compensate Norwest for its losses and
Norwest may be unable to effect cover in order to satisfy its commitments
with third parties. Upon Seller's insolvency, repudiation or failure to
perform its obligations, Norwest may proceed immediately by its own acts,
order or seizure, or such other remedy as may be available at law or
equity to take possession of all documents relating to a loan belonging to
Seller which could qualify for sale to Norwest pursuant to Seller's
commitments.
B. Seller shall indemnify and hold Norwest harmless from any claim, loss,
cost or damages, including reasonable attorney fees, resulting from: (1)
the inaccuracy of any of Seller's representations or warranties in this
Agreement, including the representations and warranties set out in the
Manual, or (2) Seller's breach of any of its promises or covenants in this
agreement including, but not limited to, the covenants contained in this
Manual.
C. In the event Seller breaches any warranty, representation or covenant
relating to an Eligible Mortgage Loan purchased by Norwest under this
Agreement, Seller shall upon Norwest's demand, repurchase the Eligible
Mortgage Loan for the amount calculated in accordance with the Manual.
D. The remedies provided for in this Agreement are not exclusive and are in
addition to any other remedies which Norwest may have in law or equity.
- --------------------------------------------------------------------------------
12. General Provisions
- --------------------------------------------------------------------------------
A. Seller's repudiation, breach or inability to perform any of its
commitments may, at Norwest's Option, be deemed a repudiation, breach or
failure to perform all of its outstanding commitments to Norwest.
B. Norwest's failure to enforce any provision of this Agreement shall not be
deemed a waiver of that or any other provision with respect to that or any
other transaction with Norwest.
C. Seller's rights and obligations hereunder shall not be assignable without
Norwest's prior written consent. Norwest may sell or assign without
restriction its rights under this Agreement or in and to any commitment
issued or Eligible Mortgage Loan purchase pursuant to this Agreement.
D. This Agreement shall be construed and governed by the laws of the State of
Minnesota.
E. Time is of the essence with respect to this Agreement and the commitments
entered into pursuant to this Agreement.
F. Seller affirms that prior to the execution of this Agreement and during
the term of this Agreement it was and is respectively approved as an
originator, seller/servicer by the U.S. Department of Housing and Urban
Development (HUD), and/or either the Federal National Mortgage Association
(FNMA), or the Federal Home Loan Mortgage Corporation (FHLMC) for
Government Loans and/or Conventional Loans, respectively.
G. Prior to Norwest being requested to purchase any loan hereunder, Seller
agrees to provide its most recent audited financial statement, along with
a board resolution or Secretary's certification, with specimen signatures,
authorizing the individual signing this Agreement to enter into contracts
on behalf of the Seller and authorizing the specific individuals who may
accept pricing of individual loans hereunder. In addition, Seller shall,
within 90 days following the end of each fiscal year, deliver to Norwest
copies of its Audited Financial Statement.
H. Seller grants Norwest the right of set-off and Norwest may deduct any
fees, penalties or other sums owed to Norwest by Seller under the terms of
this Agreement from the Purchase Price for Eligible Mortgage Loans being
purchased by Norwest from Seller pursuant to this Agreement.
I. The Seller is not authorized to use the corporate name "Norwest Mortgage,
Inc.", "Norwest Funding, Inc.", "Norwest Bank" or any derivation thereof,
or any of the service marks of Norwest Mortgage or Norwest Funding, in any
of the Seller's promotional or other materials without the prior written
consent of Norwest. As consideration for granting consent, the Seller
agrees to indemnify Norwest, from and hold it harmless against any loss,
damage or expense, including those incurred in defending any action or
proceeding, which results from its use of the corporate name, trade name
or service marks.
J. At no time shall Seller represent that it is acting as the agent of
Norwest Mortgage, Inc. or Norwest. Seller is and shall act as an
Independent Contractor.
K. All notices to be given under this Agreement shall be mailed first class
to the parties' principal place of business to the attention of a person
to be designated below by Norwest and Seller.
a. Send notices to Seller to the attention of: Michael Strauss,
President
b. Send notices to Norwest to the attention of: James R. Loving,
Senior Vice President
L. Norwest may, at its sole discretion, terminate this Agreement with five
(5) days written notice to Seller. Norwest will honor its commitment to
purchase loans for which written confirmation has been given to Seller
prior to termination; provided that all of the terms and conditions
contained in the Agreement have been met.
M. This is the entire agreement between Seller and Norwest and supersedes all
prior discussions and agreements. This Agreement cannot be changed except
in writing signed by Norwest and Seller.
Michael Strauss, Inc. dba American Home Mortgage, dba
(Seller) American Brokers Conduit NORWEST FUNDING INC.
------------------------------------------------------
Signed: Michael Strauss /s/ Michael Strauss Signed: /s/ James R. Loving
------------------------------------- -----------------------
Its: President Its: Senior Vice President
------------------------------------- -----------------------
Dated: July 8, 1996 Dated: Aug. 13, 1996
------------------------------------- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
[LOGO] NORWEST FUNDING
Norwest Funding, Inc. Addendum to
3601 Minnesota Drive - Suite 200 Purchase Agreement
Minneapolis, Minnesota 55435
- --------------------------------------------------------------------------------
This addendum to the purchase agreement of July 8, 1996 between Norwest Funding,
Inc. (Norwest) and Michael Strauss, Inc. (Company Name) (American Home Mortgage,
dba American Brokers Conduit), (AKA).
I hereby give my consent to Norwest Funding, Inc. to make changes to the
documents assigned to Norwest Mortgage, Inc. by Michael Strauss, Inc. dba
American Home Mortgage, dba American Brokers Conduit (Company Name) to conform
with the intentions of Michael Strauss, Inc. dba American Home Mortgage, dba
American Brokers Conduit (Company Name) and Norwest under the contract.
The types of changes I consent to be made to the documents by Norwest Funding
without authorization from Michael Strauss, Inc. dba American Home Mortgage, dba
American Brokers Conduit (Company Name) include the following:
Spelling Errors
Grammatical Errors
Typographical Errors
Missing information where Norwest can supply the information
Michael Strauss, Inc., dba
American Home Mortgage, dba
Norwest Funding, Inc. American Brokers Conduit
- ------------------------------ ------------------------------
(Company Name)
James R. Loving
- ------------------------------ Michael Strauss
(Officer's Name) ------------------------------
(Officer's Name)
Senior Vice President
- ------------------------------ President
(Officer's Title) ------------------------------
(Officer's Title)
/s/ James R. Loving
- ------------------------------ /s/ Michael Strauss
(Officer's Signature) ------------------------------
(Officer's Signature)
Aug. 13, 1996
- ------------------------------ July 8, 1996
(Date) ------------------------------
(Date)
<PAGE>
NORWEST FUNDING, INC.
CONVENTIONAL DELEGATED UNDERWRITING AMENDMENT
This Conventional Delegated Underwriting Amendment (the "Amendment") is entered
into this 10th day of February, 1998 by and between, American Home Mortgage (the
"Seller") and Norwest Funding, Inc. ("Norwest").
1. The Agreement(s). The Seller and Norwest have entered into (check
the appropriate box(es)):
|_| Conventional Loan Purchase Agreement ("CLA") dated: ________
|X| Loan Purchase Agreement ("LPA") dated: July 8, 1996
|_| Conventional Trade Assignment ("CTA") dated: ________
pursuant to the terms of which, the Seller has agreed to sell to
Norwest and Norwest has agreed to buy from the Seller Mortgage Loans
(the CLA, LPA and CTA hereinafter referred to individually and
collectively as the "Agreement(s)").
2. Delegated Underwriting Authority. In exchange for the promises
contained in this Amendment and other valuable consideration, the
sufficiency of which the parties hereby acknowledge, the Seller and
Norwest hereby amend the applicable Agreement(s) and the Seller
Guide to provide for the Seller's participation in Norwest's
Delegated Underwriting Program when the Seller delivers Delegated
Loans (as defined below) to Norwest in compliance with the
Agreement(s), the Seller Guide and this Amendment.
3. Defined Terms and Ratification of the Agreement(s). Unless the
context otherwise clearly requires, all capitalized terms used in
this Amendment shall have the meanings specified in the Agreement(s)
and the Seller Guide, and except as expressly amended hereby, the
Agreement(s) and the Seller Guide remain unchanged and in full force
and effect in all respects and are hereby ratified and confirmed by
the parties.
4. Delegated Loans. For purposes of the Seller's participation in the
Delegate Underwriting Program, Delegated Loans are defined as
Mortgage Loans meeting the following requirements:
o Conforming Loans up to 95% LTV (or applicable LTV program);
o Non-Conforming Loans up to $650,000 not to exceed 95% LTV; and
o Non-Conforming Cooperative Share Loans up to $650,000 not to
exceed 95% LTV.
5. Delegated Underwriting Process.
a. Delivery. Notwithstanding the provisions of Section 500 of the
Seller Guide, the Seller is not required to submit the Credit
Package to Norwest for Underwriting prior to Closing.
b. Review Standard. Seller agrees to review each Delegated Loan
for conformance to the applicable Underwriting Guidelines
using as its standard of care what a knowledgeable and
sophisticated institutional investor active in the residential
secondary mortgage market or an appropriate reviewing
authority would typically expect of a mortgage loan
underwriter.
c. Closing Documents. Seller must include the underwritten Credit
Package along with the Standard Closing Documents set forth in
Section 505 of the Seller Guide. Norwest reserves
Page 1 of 2
<PAGE>
the right to refuse to Fund any Delegated Loan that does not
meet Norwest's product parameters.
d. Process Fee. Norwest shall not levy a Process Fee as set forth
in the Program Documents on any Delegated Loan submitted for
purchase under the Norwest Delegated Underwriting Program;
provided however, the Seller pays Norwest a process fee equal
to sixty dollars ($60.00) for each such Delegated Loan. This
fee is not refundable.
6. Additional Representations and Warranties. In addition to the
representations and warranties set forth in the Program Documents,
the Seller makes the following additional representations and
warranties as to each Delegate Loan submitted to Norwest for
Purchase: (i) each Delegated Loan complies with Norwest's product
parameters and with all other terms and conditions of the
Agreement(s) and the Seller Guide; (ii) each Delegated Loan complies
with the applicable Underwriting Guidelines in effect at the time of
delivery and provided for in the Seller Guide; and (iii)
underwriters employed by the Seller underwrote each Delegated Loan.
7. Quality Control. Prior to Norwest purchasing any Delegated Loans,
Norwest shall be entitled to review the Seller's underwriting
practices and quality control procedures and any other documents
Norwest deems necessary as a condition of purchasing any Delegated
Loans. Norwest shall also have the right to perform post-purchase
reviews of Delegated Loans purchased by Norwest from the Seller. The
Seller shall provide Norwest with any additional information or
document which Norwest reasonably determines is required to perform
such post purchase review. Any prior or post purchase review by
Norwest shall not waive or effect in any way the Seller's
representations or warranties or Norwest's rights and remedies under
the terms and conditions of the Program Documents.
8. Termination.
a. Upon Default. Either party may immediately terminate this
Amendment if the other party fails to perform any of this
Amendment's material terms and conditions.
b. Required by Law. This Amendment shall automatically terminate
when required by any governmental authority or court of law,
If any order or ruling of any governmental authority or court
of law shall require a party to be in default of any
obligation pursuant to this Amendment, then this Amendment may
be terminated by such party immediately upon notice to the
other party.
c. Termination by Norwest. Norwest may immediately terminate this
Amendment at any time at its sole option upon written notice
to the Seller.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of
the date first set forth above.
AMERICAN HOME MORTGAGE NORWEST FUNDING, INC.
By: /s/ Michael Strauss By: /s/ [ILLEGIBLE]
----------------------- -------------------------
Its: President Its: Senior Vice President
---------------------- ------------------------
Date: 2/12/98 Date: 2/13/98
--------------------- -----------------------
Page 2 of 2
<PAGE>
EXHIBIT 10.16
[LOGO] CHASE
ORIGINATION AND SALES AGREEMENT
[An Option 3 Correspondent]
This Agreement is made on the 8th day of July, 1994, between CHASE HOME
MORTGAGE CORPORATION ("CHMC"), a Delaware corporation whose principal office is
located at 4915 Independence Parkway, Tampa, Florida 33634-7540, its successors
and assigns, and Michael Strauss Inc. dba American Home Mortgage
("Correspondent"), whose principal office is located at 60 East 42nd Street, New
York, NY 10165.
BACKGROUND
This Agreement governs the origination, sale and transfer by the
Correspondent to CHMC of conventional residential mortgage loans, including the
transfer of servicing. From time to time, Correspondent may offer to sell and
CHMC may agree to buy individual loans in accordance with the terms set forth
herein.
The parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. "Credit File" means all documentation required by CHMC for
underwriting review as set forth in the CHMC Manual.
Section 1.2. "CHMC Manual" is the manual provided to Correspondent by CHMC
which establishes guidelines and procedures for rate reservation, underwriting
of each Loan, and delivery of the corresponding Credit File and Loan File to be
purchased by CHMC, as amended by CHMC from time to time in its sole discretion,
including any notices or bulletins issued by CHMC.
Section 1.3. "FHA" means the United States Department of Housing and Urban
Development acting by and through the Federal Housing Administration.
Section 1.4. "Loan" and "Loans" means conventional or FHA/VA residential
mortgage loans which are subject to this Agreement.
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 1 of 9 6/93
<PAGE>
[ILLEGIBLE] set forth in the CHMC Manual.
Section 1.6. "Mortgage" means the mortgage, deed of trust or other
security instrument which secures a Mortgage Note and creates either (i) a first
lien on an estate in fee simple in real property (including a condominium) or
(ii) an interest in a cooperative, in those limited areas where CHMC expressly
permits cooperative financing.
Section 1.7. "Mortgage Note" is the promissory note of a Mortgagor secured
by a Mortgage.
Section 1.8. "Mortgagor" and "Mortgagors" mean the obligor(s) on a
Mortgage Note.
Section 1.9. "VA" means the United States Department of Veterans Affairs.
ARTICLE II
COVENANTS OF CORRESPONDENT AND CHMC
Section 2.1. Submission and Approval Procedures. In the event
Correspondent submits a Credit File or Loan File to CHMC for approval, this
Agreement shall apply to such Credit File or Loan File and to any Loan which
CHMC decides to purchase. CHMC's decision to purchase will be based on
applicable underwriting and origination guidelines as interpreted by CHMC.
The procedure for the submission of a Credit File or Loan File for
approval is set forth in the CHMC Manual and any notices or bulletins which may
be issued by CHMC. Promptly following receipt of a complete Credit File or Loan
File, CHMC shall notify Correspondent of CHMC's underwriting decision. If CHMC
rejects the proposed Loan, then CHMC shall promptly return the Credit File
and/or the Loan File to Correspondent.
Section 2.2. Rate Reservation. Any interest rate and rate reservation
period is subject to Correspondent's compliance with the CHMC Manual and Section
4.2 of this Agreement.
Section 2.3. Changes in Financial Condition, Ownership or Management,
Audit or Defect. Correspondent shall notify CHMC immediately of any material
changes in its ownership, financial condition or management. Correspondent shall
also notify CHMC immediately of any audits, examinations or reviews by FHA or VA
and any administrative sanctions imposed upon it by FHA or VA. Correspondent
shall notify CHMC immediately of any material fact or circumstance of which it
becomes aware following the sale of a Loan to CHMC which, if known prior to such
sale, may have caused the Loan to be ineligible for sale to CHMC.
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 2 of 9 6/93
<PAGE>
[ILLEGIBLE] Correspondent's place of business, or at CHMC's place of business,
Correspondent's loan files, policies, procedures and records, in order to
determine whether Correspondent meets CHMC's quality control standards set forth
in the CHMC Manual.
Section 2.5. Non-exclusivity. No exclusive relationship between
Correspondent and CHMC shall result from this Agreement. Correspondent is an
independent contractor and shall not hold itself out as an agent of CHMC.
Correspondent shall not make any statement which leads any third party to
reasonably believe that it is an agent of CHMC. Correspondent shall not use or
refer to CHMC's name in any form of advertising, written materials or circulars
except as may be required by law.
Section 2.6. No Solicitation. Correspondent hereby agrees that it will not
take any action, or cause any action to be taken by any of its agents,
contractors, employees or affiliates, to solicit the prepayment of any Loan sold
to CHMC under the terms of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
CORRESPONDENT; REPURCHASE
Section 3.1. Representations and Warranties Regarding Correspondent.
(a) After due diligent investigation and inquiry, and notwithstanding any
assignment without recourse to CHMC, the Correspondent hereby represents and
warrants to CHMC that:
i) The Correspondent is duly organized, validly existing, and in
good standing under the laws of the state of its organization and has all
qualifications, registrations and licenses necessary to carry on its
business as now being conducted. The Correspondent has all requisite power
and authority to execute, deliver and perform this Agreement. All
requisite action has been taken by the Correspondent to make this
Agreement valid and binding upon Correspondent in accordance with its
terms. As to FHA/VA Loans, the Correspondent is approved by FHA to
participate in its "direct endorsement" mortgage insurance program and by
VA to underwrite mortgage loans with "automatic authority," and is not
subject to any administrative sanctions imposed by FHA or VA.
ii) No approval of the transactions contemplated by this Agreement
from any regulatory authority having jurisdiction over the Correspondent
is required, or if required, such approval has been obtained. There are no
actions or proceedings pending, affecting Correspondent or any Loan or
Mortgage, which would adversely affect its ability to perform hereunder.
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 3 of 9 6/93
<PAGE>
[ILLEGIBLE] Agreement are in the ordinary course of business of
[ILLEGIBLE] Correspondent and will not result in: (a) a breach of any term
or provision of the charter or bylaws of the Correspondent; (b) the breach
of any term or provision of, or conflict with, or constitute a default
under any agreement to which Correspondent or its property is subject; or
(c) the violation of any law, rule, regulation, order, judgment or decree
to which Correspondent or its property is subject.
(b) Each Loan has been originated by Correspondent and Correspondent has
complied with all of its obligations under this Agreement.
(c) No representation, warranty or written statement made by Correspondent
in this Agreement, any Correspondent application documentation or any schedule,
exhibit, written statement or certificate furnished to CHMC in connection with
the transaction contemplated hereby by Seller contains or will contain any
untrue statement of a material fact or omits, or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading.
(d) Each of the representations and warranties contained in this Section
3.1. is true and correct upon the execution of this Agreement and upon delivery
of any Loan to CHMC for purchase.
Section 3.2. Representations and Warranties Regarding Loans. After due
diligent investigation and inquiry, the Correspondent further represents and
warrants to CHMC that as of the date of payment of the Loan purchase price by
CHMC:
(a) The Loan has been originated by Correspondent and Correspondent has
the authority to sell, transfer, and assign such Loan on the terms herein set
forth; there has been no assignment, sale or pledge thereof by Correspondent,
except any pledge required by Correspondent's lender pursuant to a line of
credit Agreement; and the Loan is or upon such payment will be free and clear of
claims or encumbrances of any type (including any pledge in favor of
Correspondent's lender);
(b) Correspondent has complied with all applicable federal and state laws,
rules and regulations, as amended, including: licensing requirements, usury
limitations, the Real Estate Settlement Procedures Act, the Fair Housing Act,
the Equal Credit Opportunity Act, the Flood Disaster Protection Act (as if it
were a covered entity), the Truth-In-Lending Act of 1969, the Fair Credit
Reporting Act, the Home Mortgage Disclosure Act, the Financial Institutions
Reform Recovery and Enforcement Act of 1989, and all regulations issued pursuant
thereto. Correspondent shall timely deliver to each applicant a completed
Regulation Z disclosure statement, Good Faith Estimate of Closing Costs,
Federally mandated ARM disclosures and HUD booklets. Correspondent shall be
responsible for compliance with ECOA concerning notification of adverse action
to an applicant whose Loan Package CHMC does not accept (CHMC may, at its
option, deliver notice of adverse action to Correspondent for further delivery
to applicant). Correspondent shall deliver evidence of such compliance upon
demand by CHMC;
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 4 of 9 6/93
<PAGE>
[ILLEGIBLE] private mortgage insurance companies, hazard insurance companies or
other insurers have been properly satisfied; insurance policies are in effect as
required by CHMC; all premiums due have been paid and all insurance is valid and
enforceable. There are no defenses, counter claims or rights of set-off
affecting the validity or enforceability of any private mortgage insurance, FHA
insurance or VA guaranty with respect to the Loan or eligibility of such Loan
for insurance or guaranty.
(d) Each Loan conforms to: (i) the specifications set forth by CHMC and is
eligible for sale to CHMC; and (ii) as to FHA/VA Loans, regulations, rules,
handbooks, guides, circulars and notices of FHA or VA, as applicable, and is
eligible for insurance by FHA or guaranty by VA. There do not exist any facts or
circumstances with respect to the Mortgagor, the mortgaged property or the Loan
that can be reasonably expected to cause private institutional investors to
regard the Loan as an unacceptable investment, cause the Loan to become
delinquent, or adversely affect the value or marketability of the Loan.
(e) The Mortgage Note and the related Mortgage are genuine, and each is a
legal, valid and binding obligation of the maker(s) thereof, enforceable in
accordance with their terms. All parties to the Mortgage Note and the Mortgage
had legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage have been duly and properly executed by the
Mortgagor;
(f) The proceeds of the Loan have been fully disbursed; there is no
requirement for future advances; the unpaid principal balance is as stated; all
costs, fees, taxes and expenses incurred in making and closing the Loan and
recording the Mortgage have been paid;
(g) All information contained in the Credit File or Loan File is true,
complete and accurate; Correspondent is not aware of any fact not set forth in
the Credit File or Loan File which CHMC might reasonably consider to be adverse
to the approval of the Loan application, or would make the Loan ineligible for
sale in the secondary market.
(h) The Mortgage has not been satisfied, canceled, subordinated or
rescinded; no part of the secured property has been released from the lien of
the Mortgage; the terms of the Loan have in no way been changed, waived,
impaired or modified, except for loan adjustments made in compliance with the
Mortgage Note and applicable regulatory requirements; no waiver of any default,
breach, violation or event of acceleration has occurred; and the Loan is current
and not in default;
(i) A title insurance commitment or a title insurance policy has been
issued by a reputable tide insurer, insuring the Correspondent, its successors
and assigns, or the CHMC, as to the first priority lien of the Mortgage in the
original principal amount of the Mortgage Note; Correspondent has not by act or
omission, done anything which would impair the title insurance policy coverage;
(j) The assignment of the Loan from the Correspondent to CHMC has been
duly authorized and is valid and sufficient, and all consents and approvals to
such
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 5 of 9 6/93
<PAGE>
[ILLEGIBLE] the cooperative corporation;
(k) All documents submitted are genuine and all other representations as
to each Loan sold are true and correct and meet the requirements and
specifications of this Agreement;
(l) There is in force such flood insurance policy as is required under the
Flood Disaster Protection Act of 1973, as amended, and its implementing
regulations regardless of whether the Correspondent is specifically subject to
such statute or regulations;
(m) The improvements on the premises securing each Loan are kept insured
by hazard insurance policies issued by a company acceptable to CHMC: (i) in an
amount which, except where limited by applicable law to a lesser amount, is
equal to the outstanding principal balance of the Loan or the full insurable
value of the improvements, whichever is less; (ii) of a type substantially in
the form of and at least as protective as the fire and extended coverage
contained in the "New York" loss mortgage clause (also known as "standard" or
"union" loss mortgage clause), which provides that the Correspondent's hazard
insurance is not invalidated by acts of the Mortgagor, and (iii) containing
suitable provisions for payment of all present and future loans on the secured
property in order of precedence;
(n) All taxes, governmental assessments, insurance premiums, water, sewer
and municipal charges have been paid;
(o) There is no proceeding pending for the total or partial condemnation
of the secured property and the property is undamaged by waste, fire, flood or
other casualty.
(p) The Mortgage Note and the Mortgage are not subject to any right of
rescission, setoff, counterclaim or defense, nor has any such right been
asserted with respect thereto.
(q) There are no mortgage brokers or other consultants or finders that
were consulted or contacted in connection with or in bringing about this
Mortgage or this mortgage sale transaction, that would be due a fee.
(r) The actual loan-to-value ratio of each Loan does not exceed the
maximum amount permitted under this Agreement. The appraisal prepared in
connection with each mortgaged property provides an accurate estimate of the
bona fide market value of the mortgaged property and was prepared by a qualified
appraiser with no direct or indirect interest in the mortgaged property.
Section 3.3. Repurchase of Loans by Correspondent; Indemnification. The
representations and warranties set forth in Article III shall survive and
continue in force for the full remaining life of the Loan and are made for the
benefit of CHMC and its successors and assigns. Correspondent, upon CHMC's
request, shall promptly repurchase any Loan (or the related mortgaged property
if title thereto is held by
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 6 of 9 6/93
<PAGE>
[ILLEGIBLE] material respect, whether such misrepresentation or breach of
warranty is intentional or not, whether disclosed by actual inspection by CHMC
or its representative, or otherwise, or (b) the Loan File or Credit File
contains any misstatement or omission of material fact, whether such
misstatement or omission is intentional or not, whether disclosed by actual
inspection by CHMC or its representative, or otherwise, or (c) all Loan File
documents are not received within sixty (60) days of date of closing of a Loan,
or (d) the Mortgagor defaults on the first monthly payment payable directly to
CHMC by Mortgagor.
In the case of such repurchase, CHMC shall receive an amount equal to (i)
the Loan's then unpaid principal, (ii) accrued interest at the Mortgage Note
rate until date of repurchase, (iii) costs incurred by CHMC to effect the
repurchase, and (iv) any servicing advances, including, but not limited to
advances made for maintenance of the loan collateral. Any amounts actually
recovered by CHMC from private mortgage insurance companies as of the date of
repurchase shall be deducted from the repurchase price.
In addition to such repurchase obligation, the Correspondent shall
indemnify CHMC and hold it harmless against any loss, damage, cost or expense,
including all attorneys' fees, resulting from (i) a breach by the Correspondent
of any of its covenants or agreements or (ii) the inaccuracy of any
representation or warranty made by Correspondent or (iii) any fact or
circumstance on which a repurchase demand is or could be made.
ARTICLE IV
DELIVERY AND PAYMENT
Section 4.1. Delivery of Documents. For each Loan purchased by CHMC,
Correspondent shall promptly deliver the Loan File together with an assignment
of Mortgage or Deed of Trust in recordable form (or in the case of cooperatives
delivery of the pledged shares, an assignment of the proprietary lease and
related financing statements), to CHMC in conformity with the CHMC Manual.
Correspondent shall do all further acts necessary to perfect CHMC's title to and
security for each such Loan and to execute and deliver any additional documents
reasonably required by CHMC.
Section 4.2. Payment of Purchase Price. CHMC shall pay the Correspondent
the purchase price for each Loan in accordance with the CHMC Manual. Unless
otherwise agreed, no fees, commissions, or any other consideration shall be paid
by CHMC to Correspondent for any Loan submitted to CHMC for purchase.
Correspondent shall not accept any fee or other compensation from any loan
applicant or Mortgagor except as permitted by applicable law and as disclosed in
writing to the applicant or Mortgagor.
In order to receive payment of the purchase price, Correspondent must
comply with the document delivery provisions of the CHMC Manual.
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 7 of 9 6/93
<PAGE>
[ILLEGIBLE] with Section 2.2 of this Agreement, Correspondent [ILLEGIBLE],
deliver to CHMC a "fundable" Loan File as defined in the CHMC Manual. If timely
delivery is not made, CHMC reserves the right to renegotiate the rate and
purchase price for the Loan. The purchase price shall be computed as of the date
CHMC remits payment to Correspondent.
ARTICLE V
SERVICING
Section 5.1. Transfer. Upon purchase of each Loan, the Correspondent shall
transfer all servicing rights and benefits and deliver to the CHMC all monies in
its possession and all escrow funds and accounts pertaining to such Loan.
Correspondent shall execute and deliver documentation sufficient to enable CHMC
or its designated representative to service such Loan. The Loan documents shall
evidence compliance with federal and state all rules, orders and regulations
affecting the Loan. Correspondent shall make CHMC the loss payee of each title
policy, mortgage guaranty insurance policy and hazard insurance policy.
ARTICLE VI
TERMINATION OF THIS AGREEMENT
Section 6.1. Conditions of Termination. This Agreement may be terminated,
as to the future submission of Loans, by either party upon written notice of
termination.
In the case of any Loan for which, prior to the effective date of
termination, (i) a rate and rate reservation period has been given by CHMC to
Correspondent or (ii) a Credit File or Loan File, or any part thereof, has been
transferred to CHMC, then CHMC shall accept assignment of the Loan if (i) such
Loan conforms to CHMC's customary underwriting and origination guidelines and
(ii) CHMC did not terminate this Agreement for cause. In connection with any
such Loan, Correspondent's responsibility to supply outstanding documentation on
a timely basis, its representations and warranties and its obligation to
repurchase and to indemnify, shall survive such termination.
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 8 of 9 6/93
<PAGE>
MISCELLANEOUS PROVISIONS
Section 7.1. Assignment. This Agreement may not be assigned by the
Correspondent unless such assignment is consented to in writing by CHMC. CHMC
reserves the right to reject assignment in its sole discretion.
Section 7.2. Document Contains Entire Agreement. This Agreement and the
CHMC Manual contain the entire agreement between the parties and this Agreement
cannot be modified except by an agreement in writing. The invalidity of any
portion of this Agreement shall not affect the remaining provisions.
Section 7.3. No Third Party Benefits. This Agreement is made for the
express benefit of Correspondent and CHMC, not for the benefit or interest of
any other persons or entities, and accordingly, no third party shall obtain or
acquire any rights or interest in this Agreement or by reason of the performance
or failure of performance of either of the parties hereto or of their respective
rights, privileges, duties or obligations arising hereunder.
IN WITNESS WHEREOF, the Correspondent and CHMC have caused this Agreement
to be executed the day and year first above written.
Michael Strauss, Inc. dba
American Home Mortgage
-----------------------------------
In consideration of CMMC granting [CORRESPONDENT]
approval to American Home Mortgage to
deliver Third Party Originated loans
under this contract, the undersigned, By: /s/ Michael Strauss
Michael Strauss, does hereby guarantee -------------------------------
all the obligations, representations and
warranties of American Home Mortgage in Title: President
this agreement and waives any rights to ----------------------------
division and to discussion and to
otherwise require CMMC to seek recourse
against American Home Mortgage before CHASE HOME MORTGAGE CORPORATION
enforcing this guaranty.
GUARANTOR: By: /s/ [ILLEGIBLE]
-------------------------------
BY: /s/ Michael Strauss
-------------------------- Title: Sr. Vice President
Michael Strauss ----------------------------
WITNESSES:
/s/ [ILLEGIBLE]
- ------------------------------
- ------------------------------
- --------------------------------------------------------------------------------
Originating Document PD O-1713 Page 9 of 9 6/93
<PAGE>
[LOGO] CHASE
CORRESPONDENT ORIGINATION AND SALES AGREEMENT
Closed Loan Purchases
This Origination and Sales Agreement ("Agreement") is made this 8th day of
July, 1996, by and between CHASE MANHATTAN MORTGAGE CORPORATION ("Chase"), a New
Jersey corporation whose principal office is located at 343 Thornall Avenue,
Edison, New Jersey 08837, its successors and assigns, and Michael Strauss, Inc.
dba American Home Mortgage dba American Brokers Conduit ("Correspondent"), whose
principal office is located at 12 East 49th Street, New York, New York 10017.
BACKGROUND
This Agreement governs the origination, sale, and transfer of
conventional, FHA or VA residential mortgage loans, including the transfer of
Servicing Rights. From time to time, Correspondent may offer to sell and Chase
may agree to buy individual loans which meet Chase requirements in accordance
with the terms set forth herein.
In consideration of the mutual promises, covenants, and agreements
contained herein, the parties agree as follows:
ARTICLE I
Definitions
1. As used in this Agreement, the following capitalized terms shall have
the following meanings, unless the context requires otherwise:
"Assignment of Mortgage": An assignment of the Mortgage, notice of
transfer or equivalent instrument sufficient under the laws of the jurisdiction
wherein the related collateral is located to reflect of record the transfer of
the Loan from the originator to Chase.
"Best Efforts Commitment": A Commitment which Correspondent is required to
use its best efforts to fulfill by selling the Loan set forth in such Best
Efforts Commitment to Chase. A Best Efforts Commitment with respect to a Loan
shall become a Mandatory Delivery with respect to such Loan on the related
Closing Date.
<PAGE>
"Chase Correspondent Manual": The written information and instructions
provided to Correspondent by Chase which establishes guidelines and procedures,
rate reservation, underwriting, and delivery requirements of the Credit File and
Loan File to be purchased by Chase, as amended by Chase from time to time in its
sole discretion, including notices or bulletins issued by Chase.
"Closing Date": The date on which a Mortgage Loan transaction is fully
executed by and disbursed to the Mortgagor.
"Commitment": Chase's written agreement for the purchase of a Loan at a
given Purchase Price.
"Conventional Loan(s)": A residential mortgage loan, other than an FHA or
a VA Loan, eligible for purchase by FNMA or FHLMC, or a private investor, with a
loan term not exceeding 360 months.
"Credit File": All documentation required by Chase for underwriting review
as established by Chase Correspondent Manual.
"Expiration Date": With respect to any Commitment, the expiration date
thereof.
"FHA Loan(s)": A residential mortgage loan, the payment of which is
partially or completely insured by the Federal Housing Administration, or any
successor thereto.
"Fraudulent Document": Any Loan File document which, in the reasonable
judgment of Chase, is falsified, defective, misleading or inaccurate in any
material respect.
"Investor Rights": Any and all rights and privileges associated with the
ownership of a Loan, including but not limited to the right to receive all
payments of principal and interest paid by a Mortgagor.
"Loan(s)": 1-4 unit residential mortgage loans including Conventional, FHA
and VA loans, (including Investor Rights and Servicing Rights) which are subject
to this Agreement.
"Loan File": All documentation required for a Loan as established by Chase
Correspondent Manual, including but not limited to the Mortgage Note (properly
Rev. 4/15/96
Page 2
<PAGE>
endorsed to the order of Chase), the recorded Mortgage (or in the case of
cooperatives, delivery of the pledged shares, an assignment of the proprietary
lease, escrow deposits, and other operative documents and related financing
statements), the recorded Assignment of Mortgage, evidence of all required
insurance, all required disclosures, and any other documentation required by
Chase Correspondent Manual.
"Mandatory Commitment": A Commitment which Correspondent is
unconditionally required to fulfill by selling the Loan set forth in such
Mandatory Commitment to Chase.
"Mandatory Delivery": The required sale of a Loan registered with, and
delivery of the related Loan File to, Chase. A Best Efforts Commitment with
respect to a Purchasable Loan shall become a Mandatory Delivery with respect to
such Purchasable Loan on the related Closing Date.
"Mortgage": The mortgage, deed of trust or other security instrument which
secures a Mortgage Note and creates either (i) a first lien on an estate in fee
simple in real property (including a condominium)(or leasehold where and when
permitted by Chase); or (ii) an interest in a cooperative, in those limited
areas where Chase expressly permits cooperative financing.
"Mortgage Note": The promissory note of a Mortgagor secured by a Mortgage.
"Mortgagor(s)": The maker(s), obligor(s) and/or guarantor(s) of a Mortgage
Note.
"Property": The residential real property consisting of land and a
one-to-four family dwelling thereon which is completed and ready for occupancy
or an interest in a cooperative, in those limited areas where Chase expressly
permits cooperative financing, pledged as collateral under the Mortgage.
"Purchasable Loan(s)": A Mortgage Loan which meets all the requirements
for purchase set forth in the Chase Correspondent Manual and has been approved
for purchase by Chase.
"Purchase Date": The date when the Purchase Price is paid by Chase
(without regard to any funds held by Chase for any reason).
Rev. 4/15/96
Page 3
<PAGE>
"Purchase Price": The related Purchase Price Percentage multiplied by the
outstanding principal amount of the Loan as of the related Purchase Date, plus
any amount paid for the release of Servicing Rights to such Loan pursuant to
Section 3.3 of this Agreement.
"Purchase Price Percentage": The price paid by Chase pursuant to the terms
of the related Commitment, and expressed a percentage of the outstanding
principal amount as of the related Purchase Date.
"Repurchase Price": The greater of par or the related Purchase Price
Percentage, multiplied by the outstanding principal amount on the date of
repurchase, plus: (i) accrued interest at the rate set forth under the Mortgage
Note through the last day of the month in which such repurchase occurs; (ii) any
and all costs and expenses, including reasonable attorney fees, incurred by
Chase to effect the repurchase; and (iii) any premium paid to Corespondent for
Servicing Rights; less (iv) any amounts actually recovered by Chase from private
mortgage insurance companies as of the date of repurchase.
"Servicing Rights": All rights to service Loans for investors.
"Third Party Origination": Any Loan for which a Third Party Originator
performs a significant portion of the origination process for a fee, including
but not limited to, processing the loan application, ordering appraisals and/or
credit reports, verifying income and/or employment.
"Third Party Originator": Any person or entity, not an employee of
Correspondent, who is duly authorized to perform all or part of the origination
process, including but not limited to processing a loan application, ordering
appraisals and/or credit reports, verifying income and/or employment, and who is
compensated by Correspondent for this activity.
"VA Loan(s)": A residential mortgage loan, the payment of which is
partially or completely guaranteed by the Department of Veterans Affairs, or any
successor thereto, with a loan term of not more than 360 months nor less than
180 months, unless otherwise provided for in a Commitment, with a maximum Loan
amount not exceeding that permitted in the applicable jurisdiction, and with a
combined loan guaranty and equity of not less than 25%.
Rev. 4/15/96
Page 4
<PAGE>
ARTICLE II
SUBMISSION AND APPROVAL
Section 2.1 Submission. Correspondent may, from time to time, submit a
Credit File or Loan File to Chase for approval in accordance with Chase
Correspondent Manual.
Section 2.2 Acceptance/Rejection of Loan. Following receipt by Chase of a
Credit File or Loan File, Chase shall notify Correspondent of Chase's
underwriting decision. Chase may accept or reject any proposed Loan based on
applicable underwriting and origination guidelines as interpreted by Chase. If
the proposed Loan is rejected, Chase shall promptly return the Credit File
and/or Loan File to Correspondent.
Section 2.3 Rate Reservation. Correspondent may request a rate quotation
and rate reservation in accordance with Chase Correspondent Manual. In order to
receive payment for a Loan based on a rate reserved, Correspondent must deliver
to Chase a Purchasable Loan File and Credit File, including any required fees
and any additional information concerning the Property and/or the applicant
which Chase may deem necessary, prior to the Expiration Date. As set forth in
the Chase Correspondent Manual, if timely delivery of a closed Loan is not made,
Chase reserves the right to renegotiate the rate and Purchase Price for the
Loan.
Section 2.4 Revision of Requirements. Chase may from time to time amend or
revise its documentation requirements, underwriting criteria or other
requirements pertaining to any residential mortgage loan program. Any Loan
Package already registered and rate locked by the Correspondent will not be
materially adversely affected by such amendment or revision.
ARTICLE III
DELIVERY AND PAYMENT
Section 3.1 Timely Delivery of Loans. For each Loan purchased by Chase,
Correspondent shall promptly deliver the Loan File and Credit File.
Correspondent shall do all further acts necessary to perfect Chase's title to
and security for each such Loan and to execute and deliver any additional
documents reasonably required by Chase. Correspondent acknowledges that delivery
of all Loans under a Mandatory Commitment and locked and closed by Correspondent
or its Chase approved Third Party Originator, under a Best Efforts Commitment is
mandatory and that time is of the essence. Correspondent acknowledges and
understands that Chase has
Rev. 4/15/96
Page 5
<PAGE>
executed forward commitments to sell and immediately deliver Loans to third
parties. Loans must be delivered on or before the Expiration Date. Correspondent
covenants and agrees to reimburse Chase for any and all losses incurred by Chase
as a result of such nondelivery within five (5) days of written demand by Chase,
including payoff losses, hedging losses and legal fees and costs. Such
reimbursements shall be in addition to any and all legal and equitable remedies
available to Chase.
Section 3.2 Payment of Purchase Price. Chase shall pay Correspondent the
Purchase Price for each Loan in accordance with Chase Correspondent Manual.
Chase will pay the Purchase Price to the Correspondent or, if applicable, to the
warehouse lender as instructed by an appropriate bailee agreement. In order to
receive payment of the Purchase Price, Correspondent must comply with all
document delivery requirements established by Chase Correspondent Manual For
rescindable loans, payment of the Purchase Price shall be made only after the
rescission period has elapsed. Payment of any fee to Correspondent does not
evidence the acceptability of the Loan File or the Credit File.
Unless earlier agreed in writing by Chase, no fees, commissions, or any
other consideration shall be paid to Correspondent for any Loan submitted to
Chase for purchase. Correspondent covenants and agrees that: (i) the
compensation received by Correspondent shall not exceed the fair market value of
its services; (ii) it shall not accept any fee or other compensation except as
permitted by applicable law and regulation; and (iii) it has disclosed any fee
or other compensation in writing to the applicant, and Chase as required by
applicable law and regulation.
Section 3.3 Investor Rights and Servicing Rights. The Purchase Price of
each Loan shall include all Investor Rights and Servicing Rights and benefits
pertaining to such Loan. Correspondent shall execute and deliver documentation
sufficient to transfer all Investor Rights and Servicing Rights from
Correspondent to Chase free and clear of all claims, liens and encumbrances, and
to enable Chase (or its designated representative) to own, sell and service such
Loan.
Section 3.4 Inspection of Loan Files. Chase reserves the right to inspect
all Loan Files and Credit Files and satisfy itself that all Loans comply with
the applicable Commitment, and Correspondent's representations concerning the
Loans. The Loan Files and Credit Files shall evidence compliance with all
federal and state rules, orders and regulations affecting the Loans.
Correspondent shall make Chase the loss payee of each mortgage guaranty
insurance policy and hazard and Flood insurance policy. Ownership of, and title
to, a Loan will be vested in Chase only when a Loan is accepted by Chase.
Rev. 4/15/96
Page 6
<PAGE>
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF CORRESPONDENT
Section 4.1 Representations and Warranties regarding Correspondent. After
due and diligent investigation and inquiry, and notwithstanding any assignment
without recourse, Correspondent represents and warrants to Chase as follows:
A. Correspondent is duly organized, validly existing, and in good standing
under the laws of the state of its organization and has all qualifications,
registrations, licenses, and permits necessary to carry on its business in each
state in which Correspondent originates or purchases Loans. Correspondent agrees
to provide Chase with copies of all applicable licenses, permits, etc.
evidencing compliance with this Section 4.1A upon request. Correspondent has all
requisite power, authority and consent to execute, deliver and perform this
Agreement. All requisite action has been taken by Correspondent to make this
Agreement valid and binding upon Correspondent in accordance with it terms;
B. The consummation of the transactions contemplated by this Agreement are
in the ordinary course of business of Correspondent and will not result in: (a)
a breach of any term or provision of the charter or bylaws of Correspondent; (b)
the breach of any term or provision of, or conflict with, or constitute a
default under any agreement to which Correspondent or its property is subject;
or (c) the violation of any law, rules, regulation, order, judgment or decree to
which Correspondent or its property is subject;
D. There is no claim, litigation, investigation or proceeding pending or
threatened against or otherwise materially adversely affecting Correspondent's
business, performance of its obligations under this Agreement and Correspondent
has no knowledge of any circumstances indicating that any such suit,
investigation or proceeding is likely or imminent;
E. With respect to any FHA Loan submitted by Correspondent, Correspondent
is either approved by FHA to participate in its "direct endorsement" mortgage
insurance program, or is an FHA sponsored lender with underwriting performed by
Chase; with respect to any VA Loan submitted by Correspondent, Correspondent is
either approved to originate and submit Loans to VA for VA approval, approved to
underwrite mortgage loans with "automatic authority", or is approved as a VA
authorized agent with underwriting performed by Chase. Correspondent is not
currently, nor within the one (1) year period preceding the date
Rev. 4/15/96
Page 7
<PAGE>
of this Agreement has it been, subject to any administrative sanctions imposed
by FHA and/or VA;
F. Each of the representations and warranties contained in this Section
4.1 is true and correct upon the execution of this Agreement and upon delivery
of any Loan to Chase for purchase.
Section 4.2 Representations and Warranties Regarding Loans. After due and
diligent investigation and inquiry, Correspondent further represents and
warrants to Chase that as of the Purchase Date:
A. Each Loan has been originated by Correspondent and Correspondent has
complied with all of its obligations under this Agreement. Correspondent
warrants that all Loans under the terms of this Agreement will be originated by
the Correspondent, unless specific approval has been granted for third party
originations and a Third Party Origination Rider has been executed by
Correspondent and Chase;
B. Correspondent has the authority to sell, transfer, and assign such Loan
on the terms herein set forth; there has been no assignment, sale or pledge
thereof by Correspondent, (except any pledge required pursuant to a line of
credit agreement between Correspondent and its warehouse lender); and as of the
Purchase Date, the Loan will be free and clear of liens, claims, security
interests, or encumbrances of any type (including, but not limited to any pledge
in favor of any warehouse lender);
C. All Loans purchased by Chase comply with all of the FHA, VA, GNMA,
FNMA, FHLMC, Chase, and applicable private investor regulations, requirements,
and standards, and all representations and warranties required to be made by
sellers therein are hereby made by Correspondent to Chase;
D. All FHA Loans are fully insurable by FHA and a mortgage insurance
certificate will be issued by FHA; all VA Loans are eligible for guaranty by VA
and a loan guaranty certificate will be issued by VA; and all Conventional Loans
are insurable by private mortgage insurers, when required, and an appropriate
certificate or other evidence of such insurance will be issued by the insurer.
There are no defenses, counterclaims or rights of set-off affecting the validity
or enforceability of any private mortgage insurance, FHA insurance or VA
guaranty with respect to the Loan or eligibility of such Loan for insurance or
guaranty;
E. All FHA and VA Loans are eligible for inclusion in pools of mortgages
for GNMA, FNMA, or FHLMC mortgage-backed securities;
Rev. 4/15/96
Page 8
<PAGE>
F. With respect to the Mortgagor, the Property, or the Loan, there are no
facts or circumstances that exist which could be reasonably expected to cause
private institutional investors to regard the Loan as an unacceptable
investment, cause the Loan to become delinquent, or adversely affect the value
or marketability of the Loan;
G. Correspondent has conducted its business and fully complied with all
applicable Federal, State, and locals laws, rules, ordinances, and regulations,
including, but not limited to: (i) the Federal Truth in Lending Act of 1969, and
Federal Reserve Regulation Z thereunder; (ii) the Federal Equal Credit
Opportunity Act ("ECOA") and Federal Reserve Regulation B thereunder; (iii) the
Federal Fair Credit Reporting Act; (iv) the Federal Real Estate Settlement
Procedures Act of 1974 ("RESPA"), and Regulation X thereunder; (v) the Flood
Disaster Protection Act of 1973 (as if it were a covered entity and regardless
of whether Correspondent is specifically subject to such statute and/or
regulations); (vi) the Fair Housing Act; (vii) the Home Mortgage Disclosure Act;
(viii) the Financial Institutions Reform Recovery and Enforcement Act of 1989,
all as amended, including all regulations issued pursuant thereto; (ix) any and
all licensing requirements for Mortgage Sellers and/or Lenders; (x) requirements
as applicable to the Loans of FNMA, FHLMC, GNMA, FHA, and VA; (xi) the
requirements of an agency that regulates Correspondent; and (xii) any and all
laws, rules, ordinances, and regulations relating to adjustable rate mortgages,
negative amortization, and graduated payment mortgages;
H. The rules, regulations, and all applicable requirements of FHA, VA, and
private mortgage insurance companies, hazard insurance companies or other
guarantors or insurers have been properly satisfied, including, without
limitation, the payment by Correspondent of all mortgage guaranty and insurance
premiums and fees as and when due, and the submission by Correspondent of
insurance binders within the required time periods; insurance policies are in
effect, valid and enforceable, as required by Chase; Correspondent shall make
Chase the loss payee of each mortgage guaranty insurance policy, hazard, and
flood insurance policy;
I. The proceeds of the Loan have been fully disbursed, there is no
requirement for future advances; the unpaid principal balance is as stated; all
costs, fees, taxes and expenses incurred in making and closing the Loan and
recording the Mortgage have been paid;
J. The Mortgage Note and the related Mortgages are genuine, and each is a
legal, valid and binding obligation of the Mortgagor(s), enforceable in
accordance
Rev. 4/15/96
Page 9
<PAGE>
with its terms. All parties to the Mortgage Note and the Mortgage had legal
capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note
and Mortgage have been duly and properly executed by the Mortgagor(s); the
Mortgage has been duly recorded and no portion of the security has been
released; there are no claims, defenses, setoffs or counterclaims, and there is
no default and no event has occurred which, with the passage of time or the
giving of notice or both, would constitute a default by the borrower with
respect to any of the terms of the Note;
K. The Mortgage has not been satisfied, canceled, subordinated or
rescinded; no part of the Property has been released from the lien of the
Mortgage; the terms of the Loan have in no way been changed, waived, impaired or
modified, except for loan adjustments made in compliance with the Mortgage Note
and applicable regulatory requirements; no waiver of any default, breach,
violation or event of acceleration has occurred; and the Loan is current and not
in default;
L. No representation, warranty or written statement made by Correspondent
in this Agreement, nor any application, documentation, schedule, exhibit,
statement, or certificate furnished to Chase by Correspondent contains any
untrue statement of material fact or fails to state any material fact which
could render such statement misleading. All information contained in the Credit
File or Loan File is true, complete and accurate; Correspondent is not aware of
any fact not set forth in the Credit File or Loan File which Chase might
reasonably consider to be adverse to the approval of the loan, or would make the
Loan ineligible for sale in the secondary market;
M. A title insurance commitment or a title insurance policy has been
issued by a title insurer, acceptable to Chase (as set forth in the Chase
Correspondent Manual), insuring Correspondent, its successors and assigns, as to
the first priority lien of the Mortgage in the original principal amount of the
Mortgage Note (including any amortization or adjustable rate features of the
Mortgage). The policy may include only such exceptions as Chase deems acceptable
in its sole discretion or provide endorsements insuring over such exceptions
provided such endorsements are acceptable to primary secondary market agency
investors (FNMA, FHLMC, GNMA); the named insured shall be "Correspondent, its
successors and assigns"; Correspondent has not by act or omission, done anything
which would impair the title insurance policy coverage;
N. Any assignment of the Loan from Correspondent to Chase as been duly
authorized and is valid and sufficient, and all consents and approvals to such
Rev. 4/15/96
Page 10
<PAGE>
assignment have been obtained, including in the case of cooperatives, the
consent of the cooperative corporation;
O. All documents prepared by Correspondent are genuine, accurate, and
complete and, as applicable, meet the requirements and specifications
established by FNMA, FHLMC, GNMA, FHA and VA, Chase Correspondent Manual, and
this Agreement;
P. There is in force such flood insurance policy as is required under the
Flood Disaster Protection Act of 1973, as amended, and its implementing
regulations regardless of whether Correspondent is specifically subject to such
statute or regulations;
Q. The improvements on the Property securing each Loan are covered by
hazard insurance policies issued by an insurer acceptable to Chase; (i) in an
amount which, except where limited by applicable law to a lesser amount, is
equal to the outstanding principal balance of the Loan or eighty percent (80%)
of the insurable value of the improvements, whichever is greater; (ii) of a type
substantially in the form of an at least as protective as the fire and extended
coverage contained in the "New York" loss mortgagee clause (also known as
"standard" or "union" loss mortgagee clause), which provides that
Correspondent's hazard insurance is not invalidated by acts of the Mortgagor,
and (iii) containing suitable provisions for payment of all present and future
loans on the Property in order or precedence; the Property has not been damaged
so as to adversely affect its value;
R. No mortgage brokers or other consultants or finders were consulted or
contacted in connection with or in bringing about the Mortgage or this mortgage
sale transaction, that would be due a fee;
S. All taxes, governmental assessments, insurance premiums, water, sewer,
municipal charges, leasehold payments, ground rents, home owners association
dues and other charges, have been paid; and all funds paid or due to be paid
have been paid and delivered to Chase in connection with any escrow accounts
created on the Closing Date.
T. There is no proceeding pending for the total or partial condemnation of
the Property and the Property is undamaged by waste, fire, flood or other
casualty;
Rev. 4/15/96
Page 11
<PAGE>
U. The Mortgage Note and the Mortgage are not subject to any right of
rescission, setoff, counterclaim or defense, nor has any such right been
asserted with respect thereto;
V. The actual loan-to-value ratio of each Loan does not exceed the maximum
amount permitted under Chase Correspondent Manual; the appraisal prepared in
connection with each Property provides an accurate estimate of the bona fide
market value of such Property and was prepared by a licensed Real Estate
Appraiser, acceptable to Chase (as set forth in the Chase Correspondent Manual),
with no direct or indirect interest in the Property
W. The Mortgage Note contains the lesser of the maximum late charge
permitted by the state where the Loan was originated and the maximum late
charges permitted by the applicable agency;
X. Appropriate escrow amounts for property taxes and insurance were
collected from the borrowers in conformity with RESPA and any similar state laws
that apply (unless expressly waived by Chase). There are no payments which are
unpaid including, but not limited to taxes, ground rents, water charges, sewer
rents, assessments, including any assessments payable in future installments, or
other outstanding charges affecting the lien of the Mortgage.
All of the representations and warranties set forth in Article IV shall
survive and continue in force for the full remaining life of the Loan and area
made for the benefit of Chase and its successors and assigns.
Section 4.3 Covenants of Correspondent. Correspondent covenants and agrees
with Chase as follows:
A. Correspondent shall notify Chase immediately of:
(i) any material changes in its ownership, financial condition, or
principal management;
(ii) any audits, examinations, or reviews by FHA or VA, including
any administrative sanctions imposed upon Correspondent;
(iii) if following the sale of any Loan to Chase, Correspondent
becomes aware of any fact or circumstance regarding any Loan of
Rev. 4/15/96
Page 12
<PAGE>
which would have caused the Loan to be ineligible for sale to Chase
if known prior to such sale;
B. Correspondent shall timely deliver to each applicant a completed
Regulation Z disclosure statement, Good Faith Estimate of Closing Costs,
federally mandated fixed rate, or ARM disclosure and HUD booklets. Correspondent
shall be responsible for compliance with aggregate accounting requirements
relating to escrow account statements and escrow accounting procedures mandated
by RESPA. Correspondent shall also be responsible for compliance with ECOA
concerning notification of adverse action to an applicant whose Loan Package
Chase does not accept (Chase may, at its option, deliver notice of adverse
action to Correspondent for further delivery to applicant). Correspondent shall
comply with Regulation Z concerning return of all monies paid by the applicant
to Correspondent should the applicant rescind and Correspondent shall not seek
reimbursement from Chase for such refund.
C. Correspondent shall deliver evidence, in a form satisfactory to Chase,
of such compliance, including, but not limited to, copies of any notice or
disclosure form furnished to an applicant.
D. Correspondent utilizes only licensed Real Estate Appraisers that meet
the requirements set forth in the Chase Correspondent Manual, and whose approval
and appointment is made in compliance with the regulations and standards
contained in the Financial Institutions Reform Recovery and Enforcement Act or,
in the case of FHA or VA Loan Packages, by appraisers approved by FHA or VA,
respectively.
E. At all times during the term of this Agreement, Correspondent shall
maintain a complete set of files and records of all business activities and
operations conducted by Correspondent in its capacity as loan correspondent of
Chase. Such files and records shall be maintained in a neat, orderly and
organized manner. For a period of not less than twenty-five (25) months from and
after the date of termination or expiration of this Agreement, Correspondent
shall continue to maintain all such files and records at a reasonably accessible
location. Alternatively, Correspondent may deliver to Chase all such files and
records. At all times during the term of this Agreement and at all times during
the twenty-five (25) month period following expiration or termination of this
Agreement, Chase, its duly authorized agents, representatives and employees, any
necessary party involved in any public offering (such as rating agencies) and
federal and state regulatory agencies which supervise Chase shall have a right,
upon reasonable notice, to audit, inspect and copy
Rev. 4/15/96
Page 13
<PAGE>
any of the foregoing records, reports, files, and related materials of
Correspondent, and Correspondent shall cooperate and assist in any such audit or
inspection.
F. Within one hundred twenty (120) days following the end of each fiscal
year of Correspondent, Correspondent shall deliver to Chase financial statement
of Correspondent covering such fiscal period including a balance sheet as of the
end of such fiscal year, an income statement for such fiscal year, and related
statements of changes in financial position and shareholders equity for such
fiscal period setting forth in each case in comparative form, figures for the
previous fiscal year, all in reasonable detail and, unless otherwise agreed by
Chase, such financial statements shall be audited and certified by an
independent firm or certified public accountants. In addition, if required from
time to time by Chase, within forty-five (45) days following the end of each
quarterly period of the fiscal year of Correspondent, Correspondent shall
deliver to Chase unaudited financial statements of Correspondent for such
quarterly period, including a balance sheet, an income statement setting forth
in each case, in comparative form, figures for the same quarter of the previous
fiscal year, all in reasonable detail, which statement shall be certified by the
chief financial officer of Correspondent as fairly representing the financial
condition and result so operations of Correspondent as of and for such quarterly
period. Correspondent shall also provide any additional information reasonably
requested by Chase, from time to time, including, but not limited to, proof of
adequate licensing and bonding.
ARTICLE V
Remedies/Repurchase/Indemnification.
Section 5.1 Breach of Representation of Warranty. Upon discovery of a
breach of any of the representations and warranties set forth in Section 4.1, or
4.2, or of the covenants set forth in Section 4.3, the party discovering such
breach shall give written notice to the other. Correspondent shall have sixty
(60) days following its discovery or its receipt of notice of any such breach,
to cure such breach to the reasonable satisfaction of Chase. If in the
reasonable judgment of Chases such breach cannot be cured within such sixty (60)
day period, or is incapable of being cured, Correspondent shall, at the request
of Chase, proceed to repurchase the affected Loan at the related Repurchase
Price.
Section 5.2 Repurchase of Loans by Correspondent. Upon the occurrence of
any of the following events, Correspondent agrees to immediately repurchase the
related Loan (or Property, if title thereto is held by Chase), at the Repurchase
Price:
Rev. 4/15/96
Page 14
<PAGE>
A. Correspondent fails to provide all of the documentation required by
Chase and/or fails to satisfy all other requirements of this Agreement within
one hundred twenty (120) days following the Purchase Date. Such date shall be
extended to a date one hundred and eighty (180) days following the Purchase Date
for documents sent out for recording, but not yet returned due to delays solely
within the applicable recording office;
B. With regard to FHA or VA Loans, Correspondent fails to submit an FHA
Mortgage Insurance Certificate ("MIC"), or a VA Loan Guaranty Certificate
("LGC") within one hundred and twenty (120) days following the Purchase Date;
C. With regard to FHA or VA Loans, in the reasonable judgment of Chase,
the related MIC or LGC cannot be obtained, or any required private mortgage
insurance or guaranty, lapses, is rescinded, or claim thereon is denied or not
paid (except for the negligence of Chase);
D. Chase repurchases any Loan previously conveyed, transferred, or
assigned by Chase to any third party due to defects which existed prior to, or
arose as a result of an occurrence on or before the Purchase Date;
E. The Loan File or Credit File contains any Fraudulent Document
regardless of whether or not such Loan is delinquent.
For any Loan which is incapable of being repurchased due to inclusion in a
GNMA pool, Correspondent agrees to comply with the procedures set forth in the
Correspondent Eligibility Section of the Chase Correspondent Manual.
Section 5.3 Reconveyance of Loan following repurchase by Correspondent.
Upon repurchase by Correspondent, Chase will endorse the Mortgage Note
without recourse and execute a recordable assignment of the Mortgage and
reasonably cooperate in the transfer of the Loan and all information relating
thereto to the Correspondent.
Section 5.4 Indemnification. Correspondent hereby agrees to indemnify,
save, and hold harmless Chase, its successors and assigns, from and against any
and all losses, damages, fines, costs or expenses of any nature, including loss
of marketability and attorney's fees and costs, resulting from breach of any
representation or warranty, covenant or agreement, made by Correspondent. This
indemnification shall survive any termination or cancellation of this Agreement.
Rev. 4/15/96
Page 15
<PAGE>
Section 5.5 Early Payment Default. With respect to Loans underwritten by
Correspondent under Correspondent's Chase approved delegated underwriting
authority, or by Correspondent's agency approved delegated underwriter, and
which Loans have not been underwritten by Chase prior to purchase, if such Loan
is subject to a payment default on any of the first three (3) scheduled monthly
payments due Chase and such default is not cured for one hundred and twenty
(120) days following such default, then Correspondent shall: (a) pay Chase
$2,500 for FHA or VA Loans, or $1,000 for Conventional Loans, as reimbursement
for administrative expenses; (b) return any servicing release premium paid to
Correspondent in reference to such Loan; and (c) if the Loan is uninsured by HUD
certificate, VA guaranty or private mortgage insurance, repurchase and reconvey
the Loan in accordance with Sections 5.2 and 5.3 of this Agreement.
Section 5.6 Remedies not Exclusive. The remedies set forth in this Article
V, in other sections of this Agreement, and in the Chase Correspondent Manual,
are in addition to and not to the exclusion of any and all rights and remedies
available to Chase at law or in equity including specific performance.
ARTICLE VI
Termination of this Agreement
Section 6.1 Conditions of Termination. This Agreement may be terminated,
as to the future submission of Loans, by either party upon fifteen (15) days
written notice. If prior to the effective date of termination, a rate and rate
reservation period has been given by Chase to Correspondent, or Correspondent
has transmitted a Credit File or Loan File, or any part thereof, to Chase, then
Chase shall accept assignment of the loan provided such Loan conforms to Chase's
customary underwriting and origination guidelines, and Chase did not terminate
this Agreement for cause. Notwithstanding any termination of this Agreement, the
representations and warranties, covenants, agreements, and obligations of
Correspondent, including but not limited to, its continuing responsibility to
promptly supply Chase with outstanding documentation regarding Loans previously
submitted for approval, and its obligation to repurchase Loans and to Indemnify
Chase as provided herein shall remain in full force and effect.
Rev. 4/15/96
Page 16
<PAGE>
ARTICLE VII
Miscellaneous Provisions
Section 7.1 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and any permitted assignees. Correspondent may
not assign, or delegate any of its rights, duties, and/or obligations hereunder
without the written permission of Chase which may be withheld in its sole
discretion. A change in ownership, merger, or consolidation of Correspondent
shall be considered an assignment for purposes of this Agreement. Chase may
assign this Agreement to any affiliate without consent.
Section 7.2 Relationship between Parties. No exclusive relationship
between Correspondent and Chase shall result from this agreement. Correspondent
is an independent contractor and nothing herein shall be construed to make
Correspondent a partner, joint venture, employee or agent of Chase.
Correspondent shall not make any statement which leads any third party to
reasonably believe that it is an agent of Chase, and shall have no authority to
bind or make any representations on behalf of Chase. Correspondent shall not use
or refer to Chase's name in any form of advertising, written materials or
circulars except as may be required by law.
Section 7.3 No Third Party Benefits. This Agreement is made for the
express benefit of Correspondent and Chase, not for the benefit or interest of
any others persons or entities, and accordingly, no third party shall obtain or
acquire any rights or interest in this Agreement or by reason of the performance
or failure of performance of either of the parties hereto or of their respective
rights, privileges, duties or obligations arising hereunder.
Section 7.4 Entire Agreement. This Agreement, any addendum(s) attached
hereto and executed by all parties, and the Chase Correspondent Manual
constitute the entire understanding of the parties regarding the subject matter
hereof. Any additions, changes, amendments or modifications of this Agreement
must be in writing and executed by an authorized officer of Chase. The
invalidity of any portion of this Agreement shall not affect the remaining
provisions.
Section 7.5 Notice. Any notice required to be given to a party hereto
under the provisions of this Agreement must be in writing and delivered either
personally, by telecopy transmission, or by certified mail to the other party at
the addresses indicated herein above.
Rev. 4/15/96
Page 17
<PAGE>
Section 7.6 Non-Solicitation. Correspondent covenants and agrees that it
will not take any action, or cause any action to be taken by any of its agents,
contractors, employees or affiliates, to solicit the prepayment of, refinance
of, or any alteration in payment procedures to terms of any Loan sold to Chase
under the terms of this Agreement. The preceding statement shall not preclude
Correspondent from engaging in general advertising or from serving the refinance
needs of a Mortgagor who, without solicitation in violation of this Section 7.6,
contacts Correspondent in connection with the refinance of such Mortgagor's
Loan.
Section 7.7 Resolutions/Recertification. Prior to the execution of this
Agreement, Correspondent shall provide a resolution from its board of directors,
authorizing the individual signing this Agreement to enter into this Agreement
on behalf of Correspondent and authorizing specific individuals who may either
(i) enter into Commitments and/or assign and transfer Mortgage Loan documents or
(ii) appoint other individuals to enter into Commitments and/or assign and
transfer Mortgage Loan documents. Correspondent acknowledges that it will be
required to recertify certain information annually to Chase and agrees to supply
any and all information reasonably requested by Chase to accomplish such
recertification.
Section 7.8 Governing Law. This Agreement and the interpretation of its
terms shall be governed by the laws of the State of New Jersey without giving
effect to its principles of conflicts of law. THE PARTIES WAIVE THEIR RIGHTS TO
A JURY TRIAL IN ANY ACTION UNDER THIS AGREEMENT.
Section 7.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall be deemed to be one Agreement.
Section 7.10 Limited Power of Attorney. Correspondent irrevocably appoints
Chase as its attorney-in-fact for the limited purpose of permitting Chase to:
(a) endorse any check, draft or other instrument in its possession which is made
payable to Correspondent but which is due to Chase under the terms of this
Agreement, and (b) endorse Mortgage Notes to Chase and prepare Assignments of
Mortgages in its possession.
Section 7.11 Confidentiality. Correspondent shall not, at any time during
or following termination of this Agreement, regardless of the manner, reason,
time of cause of such termination, directly or indirectly disclose or furnish to
any person not entitled to receive the same for the immediate benefit of Chase
(except to the extent
Rev. 4/15/96
Page 18
<PAGE>
actually required in connection with any litigation between parties arising out
of this Agreement or by applicable law), any trade secrets or confidential
information including, but not limited to, information related to Chase business
operations, credit policies, procedures, customers and the Chase Correspondent
Manual.
Section 7.12 Attorney Fees. In connection with any litigation or court
proceeding arising out of the enforcement of this Agreement, Chase shall be
entitled to recover from Correspondent, all cost incurred, including attorneys'
fees incurred for services rendered before suit is brought, prior to trial, at
trial, or appeal, or in federal bankruptcy proceedings.
Section 7.13 Set-off. Correspondent agrees that Chase may, at its option,
deduct from any payment due Correspondent, any monies paid by Chase on behalf of
Correspondent, or due to Chase based upon Correspondent's failure to perform
under the terms of this Agreement, the Chase Correspondent Manual and/or any
related documentation.
Rev. 4/15/96
Page 19
<PAGE>
IN WITNESS WHEREOF, Chase and the Correspondent have caused this
Correspondent Origination and Sales Agreement to be executed as of the date and
year first above written.
CHASE MANHATTAN MORTGAGE CORPORATION
By:
-------------------------------------
Title:
----------------------------------
CORRESPONDENT
Michael Strauss, Inc. dba American
Home Mortgage dba American Brokers Conduit
-----------------------------------------
[Name of Business]
By:
-------------------------------------
Title: President
----------------------------------
FORM OF BUSINESS ORGANIZATION [Circle One] [Corporation, Partnership,
Proprietorship]
Rev. 4/15/96
Page 20
<PAGE>
[LOGO] CHASE
THIRD PARTY ORIGINATION RIDER
THIS THIRD PARTY ORIGINATION RIDER is made this 2nd day of November, 1995 and is
incorporated into and shall be deemed to amend and supplement the Correspondent
Agreement ("Agreement") dated July 8, 1994 by and between American Home Mortgage
("Seller") and Chase Manhattan Mortgage Corporation ("Buyer"). All capitalized
terms used in this Rider that are not otherwise defined herein shall have the
same meanings assigned to them in the Agreement
I. THIRD PARTY ORIGINATION REPRESENTATIONS, WARRANTIES AND COVENANTS. In
addition to the representations, warranties and covenants made in the Agreement,
Seller and Buyer further represent, warrant, and covenant as follows:
A. Notwithstanding anything to the contrary in the Agreement (or in the
CMMC Manual), Seller may offer for sale and transfer to Buyer Loans
which have been solicited, procured, packaged, processed or
otherwise originated by a third party originator (hereinafter called
"Third Party Originator"), provided such Loans otherwise conform to
the terms and conditions of the Agreement. Nothing in this Agreement
or the CMMC Manual shall obligate Buyer to purchase Loans offered
for sale to it by Seller, and Buyer reserves the right to reject any
Loan offered to it by Seller for any reason whatsoever, including
but not limited to the identity of the Third Party Originator. (See
Specific Limitations in paragraph III)
B. Seller and Third party originator shall comply with any and all
special bulletins, notices, instructions, or CMMC Manual provisions
issued by Buyer from time-to-time and governing the submission of
loans contemplated by this Rider and shall sell only Loans that are
eligible for purchase by Buyer in accordance with the requirements
of the CMMC Manual.
C. The Agreement, as amended by this Rider, is made and entered into
for the express benefit of Seller and Buyer, not for the benefit or
interest of any Third Party Originator, or any other persons or
entities whomever, and accordingly, no third party shall obtain or
acquire any rights or interest in the Agreement or by reason of the
performance or failure of performance of either of the parties
hereto or of their respective rights, privileges, duties or
obligations arising hereunder.
D. Seller hereby irrevocably assigns to Buyer all of its rights,
remedies, indemnities and causes of action arising out of or in
connection with Seller's agreements, contracts, understandings, or
other dealings with any Third party Originator regarding any loan
sold and transferred to Buyer pursuant to this Rider.
E. It is understood and agreed that the representations and warranties
set forth in this Rider survive the sale and delivery of the Loans
to Buyer and shall insure to the benefit of Buyer and all future
assignees thereof, notwithstanding any restrictive or qualified
endorsement on any related mortgage Note or assignment.
F. It is understood and agreed that all representations and warranties
of Seller in the Agreement and/or this Rider made directly from
Seller to Buyer also shall be deemed to constitute representations
and warranties by Seller regarding each Third Party Originator as if
such Third Party originator was the Seller hereunder. It being
understood and agreed that Seller shall bear the risk of the proper
performance and/or involvement of Third Party Originator as if the
Third party Originator was the Seller, irrespective of Seller's
knowledge of activities of the Third Party Originator, the
Mortgagor, or otherwise.
<PAGE>
G. No fee, commission, kickback or tangible or intangible compensation
of any kind or nature whatsoever has been or will be received or
retained by Seller, or to Seller's knowledge, by any other person,
firm, or entity, in connection with any Loan or Loans offered for
sale pursuant hereto, except such fees as shall be permissible by
applicable law.
H. The decision to enter into and complete arrangements, agreements,
understanding, and contracts with other financial institutions,
mortgage bankers, mortgage brokers, loan brokers, real estate
brokers and others for or with respect to the solicitation,
procurement, packaging, processing, origination, closing and/or
purchase or sale of Loans has been solely within the discretion of
Seller and done without the consent, advice or agreement of Buyer.
I. Seller and its Third Party Originators have complied with (i) the
requirements of the CMMC Manual, including any related special
bulletins, notices and instructions issued by Buyer, and (ii) all
applicable federal and state laws, rules, regulations and licensing
requirements, including those governing their operations and the
Loans.
II. TERMINATION OF THIS RIDER This Rider may be terminated, as to the future
submission of Loans, by either party upon written notice of termination, and
such termination shall not terminate the underlying Agreement unless expressly
stated in the notice.
Notwithstanding the foregoing, this Rider shall terminate immediately upon
the revocation, cancellation, or other termination of the underlying
Agreement.
Other than as described in Article VI of the Agreement, Buyer shall not
accept assignment of any Loans after the effective date of termination.
III. Specific Conditions of this rider:
1. All loans to be table funded, and/or closed in seller's name.
2. Third party originations will be limited to conventional loans only.
3. Third parties will not do delegated underwriting on conventional
loans.
4. Seller will verify the current employment of all loan applicants
prior to delivery of loan to CMMC for purchase.
5. For all self employed applicants and other applicants relying on tax
returns for income qualification, Seller will confirm the integrity
of the tax return(s) copies with IRS or an independent income tax
verification service, prior to delivery of loan to CMMC for
purchase.
6. Company to maintain a minimum net worth of $500,000.
7. Personal guaranty of Michael Strauss.
BY SIGNING BELOW, Seller and Buyer and accept and agree to the terms and
provisions contained in this THIRD PARTY ORIGINATION RIDER.
AMERICAN HOME MORTGAGE CHASE MANHATTAN MORTGAGE CORP.
(Seller)
By: /s/ Michael Strauss By:
-------------------------- ------------------------
Title: President Title:
---------------------- ---------------------
<PAGE>
[LOGO] CHASE
DELEGATED UNDERWRITING ADDENDUM TO CORRESPONDENT ORIGINATION AND SALES
AGREEMENT
This Delegated Underwriting Addendum to Correspondent Origination and Sales
Agreement ("Addendum") is entered into this 8th day of July, 1996, by and
between CHASE MANHATTAN MORTGAGE CORPORATION ("Chase"), its successors and
assigns, and Michael Strauss, Inc. dba American Home Mortgage dba American
Brokers Conduit ("Correspondent").
Chase and Correspondent have entered into that certain Correspondent Origination
and Sales Agreement ("Agreement") dated July 8th, 1996, pursuant to which Chase
has agreed to purchase residential loans secured by 1 - 4 family, residential
properties ("Loans"), from Correspondent according to the terms and conditions
contained therein.
Pursuant to Chase Correspondent Manual (as defined in the Agreement), Loans may
be underwritten by Correspondent ("Delegated Underwriting"), provided
Correspondent has been given express written authorization by Chase.
Correspondent desires to submit Loans to Chase underwritten under Delegated
Underwriting authority, and as an inducement for Chase to grant Correspondent
such authority, Correspondent is willing to enter into this Addendum.
NOW THEREFORE, in consideration of the mutual promises, covenants, and
agreements set forth herein, Correspondent and Chase agree as follows:
1. Definitions. All capitalized terms not defined herein shall have the same
meaning as set forth in the Agreement, and/or the Chase Correspondent Manual.
2. Grant of Authority. Chase hereby grants Delegated. Underwriting Authority to
those underwriters of Correspondent set forth on Exhibit A ("Delegated
Underwriters") which may be amended from time to time by Chase. Chase agrees
that so long as Correspondent's Delegated Underwriters's Delegated Underwriting
Authority remains in effect, Chase shall purchase Loans originated and
underwritten by Correspondent's Delegated Underwriters, in accordance with the
terms and conditions set forth in the Agreement, the Chase Correspondent Manual,
and this Addendum.
3. Representations and Warranties. In addition to Correspondent's
representations and warranties contained in the Agreement, Correspondent further
represents and warrants to Chase as follows:
3.1 Correspondent has a net worth not less than Five Hundred
Thousand Dollars ($500,000) as reflected by Correspondent's most recent audited
financial statements produced in accordance with Generally Accepted Accounting
Principles and provided to Chase.
<PAGE>
3.2 Correspondent has furnished Chase with all documents set forth
on the Delegated Underwriting Transmittal Checklist for each Loan.
3.3 [Language re Chase approved appraisers]
4. Covenants. In addition to Correspondent's covenants contained in the
Agreement, Correspondent further covenants and agrees as follows:
4.1 Chase shall have the right to perform post-purchase reviews of
all Loans and to request any additional documentation to ensure compliance with
FNMA, FHLMC, or Chase underwriting guidelines;
4.2 Correspondent shall maintain Errors and Omissions Insurance
and/or a blanket Fidelity Bond in an amount not less than Three Hundred Thousand
Dollars ($300,000), with insurers acceptable to Chase. (A copy of such insurance
policy/bond attached hereto as Exhibit B);
4.3 Correspondent shall immediately notify Chase of any change in
the status of employment of any of Correspondent's Delegated Underwriters.
5. Indemnification. Correspondent shall indemnify, save, and hold harmless
Chase, its successors and assigns from any and all loss, fines, costs, damages,
and expenses (including attorney and professional fees) of Chase resulting from:
5.1 Any obligation of Chase to repurchase any Loan or any Property
held as security for any Loan arising from any defect or omission in any Loan
underwritten by Correspondent, including but not limited to any defects or
omissions in the appraisal;
5.2 The failure by the related Mortgagor to make any of the first
three (3) monthly payments due Chase which remain unpaid for one hundred twenty
(120) days; Correspondent shall: (a) pay Chase $1,000 as reimbursement for
administrative expenses; (b) return any servicing release premium paid to
Correspondent in reference to such Loan; and (c) if the Loan is uninsured by
private mortgage insurance, repurchase the Loan in accordance with Sections 5.2
and 5.3 of the Agreement;
5.3 Correspondent's breach of any representation or warranty
contained in this Addendum or in the Agreement.
6. Termination. The Delegated Underwriting Authority contained in this Addendum
may be terminated by Chase, for any reason, and in Chase's sole discretion, upon
written notice.
Rev. 4/15/96 Page 2
<PAGE>
Termination shall be effective as to all Loans submitted to Chase on or after
such notice of termination.
7. Miscellaneous. This Addendum may not be assigned by Correspondent and is
binding upon Correspondent, and its successors.
IN WITNESS WHEREOF, Correspondent and Chase have executed this Delegated
Underwriting Addendum as of the date first above written.
CHASE MANHATTAN MORTGAGE CORPORATION
By: /s/ Rebecca L. Carraher
--------------------------------------
Title: Rebecca L. Carraher, A.V.P.
-----------------------------------
CORRESPONDENT
Michael Strauss, Inc. dba American
Home Mortgage dba American Brokers Conduit
------------------------------------------
[Name of Business}
By: /s/ Michael Strauss
--------------------------------------
Title: President
-----------------------------------
Rev. 4/15/96 Page 3
<PAGE>
EXHIBIT 10.18
MASTER AGREEMENT
FOR THE
SALE AND PURCHASE
OF
MORTGAGES
BY AND BETWEEN
ASTORIA FEDERAL SAVINGS AND
LOAN ASSOCIATION AND
Michael Strauss, Inc. dba
American Home Mortgage
<PAGE>
INDEX
PAGE
I. Recitals 4
II. Definitions 5
(A) Agreement 4
(B) Loan to Value Ratio 4
(C) Loan 4
(D) "Marked-Up" Title Insurance Policy, Binder or Certificate 4
(E) Mortgage 4
(F) Essential Mortgage File Documents 4
(G) Mortgage Loans 5
(H) Mortgaged Property or Subject Property 5
(I) Mortgagor or Borrower 5
(J) Note 5
(K) Purchase Price 5
(L) Related Assets 5
(M) Settlement Date 5
(N) Servicing Date 5
(0) Underwriting Guidelines/Purchasing Guidelines 5
III. Offer to Sell and Acceptance of Offer 6
(A) Offer 5
(B) Acceptance 6
IV. Purchase and Sale of Loans 6-7
(A) Delivery of Loans 6
(B) Purchase and Sale 6
(C) Purchase Price 6
(D) Payment of Purchase Price 7
(E) Premium Rebate 7
V. Representations and Warranties of Seller 7-11
(A) Representations and Warranties of the Seller - General 7-8
(B) Representations and Warranties of the Seller As to Each Loan 8-11
VI. Breach of Representations and Warranties 11-13
(A) Remedy For Breach 11
2
<PAGE>
(B) Reassignments 12
(C) Buy-Back Price 11
(D) Definition of Loss 12
(E) Remedy For Non-Delivery of Documents 12
(F) Remedy For First Payment Default 12
(G) Remedy to Insure Accuracy of Real Estate Appraisals 13
VII. Representations and Warranties of the Buyer 13
VIII. Relationship of the Parties 13
IX. Opinion of Counsel 14
X. Designation of Authorized Officers 14
XI. Miscellaneous 14-26
(A) Additional Covenants 14
(B) Survival of Covenants, Agreements, Representations and Warranties,
Successors and Assigns 15
(C) Severability 15
(D) Attorneys' Fees 15
(E) Waivers 15
(F) Notice 15
(G) Insurance Prepayment 16
(H) Assignment 16
(I) Captions 16
(J) Entire Agreement 16
(K) Governing Law 16
(L) Termination 16
(M) Arbitration, Jurisdiction and Venue 16-17
(N) Endorsements 17
(O) Attachments 18-26
3
<PAGE>
This Master Agreement for Sale and Purchase of Mortgages is made this 19th
day of April, 1994, by and between Astoria Federal Savings and Loan Association,
located at One Astoria Federal Plaza, Lake Success, New York 11042 - 1085, a
Corporation organized and existing under the laws of the United States of
America ("Buyer") and Michael Strauss, Inc. dba American Home Mortgage located
at 60 East 42nd Street New York, NY 10165 a Corporation organized and existing
under the laws of New York ("Seller").
I. RECITALS
WHEREAS, the Seller desires from time to time to offer for sale to
the Buyer and the Buyer desires from time to time to purchase from the Seller on
the terms and subject to the conditions set forth herein certain Loans owned by
the Seller evidenced by notes and secured by mortgages of the agreed-upon
priority on real property owned by the borrowers ("Borrowers").
WHEREAS, the Buyer and the Seller desire to enter into this
agreement to govern the sale and purchase of said Loans.
Now, therefore, in consideration of the above recitals and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
II. DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(A) Agreement: shall mean this Agreement as it may be amended and
supplemented from time to time. The parties agree that this Agreement shall be
used as the master sale and purchase agreement for those loans purchased by
Buyer from Seller in the future, unless otherwise agreed in writing by the
parties.
(B) Loan to Value Ratio: shall mean the sum of the original
principal amount of the Mortgage Loan and the outstanding principal balance of
the first Mortgage (the "First Mortgage"), if any, at the time of origination of
the Mortgage loan divided by the lesser of the original purchase price of the
Mortgaged Property, if Borrower purchased the Mortgaged Property within twelve
(12) months of the Mortgage Loan origination date, or the appraised value of the
Mortgaged Property.
(C) Loan: the Note, the related Mortgage and the Related Assets are
referred to as "Loan," and collectively as "Loans."
(D) Marked-Up Title Insurance Policy, Binder, Commitment or
Certificate: a title insurance report, binder, commitment or policy as further
defined in Article V.(B)(ix) of this Agreement which an authorized
representative of the title insurer has marked to reflect that all liens,
mortgages, claims, assessments, defects, encumbrances and other exceptions
affecting or against the Mortgaged Property have been removed and are insured
against in favor of the Seller, its successors and assigns, by the title
insurance company unless otherwise agreed or approved by the Buyer in writing.
(E) Mortgage: the Note, bond, deed of trust, Mortgage, mortgage
warranty, extension agreement, assumption of indebtedness, assignment and any
other documents constituting the basic instruments for real estate security on
real property owned by the Borrower in the state in which the Mortgaged Property
is located.
4
<PAGE>
(F) Essential Mortgage File Documents: as to each Mortgage Loan, the
original of the Note, Mortgage, title insurance policy including endorsements or
Marked-Up Title Commitment. Related Assets and the additional documents as
described in Attachment A, attached hereto and made a part hereof, as
applicable.
(G) Mortgage Loans: the Loans identified in the Schedule of Loans
Delivered as from time to time are subject to this Agreement.
(H) Mortgaged Property or Subject Property: the residential real
property subject to the Mortgage which secures the Mortgage Loan.
(I) Mortgagor or Borrower: the obligor under a Mortgage Loan.
(J) Note: the original Note or bond or other evidence of
indebtedness evidencing the indebtedness of the Borrower/Mortgagor under a
Mortgage Loan.
(K) Purchase Price: the purchase price for the Loan(s) described on
each Schedule of Loans Delivered shall be an amount as of the Settlement Date
equal to the sum of the: (1) unpaid principal balances of the Note(s) as
described in Section II(N) below; (2) all interest accrued (up to but not
including the Settlement Date) but unpaid on the Note(s) (prorated on a 30-day
month - 360-day year); and (3) any premiums due Seller, if applicable, in
accordance with the Approval Advice or Schedule of Loans Delivered; (4) less any
discount due Buyer, if applicable, in accordance with the Approval Advice or
Schedule of Loans Delivered less any amount of escrowed funds collected by
Seller at closing, as set forth in the applicable HUD 1 settlement statement or
current payment history satisfactory to Buyer.
(L) Related Assets: the documents as further defined in Article
IV(A)(iv) of this Agreement.
(M) Settlement Date: the date of the funding or payment of the
Purchase Price by the Buyer for Loans purchased pursuant to this Agreement. Each
Settlement shall be held at the offices of Astoria Federal Savings and Loan
Association, One Astoria Federal Plaza, Lake Success, New York 11042 - 1085.
(N) Servicing Date: Mortgage Loans Funded up to the last business
day prior to and including the tenth (10th) calendar day of the month will have
an effective transfer of servicing date as of the first (1st) day of the first
(1st) month following purchase. Mortgage Loans either Funded after the tenth
(10th) calendar day of the month or Mortgage Loans Closed and Funded in the same
month will have an effective transfer of servicing date as the first (1st) day
of the second (2nd) month following the month in which the Mortgage Loan is
Funded.
(O) Underwriting Guideline / Purchasing Guideline: Attachment B
attached hereto and made a part hereof as may from time to time be amended by
Buyer.
III. OFFER TO SELL AND ACCEPTANCE OF OFFER
(A) Offer. The Seller may offer from time to time to submit to the
Buyer a list of the Loans, along with the Essential Mortgage File Documents, as
defined herein, for each of the Loans, for the Buyer's review. The Buyer shall
then deliver to the Seller a Schedule of Loans Delivered on which the Buyer has
indicated which Loans, if any, the Buyer is offering to purchase from the Seller
and the Purchase Price for the Loans Buyer is willing to purchase.
(B) Acceptance. The Seller shall endorse the Notes and Mortgages
evidencing the Loans on which the Seller agrees to accept the Buyer's offer to
purchase. Such endorsement shall constitute the Seller's acceptance of the
Buyer's offer to purchase the indicated Loans pursuant to the terms and
conditions of this Agreement.
5
<PAGE>
On occasion, Buyer may issue to Seller a written Approval Advice in
the form attached hereto, made a part hereto and marked Attachment C to cover a
specific Loan purchase by Buyer hereunder which is approved by Buyer in advance
of said specific Loan being made by Seller. Any purchase made hereunder that is
subject to an Approval Advice shall be governed first by the terms of such
Approval Advice and then by the terms of this Agreement, and to the extent of a
conflict between the Approval Advice and this Agreement, the Approval Advice
shall govern for that purchase and only that purchase.
Buyer shall have the absolute and sole discretion and option to
agree or decline to purchase any Loan(s) submitted by Seller for review.
IV. PURCHASE AND SALE OF LOANS
(A) Delivery of Loans on or before the business day immediately
preceding each Settlement Date, the Seller shall deliver to the Buyer the
following for each Loan purchased:
(i) Those Loans described by the Buyer on each Schedule of
Loans Delivered which are purchased by Buyer pursuant to this Agreement.
(ii) The agreed-upon priority liens and/or Mortgages on
Subject Property.
(iii) The Note(s) and the Mortgage(s) endorsed by an
authorized Officer of Seller to the Buyer pursuant to the language set forth on
Attachment D, attached hereto and made a part hereof together with an individual
assignment to the Buyer (certified copy of the recorded assignment) and
originals of all intervening assignments, if any, of the Seller's beneficial
interest in the Mortgage, showing a complete chain of title from origination to
the Seller, including warehousing assignment, with evidence of recording
thereon.
(iv) Any and all documents, instruments, collateral,
agreements, and assignments and endorsements for all documents, instruments and
collateral agreements, referred to in the Notes and/or Mortgages or related
thereto, including, without limitation, properly endorsed current insurance
policies (private mortgage insurance, if applicable; flood insurance, if
applicable; hazard insurance; title insurance; and any other applicable
insurance policies) covering the Subject Property or relating to the Notes and
all files, books, papers, ledger cards, reports and records including, without
limitation, loan applications, Borrower financial statements, separate
assignment of rents, if any, credit reports and appraisals, relating to the
Loans (the "Related Assets"). In all cases the Related Assets shall be the
original documents.
(v) The Essential Mortgage File Documents, including all
writings evidencing the Loan(s) purchased by Buyer. In all cases, these
documents shall be the original documents.
(vi) In the event that Seller cannot deliver to Buyer a duly
recorded assignment of Mortgage or any other document required to be recorded
under this Agreement on the Settlement Date solely because of a delay caused by
the public recording office where such document(s) has been delivered for
recordation, Seller shall deliver to the Buyer a certified copy of each such
document(s) with a statement thereon signed by an Officer of the Seller
certifying each to be a true and correct copy of document(s) delivered to the
appropriate public recording official for recordation. Seller shall deliver to
Buyer such recorded document(s) with evidence of recording indicated thereon no
later than 15 days after Seller receives such documents, but in any event, no
later than 90 days from the Settlement Date.
(B) Purchase and Sale. On each Settlement Date hereunder, Seller
shall sell, assign, transfer, convey and deliver to Buyer all of its right,
title and interest in and to the Loans, assets and documents as more fully
enumerated and set forth in Article IV(A)(i) through (vi) inclusive, which is
incorporated herein by reference.
6
<PAGE>
(C) Purchase Price. The Purchase Price for the Loans described on
each Schedule of Loans Delivered shall be an amount as defined in Article II(K)
above. The Purchase Price shall be payable as set forth in Article IV (D) below.
(D) Payment of Purchase Price. On each Settlement Date, the Purchase
Price shall be paid as follows: The Buyer shall deposit funds by wire transfer
to the Seller's bank at: Independence Savings Bank, 130 Court Street, Brooklyn,
NY 11201.
(E) Premium Rebate. In the event that a premium is paid by the Buyer
to the Seller on a Loan and/or such Loan is prepaid by the Borrower, other than
by a refinancing by the Buyer or any of its subsidiaries or affiliates or a
refinancing by the Seller which is purchased by the Buyer, within twelve (12)
months of Settlement Date of such Loan, the Seller shall, upon demand by the
Buyer, refund to the Buyer, in the appropriate percentage specified below, the
premium paid by the Buyer to the Seller. In the event such Loan is prepaid
within one hundred eighty (180) days of the Settlement Date of such Loan, the
refund due Buyer from Seller will equal one hundred (100%) percent of the
premium paid to Seller by Buyer for such Loan. In the event the Loan is prepaid
during the period of one hundred eighty-one (181) days to three hundred and
sixty (360) days of the Settlement Date of such Loan, the refund due Buyer from
Seller will equal two-thirds (2/3) of the premium paid to Seller by Buyer. In
the event such Loan is prepaid later than twelve (12) months from the Settlement
Date of such Loan, no refund shall be due.
V. REPRESENTATIONS AND WARRANTIES OF THE SELLER
(A) Representations and Warranties of the Seller - General. It is
understood and agreed by Seller and Buyer that as a material inducement to Buyer
to enter into this agreement the Seller hereby represents and warrants to the
Buyer as follows:
(i) The Seller is an organization as set forth in the
introductory paragraph of this Agreement and is duly organized, validly existing
and in good standing under the laws of the state or place of its incorporation
and is duly qualified as a foreign corporation in all jurisdictions wherein the
character of the property owned or leased or the nature of the business
transacted by it makes qualification as a foreign corporation necessary.
(ii) The execution and delivery of the Agreement by the Seller
and the performance by the Seller of the obligations to be performed by it
hereunder have been duly authorized by all necessary corporate or other similar
action. Prior to the first Settlement Date, the Seller shall deliver to the
Buyer certified copies of relevant corporate or similar resolutions and a good
standing certificate for the state of its incorporation and, as requested by
Buyer, for each state in which Seller is registered or authorized to do
business. It is within Buyer's discretion to periodically request good standing
certificates for all states in which Seller is registered or authorized to do
business.
(iii) The execution and delivery of this Agreement by the
Seller and the performance by the Seller of the obligations to be performed by
it hereunder do not, and will not, violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Seller or to the charter or
bylaws of the Seller. All parties which have had any interest in the Mortgages,
whether as mortgagee, assignee (other than Buyer or assignee of Buyer) or
pledgee are (or during the period in which they held and disposed of such
interest, were) in compliance with all applicable licensing requirements of the
federal, state, and local government wherein the Subject Property is located.
(iv) The execution and delivery of this Agreement by the
Seller and the performance by the Seller of the obligations to be performed by
it hereunder do not and will not result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Seller is a party or by which it or its properties may
be bound or affected.
7
<PAGE>
(v) This Agreement constitutes, when duly executed and
delivered by the Seller, a legal, valid and binding obligation of the Seller
enforceable against the Seller according to its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium, or similar laws affecting creditors' rights in
general, including equitable remedies.
(vi) There are no actions, suits or proceedings pending or, to
the knowledge of the Seller, threatened against or affecting the Seller or the
properties of the Seller before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Seller, would have a material adverse
effect on the financial condition, properties or operation of the Seller. Any
consent by the Buyer to purchase Loans pursuant to this Agreement shall
automatically terminate if: (a) a decree or order of a court or agency
supervisory authority having jurisdiction for the appointment of a conservator
or receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities, bankruptcy proceeding or any similar proceedings, or
for the winding up or liquidation of its affairs, shall have been entered
against the Seller or a Borrower and such decree or order shall have remained in
force undischarged or unstated for a period of 60 days; or (b) the Seller or a
Borrower shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities, bankruptcy or similar proceedings relating to the Seller or
relating to all or substantially all of its property; or (c) the Seller or
Borrower shall admit in writing its inability to pay its debts as they become
due, file a petition to take advantage of any applicable insolvency,
reorganization or bankruptcy statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations.
(B) Representations and Warranties of the Seller As to Each Loan. It
is understood and agreed by Seller and Buyer that as a material inducement to
Buyer to enter into this Agreement the Seller hereby represents and warrants to
the Buyer as of each Settlement Date with respect to each Loan purchased:
(i) The Seller is a holder-in-due-course of each Note within
the meaning of the Uniform Commercial Code and is the sole owner of the Loan and
has the right to assign and transfer the Loan to the Buyer. The Seller has not
sold, assigned or otherwise transferred any right or interest in or to the Loan
and has not pledged the Loan as collateral for any loan or obligation of Seller
or other purpose. The assignment of the Loan by the Seller to Buyer validly
transfers such Loan to Buyer free and clear of any pledges, liens, claims,
encumbrances, mortgages, charges, exceptions and/or security interests.
(ii) Except as expressly disclosed to and agreed to by the
Buyer in writing, each Loan conforms to: (a) Underwriting Guidelines of Buyer,
and (b) the conditions of the Approval Advice (if applicable).
(iii) All information set forth in any Schedule of Loans
Delivered is true and correct in all respects, and all other information
furnished to Buyer by Seller with respect to the Loan(s) purchased is true and
correct as of the Settlement Date.
(iv) Each Note and Mortgage and the Related Assets are in
every respect genuine, are the valid instrument they purport on their face to
be, are the legal, valid, binding and enforceable obligation of the Borrower
thereunder and not subject to any discount, allowance, set off, counterclaim,
presently pending bankruptcy or other defense; none of the Notes, Mortgages, or
Related Assets are forged or have affixed thereto any unauthorized signature or
have been entered into by any persons without the required legal capacity; and
no foreclosure (including any non-judicial foreclosure) or any other legal
action has been brought by the Seller or any senior lienholder in connection
therewith.
(v) No instruments other than those delivered herewith are
required under applicable law to evidence the indebtedness represented by the
Loan(s) or to perfect the lien of the Mortgage(s).
(vi) Except as has been disclosed to and agreed to by the
Buyer in writing, there is no agreement
8
<PAGE>
with the Borrower regarding any variation of the interest rate and schedules of
payment (except as described in the Note and Mortgage) or other terms and
conditions of the Loan; no Borrower has been released from liability on the
Note; and no property has been released from the Mortgage. If the Loan is a
variable rate loan, the Seller represents and warrants as of each Settlement
Date that all applicable notices required by law or regulation have been
provided to the Borrower and that the right to future changes in the interest
rate and payment schedules has not been waived by the Seller or any previous
holder of the Loan.
(vii) The Loan is secured by a valid Mortgage, of the
agreed-upon priority, on real property, and such Mortgage has been properly
received by the appropriate public recording official to be filed, recorded or
otherwise perfected in due course in accordance with applicable law in the
appropriate jurisdiction and all recording fees, documentary stamp fees,
mortgage tax, transfer tax or other charges, taxes and fees associated with such
recording or perfection have been paid in full.
(viii) There are no violations of any applicable federal or
state law or regulation, including, without limitation, Fair Credit Reporting
Act and Regulations, the Federal Truth-in-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Federal Real Estate
Settlement Procedures Act and Regulations, the Federal Debt Collection Practices
Act and any federal or state usury laws and regulations. All disclosures
required by law, federal, state or local, were properly made by the Seller prior
to the closing of the Loan.
(ix) The Seller holds a marked-up title policy, title
insurance binder or title certificate which is in full force and effect and the
premium for which has been paid in full for so long as the Loan shall remain
outstanding; which has an insurance limit at least as great as the outstanding
principal balance of the Loan; which names the Seller, its successors and
assigns as the insured party; and which is issued by a title insurer which has
been approved by the Buyer in writing and is qualified to do business in the
jurisdiction where the Subject Property is located. Said policy shall:
(a) insure the absence of any lien of taxes and other
assessments;
(b) insures that there are no encroachments on the
subject property from adjoining property and that all improvements on the
Subject Property are located on the Subject Property within its boundaries and
in conformity with any applicable set back requirements, if any, applicable to
the property or in the alternative Seller shall deliver to Buyer a current
survey of the Subject Property prepared by a duly licensed land surveyor and
certified to the Seller its successors and assigns showing that there are no
encroachments onto the Subject Property and the improvements are located on the
Subject Property within its boundaries and in conformity with any applicable set
back requirements, in which case the policy of title insurance may except only
that state of facts shown with respect to such survey.
(c) disclose whether all taxes and other assessments due
as of the date of the policy have been paid in full; and
(d) disclose all other matters to which like properties
are commonly subject.
If the Buyer purchases a Loan having relied on a marked-up
title insurance binder or title certificate rather than a title insurance
policy, the Seller shall have thirty (30) days to deliver to the Buyer the title
insurance policy.
(x) As of the Settlement Date, the Seller has transferred to
Buyer all of its right, title and interest in the Note(s), Mortgage(s) and
Related Assets for each Loan purchased free and clear of any pledge, liens,
claims, encumbrances, mortgages, charges, exceptions or security interests
together with an individual flood insurance policy (to the extent required by
the Flood Disaster Protection Act), the premium for which shall have been paid
in full for at least the current policy term, and an individual current hazard
insurance policy (including fire and extended coverage and other matters as are
customary in the area of the Subject Property), or a blanket policy in lieu
9
<PAGE>
thereof, or a certificate if the Buyer agrees in writing to accept a
certificate, by a company with a "AAA" rating in Best's Guide (provided that
applicable law allows a lender to deny an insurance company based on the Rating
System), insuring the Subject Property, with a loss payable clause in favor of
the Seller, its successors and assigns in an amount equal to the lower of: (a)
the replacement value of the Subject Property, or (b) the unpaid principal
balance of the Loan and any senior mortgage or deed(s) of trust loan, the
premium for which shall have been paid in full for at least the current policy
term, and a policy of private mortgage insurance, if applicable, the premium for
which shall have been paid in full for at least one year from the date of
closing or the anniversary thereof unless otherwise agreed to by Buyer.
(xi) The Note and Mortgage are in a form acceptable for use by
FNMA or FHLMC in the geographic area where the Subject Property is located and
for the type of property involved or as is otherwise agreed to by the Buyer and
Seller in writing and contain customary, valid, legal and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate for the
realization against the Subject Property of the benefits of the security created
thereby.
(xii) The proceeds of the Loan have been fully disbursed to
the Borrower or on his account; all costs, fees and expenses incurred in the
making, closing and recording of the Loan including, but not limited to,
recording fees, documentary stamps, mortgage tax, transfer tax, intangible
taxes, hazard insurance premiums and any other taxes or assessments due and
payable have been paid; there is no requirement for any future advances under
the Loan which would require Buyer to make any such advance; and any and all
requirements as to completion of on-site and off-site improvements and
disbursement of any escrow funds related thereto have been completed. Seller has
not and no prior holder of the Mortgage has advanced funds or induced, solicited
or knowingly received any advance of funds by a party other than the Mortgagor,
directly or indirectly, for the payment of any amount required by the Mortgagor
and reflected on the settlement statement delivered to Buyer with respect to
such loan.
(xiii) There are no mechanic's, materialman's or similar liens
or claims which have or may be filed for work, labor or material affecting the
Subject Property which are or may be liens prior to or equal with the lien of
the Mortgage or any senior mortgage.
(xiv) The Subject Property is free of material damage and
waste and is in good order and repair and there is no proceeding pending or
threatened for the total or partial condemnation of the Subject Property, and
the Subject Property is free and clear of all hazardous material.
(xv) The outstanding principal balance is correctly stated,
all matured obligations pursuant to the Note and Mortgage have been paid or
performed, there has been no breach of the terms and conditions of the Loan and
the Seller has not waived any defaults, breach, violation or event of
acceleration. Any insurance the Seller represents as being in full force and
effect is in such full force and effect and Seller has not taken any action or
failed to take any action which might cause the cancellation of or otherwise
adversely affect the continuation of or benefits otherwise payable pursuant to
any such insurance.
(xvi) The Seller has no knowledge of any fact as to such Loan
which it has failed to disclose which would materially and adversely affect the
value or marketability of such Loans.
(xvii) The Seller has no knowledge of any impediments to title
that adversely affect the value, enjoyment or marketability of the Subject
Property.
(xviii) Where required by state law, the Seller has filed for
record a request for notice of any action by a senior lienholder under a senior
lien, and the Seller has notified any superior lienholder in writing of the
existence of the Loan and requested notification of any action to be taken
against the Borrower by the superior lienholder. The Seller shall, upon request
of the Buyer, cooperate in recording a new request for action in favor of the
Buyer and in providing superior lienholder with written requests for
notification to the Buyer of action against
10
<PAGE>
the Borrower.
(xix) There is no default, breach, violation or event of
acceleration existing under any senior mortgage which, with notice, and the
expiration of any grace or cure period, could constitute a default, breach,
violation or event of acceleration of either the senior mortgage loan or the
Loan.
(xx) To the extent allowed by federal law, each Note and
Mortgage contains a provision for the acceleration of the payment of the unpaid
principal balance of the Mortgage Loan in the event the related Mortgaged
Property is sold without the prior consent of the mortgagee thereunder.
(xxi) All real estate appraisals made in connection with each
Loan shall have been performed in accordance with industry standards in the
appraising industry in the area where the appraised property is located by a
state registered or certified appraiser as required by federal law. Any
variances ascertained pursuant to Article VI(G) of this Agreement greater than
five (5%) percent shall constitute conclusive evidence of a breach of this
warranty.
(xxii) No hazardous or toxic materials or wastes or products
regulated by any law or ordinance or asbestos or asbestos products or materials
or polychlorinated biphenyls or urea formaldehyde insulation or lead based
paints have been used or employed in the construction, use or maintenance of the
Subject Property or have ever been stored, treated at or disposed of on the
Subject Property.
(xxiii) There has not occurred nor has any person or entity
alleged that there has occurred, upon the Subject Property any spillage,
leakage, discharge or release into the air, soil or groundwater of any hazardous
material or regulated wastes.
(xxiv) The Seller has not, in connection with each Loan
purchased by Buyer, incurred any obligation, made any commitment or taken any
action which might result in a claim against the Buyer or an obligation by the
Buyer to pay a sales or brokerage commission, finder's fee or similar fee in
respect to the transactions between Buyer and Seller as described in this
Agreement. The Seller agrees to indemnify and hold the Buyer harmless from and
against any claims, liabilities, damages or costs (including reasonable attorney
fees) relating to any broker, agent or finder or other person, who shall claim
to have dealt on behalf of the Seller in connection with the transactions
contemplated by this Agreement.
(xxv) Seller agrees not to take any action to solicit
Borrowers individually in order to effect the refinancing of any Loans
previously purchased by Buyer from Seller. In the event a Borrower elects to
refinance with Seller a Loan purchased by Buyer from Seller, and such Loan is
currently owned or serviced by Buyer or Buyer otherwise retains a financial
interest in the Loan, Buyer will have the right of first refusal on the purchase
of the refinancing. Buyer will pay to Seller the normal premium percentage on
the refinanced Loan, but only on the amount that the refinanced Loan balance
exceeds the balance of the original Loan purchased by Buyer from Seller.
(xxvi) Seller agrees that Buyer is entitled, at reasonable
times and upon reasonable notice to Seller, to audit Seller's origination and
servicing procedures and practices and to examine such records and policies
relating to mortgage loans as may be necessary to satisfy Buyer that Seller has
the ability to originate and service mortgage loans both prior to and after
approval.
VI. BREACH OF REPRESENTATION OR WARRANTIES
(A) Remedies for Breach. In addition to any rights or remedies the
Buyer has at law or in equity, if at any time there is a breach of any
representation or warranty set forth herein by Seller, the Seller shall upon
demand of the Buyer and at the sole option and absolute discretion of Buyer: (1)
repurchase the Loan affected for the Buy-Back Price (as defined in Article VI(c)
below) within ten (10) days of notification; or (2) if the Loan(s) has
11
<PAGE>
been sold by Buyer or the Subject Property has been liquidated or sold by Buyer,
the Seller shall, within ten (10) days of notification, pay the Buyer the amount
of the loss, (as defined in Article VI(D) below).
(B) Reassignments. Upon receipt of the Buy-Back Price, in full, in
immediately available funds, the Buyer shall assign the Loan affected and any
right it may have in the relevant Subject Property to the Seller free and clear
of all liens, encumbrances, claims, or interest of any person or entity claiming
by, through, or under the Buyer without recourse and shall execute and deliver
to the Seller in recordable form an assignment of the Buyer's beneficial
interest in the affected Mortgage, as well as other documents necessary to
reflect the reassignment of any title protection and insurance policies.
(C) "Buy-Back Price". The term "Buy-Back Price" shall mean the sum
total of: (i) the outstanding principal balance of the Loan, with accrued
interest thereon through the date the Loan is repurchased by Seller; (ii) all
advances made by Buyer and all charges due from the Borrower, (iii) the total
amount, including accrued interest and other expenses paid by the Buyer to any
senior lienholder, if any, to secure a priority lien position; (iv) all
reasonable and necessary expenses, losses and damages paid or incurred by the
Buyer in connection with the Loan or any investigation of said Loan and/or the
related collateral, including, but not limited to, property taxes, maintenance
costs, interest expense, insurance, appraisals, advertising, sales commissions,
reasonable attorney fees, expenses and costs, fines and penalties; and (v)
rebate of premium due Buyer, if applicable.
(D) Definition of "Loss". The term "Loss" shall mean the negative
result, if any, of the following calculations: (i) the sum total of: (a) the
outstanding principal balance of the Loan, with accrued interest thereon through
the date the Loan is sold or the date the collateral is liquidated; (b) all
advances by Buyer and all charges due from the Borrower; (c) the total amount
paid by the Buyer to any senior lienholder, if any, to secure a first lien
position; (d) accrued interest on all Mortgage Loans purchased from senior
lienholder from the date such Mortgage Loans were purchased through the date the
Loan is sold or the date the collateral is liquidated; and (e) all other
reasonable and necessary expenses, losses and damages incurred by and/or paid by
the Buyer in connection with the Loan or any investigation of said Loan or the
sale or liquidation of the Loan and/or the related collateral, including, but
not limited to, reasonable attorney fees, expenses and costs, property taxes,
maintenance costs, insurance, appraisals, advertising, sales commissions, fines
and penalties; less the (ii) net proceeds from the sale of the Loan or the sale
or liquidation of the Subject Property or the collateral.
(E) Remedy For Non-Delivery of Documents. However, anything to the
contrary notwithstanding, in the event that the Seller is required to deliver to
the Buyer any documents related to a purchased Loan and the Seller fails to
deliver such document in the proper form on the date or within the time period
specified by the controlling section of this Agreement, Buyer shall notify the
Seller of the breach, and the Seller shall have thirty (30) days from the date
of notice to cure the breach. If the Seller has not cured the breach within the
thirty (30) day cure period, the Seller shall immediately repurchase the Loan
upon Buyer's demand. The Buy-Back Price shall be determined in accordance with
Article VI(C). Any Loan returned by the Buyer pursuant to this paragraph shall
be without recourse, representation or warranty.
(F) Remedy For First Payment Default. However, anything to the
contrary notwithstanding, in the event the Borrower fails to make the first
payment due to the Buyer within thirty (30) days of the payment due date,
regardless of whether such payment is subsequently paid by the Borrower, the
Buyer, at its sole and absolute discretion, shall have the right to have Seller
repurchase said Loan(s) at the Buy-Back Price.
(G) Remedy to Insure Accuracy of Real Estate Appraisals. Buyer may,
at its own expense, in order to verify the accuracy of real property appraisals
prepared for Seller, order a reappraisal of the property secured by a Mortgage.
If the reappraisal obtained by Buyer indicates a fair market value which is more
than five (5%) percent less than the original appraisal value, then upon receipt
by Seller from Buyer of a signed copy of the reappraisal, Seller shall
repurchase the Loan at the Buy-Back Price (as defined in Article VI(C), above)
and reimburse Buyer for the cost of the appraisal subject to the following: If
Seller disputes the validity of the reappraisal prepared by
12
<PAGE>
Buyer's appraiser, Seller may, at its own expense, request Buyer to obtain a
third appraisal, and only if such third appraisal is also more than five (5%)
percent less than the original appraisal value shall the Seller be required to
repurchase the Loan at the Buy-Back Price. Buyer shall choose the appraiser for
the third appraisal with Seller's approval, which shall not be unreasonably
withheld, but such appraiser must possess the minimum qualifications specified
in Buyer's Underwriting Guidelines. The appraisal must be performed in
accordance with industry standards or the appraising industry in the area in
which the property is located and must be state certified or registered as
required by federal law, and the appraiser must be independent with respect to
both parties unless otherwise agreed to by the parties. In determining the
appropriate appraised value, the review appraiser must determine the appraised
value as of the original appraisal date using comparable sales that were
available as of the date of the original appraisal. *
However, anything to the contrary notwithstanding, the Buyer
reserves the sole right not to request the Seller to repurchase the Loan should
the reappraisal cause the combined Loan to Value not to exceed the maximum
allowable combined Loan to Value of the loan under the class under which the
loan was purchased.
VII. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
(A) The Buyer is an organization as set forth in the introductory
paragraphs and is duly organized, validly existing and in good standing under
laws applicable to its organization's existence.
(B) The execution and delivery of this Agreement by the Buyer and
the performance by the Buyer of the obligations by it to be performed hereunder
have been duly authorized by all necessary resolutions.
(C) The execution and delivery of this Agreement by the Buyer and
the performance by the Buyer of the obligations by it to be performed hereunder
do not, and will not, violate any provision of any law, rule, regulations,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to the Buyer or to the charter or bylaws of the
Buyer.
(D) The execution and delivery of this Agreement by the Buyer and
the performance by the Buyer of the obligations by it to be performed hereunder
do not and will not result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Buyer is a party or by which it or its properties may be
bound or affected.
(E) This Agreement constitutes, when duly executed and delivered by
the Buyer, a legal, valid and binding obligation of the Buyer enforceable
against the Buyer according to its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium or
similar laws affecting creditors' rights in general, including equitable
remedies.
(F) There are no actions, suits or proceedings pending or, to the
knowledge of the Buyer, threatened against or affecting the Buyer or the
properties of the Buyer before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to the Buyer, would have a material adverse effect on the
financial condition, properties or operation of the Buyer.
(G) Buyer has the authority and legal right to make, deliver and
perform this Agreement and all transactions contemplated hereunder. No consent
of any other party and no consent, license, approval or authorization of, or
registration, or declaration with, any governmental authority, bureau or agency
is required in connection with the execution, delivery, validity or
enforceability of this Agreement or purchase of any Loan, which consent,
license, approval, authorization, registration or declaration has not been
obtained. Buyer shall make available to Seller copies of any required license
upon Seller's request.
- --------------------------------------------------------------------------------
* Notwithstanding the terms in this paragraph (G), if an appraisal obtained by
buyer indicates a lower value primarily because of a general decline in property
values, no remedy will be available to buyer pursuent to this paragraph (G).
13
<PAGE>
VIII. RELATIONSHIP OF THE PARTIES
It is agreed that the Seller and the Buyer are not partners or joint
venturers and that the Seller is not to act as an agent for the Buyer in
originating, administering or collecting any Loan, but shall have the status of
and shall act in all matters hereunder as an independent contractor.
IX. OPINION OF COUNSEL
The Seller shall deliver to the Buyer in form and substance
satisfactory to the Buyer and its counsel on or before the first Settlement Date
hereunder, an opinion of the Seller's independent outside counsel pursuant to
Attachment E, attached hereto and made a part hereof, opining on the provisions
of Articles V(A)(i) through V(A)(vi), inclusive and the Opinion of Counsel will
cover all Loans purchased by Buyer under this Agreement unless the Opinion is
rescinded or revoked by the Law Firm rendering the Opinion.
X. DESIGNATION OF AUTHORIZED OFFICERS
The Seller shall have delivered to Buyer an officer's certificate,
attested to by the Secretary of the Seller, stating the names and showing the
facsimile signatures of the officers of Seller authorized to execute and deliver
this agreement; endorse Note(s), Mortgage(s), and Assignment(s); and authorize
the bank accounts for Buyer to utilize for funding the purchase of Loans
hereunder.
XI. MISCELLANEOUS
(A) Additional Covenants.
(i) Each party shall, from time to time, execute and deliver
or caused to be executed and delivered, such additional instruments,
assignments, endorsements, papers and documents as the other party may at any
time reasonably request for the purpose of carrying out of this Agreement and
the transfers provided for herein.
(ii) The Seller shall, upon request of the Buyer, sign a
letter, in a form to be approved by the Buyer and in conformity with the terms
and conditions hereof, addressed to all the Borrowers on the Loans, announcing
the sale evidenced hereby and instructing such Borrowers to recognize the Buyer
as the Seller's successor in interest to such Loans.
(iii) After any Settlement Date hereunder, the Seller will
hold in trust for the Buyer all sums received by the Seller from Borrower(s) on
any Loan purchased pursuant to this Agreement and pay them to the Buyer within
three (3) business days of the receipt of those sums.
(iv) Any and all decisions made by Buyer in good faith to take
action or to not take action relative to a Loan, including, but not limited to,
the sale or liquidation of a Loan, Subject Property or collateral shall be final
and conclusively binding upon Seller in the event Seller does not repurchase a
Loan within ten (10) days of notification by Buyer pursuant to Section VI of
this Agreement.
(v) In order to enforce Buyer's rights under this Agreement,
Seller shall, upon the request of Buyer or its assigns, do and perform or cause
to be done and performed, every reasonable act and thing necessary or advisable
to put Buyer or its assigns in position to enforce the payment of the Loans and
to carry out the intent of this Agreement, including the execution of and, if
necessary, the recordation of additional documents including separate
endorsements and assignments upon request of Buyer. In addition, Seller hereby
irrevocably appoints any officer or employee of Buyer or its assigns its true
and lawful attorney to do and perform every act necessary, requisite, proper, or
advisable to be done to put Buyer or its assigns in position to enforce the
payment of the Loans, its rights under this Agreement, and to carry out the
intent of this Agreement, including, but not limited to, the right to sign,
execute, endorse and/or assign, and deliver to Buyer or its assigns on behalf of
Seller any Mortgage Note,
14
<PAGE>
Mortgage, security interest, or any other Loan document and also any other
writing of any other kind or nature whatsoever which may be used in connection
therewith to evidence any obligation of Seller or any Borrower to Buyer or its
assigns, pursuant to this Agreement and to endorse any check or other instrument
for the payment thereof. Seller does hereby forever renounce all rights to
revoke this power of attorney or any of the above conferred upon Buyer or its
assigns hereby or to appoint any other person to execute the said power.
(B) Survival of Covenants, Agreements, Representations and
Warranties; Successors and Assigns. All warranties, representations and
covenants made by either party in this Agreement or in any other instrument
delivered by either party to the other, including those made by third parties
for the benefit of either party, shall be considered to have been relied upon by
the other party (unless otherwise agreed in writing by the parties) and shall
survive the termination of this Agreement. The Buyer reserves the right to
proceed against third parties to enforce any representations, warranties and
covenants made by them for the benefit of the Seller.
(C) Severability. If any provision, or part thereof, of this
Agreement is invalid or unenforceable under any law, such provision, or part
thereof, is and will be totally ineffective to that extent, but the remaining
provisions, or part thereof, will be unaffected.
(D) Attorneys' Fees. However, anything to the contrary
notwithstanding, in the event of any action at law, in equity, arbitration or
otherwise between the parties in relation to this Agreement or any Loan or other
instrument or agreement required or purchased or sold hereunder, the
non-prevailing party, in addition to any other sums which such party shall be
required to pay pursuant to the terms and conditions of this Agreement, at law,
in equity, arbitration or otherwise shall also be required to pay to the
prevailing party all costs and expenses of such litigation, including reasonable
attorney fees.
(E) Waivers. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as a further or continuing waiver of any such
term, provision or condition, or of any other term, provision or condition of
this Agreement.
(F) Notice. Any notice or other communication in this Agreement
provided or permitted to be given by one party to the other must be in writing
and given by personal delivery or by depositing the same in the United States
mail (certified mail, return receipt requested), or by delivery to a carrier who
shall guarantee deliver of such parcel overnight to the addressee, addressed to
the other party to be notified, postage prepaid. For purposes of notice, the
addresses of the parties shall be as follows:
BUYER: ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION
One Astoria Federal Plaza
Lake Success, New York 11042 - 1085
ATTENTION:
--------------------------------------------
SELLER: American Home Mortgage
--------------------------------------------
60 East 42nd Street
--------------------------------------------
New York, NY 10165
--------------------------------------------
--------------------------------------------
15
<PAGE>
ATTENTION: Michael Strauss
--------------------------------------------
The above address may be changed from time to time by written notice
from one party to the other.
(G) Insurance Prepayment. Insurance refund or credits of any kind
whatsoever shall be the sole responsibility of the Seller in the event of
prepayment of any Loan, cancellation of insurance or any other event requiring
refunding or crediting of unearned insurance premiums. Upon the Buyer's demand,
Seller shall pay to the Buyer, from the Seller's own funds, any required
insurance premium rebate resulting from the prepayment, cancellation,
refinancing or other termination of any Mortgage Loan. Upon such payment, Buyer
shall assign in writing any rights it had to require that the insurer reimburse
Buyer far any rebate made to Borrower.
(H) Assignment. The Seller shall not, without the prior written
consent of the Buyer, assign any of its rights or obligations hereunder.
(I) Captions. Paragraph or other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(J) Entire Agreement. This Agreement and the Exhibits attached
hereto, and the documents referred to herein or executed concurrently herewith
constitute the entire agreement between the parties regarding the subject matter
hereof, and there are no prior agreements, understandings, restrictions,
warranties or representations between the parties with respect thereto.
(K) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. The provisions of this
paragraph shall not affect the provisions of any Note, Mortgage or Related
Assets which cause the laws of the United States or any other state to be
applicable. This Agreement shall be interpreted fairly in accordance with its
provisions and without regard to which party drafted it.
(L) Termination. This Agreement is terminable by either the Buyer or
Seller upon ninety (90) days' written notice of termination to the
non-terminating party. Upon such termination, Buyer must honor any outstanding
commitments or Approval Advices issued to Seller and purchase all Loans subject
to such commitment or Approval Advice in accordance with the terms of this
Agreement and the terms of the commitment or Approval Advice. Notwithstanding
the foregoing, Buyer has the option of terminating this Agreement immediately
upon notice to the Seller upon the Seller's breach of any of the Representations
and warranties contained in Article V of this Agreement, and Buyer shall have no
obligation to honor any commitment or Approval Advice after such termination.
Seller may terminate this Agreement immediately upon written notice to the Buyer
upon the breach of any of Buyer's representations and warranties contained in
Article VII of this Agreement.
(M) Arbitration, Jurisdiction and Venue. With respect to any
controversy, argument or claim arising out of or relating to this Agreement, or
any breach thereof (including, but not limited to, a request for emergency
relief), the parties hereby consent to the exclusive jurisdiction of the New
York Supreme Court Nassau County and waive personal service of any and all
process on them and consent that all such service of process made by registered
or certified mail or by a carrier who guarantees delivery of such parcel
overnight directed to them at the address stated herein and service so made
shall be deemed to be completed five (5) days after mailing. The parties waive
trial by jury and waive any objection to jurisdiction and venue of any action
instituted hereunder, agree not to assert any defense based on lack of
jurisdiction or venue and consent to the granting of such legal or equitable
relief as is deemed appropriate by the court, including, but not limited to, any
emergency relief, injunctive or otherwise.
However, anything to the contrary notwithstanding, except with
respect to emergency relief, Buyer shall have the sole and exclusive option and
discretion to have any controversy, argument or claim arising out of or relating
to this Agreement, or any breach thereof, settled in Lake Success, New York in
accordance with the Rules
16
<PAGE>
of the American Arbitration Association (as modified below), and judgment upon
the award may be entered in any Court having jurisdiction thereof.
The arbitration panel shall be made up of three members which shall
be appointed: one by Buyer, one by Seller and the third by the first two
arbitrators. Each arbitrator shall be a lawyer experienced in matters relating
to real estate and mortgage banking. Discovery shall be permitted in connection
with the arbitration proceeding within the reasonable discretion of the
arbitration panel. The decision (award) shall be in writing and shall set forth
the written decision (award) is based upon an error of law. The facts determined
by the original panel will be final and no appeal of such findings may be made.
Such appeal shall be taken to a three-member arbitration panel, the members of
which shall be selected in accordance with the above-described procedures, and
the panels review shall be limited to the application of the statutory and
decisional laws of the State of New York (as modified by Paragraph XI(K) above)
to the facts of the dispute as determined in writing by the original arbitration
panel
(N) Endorsements. In the event that the remedies or other terms
outlined in this Agreement conflict with the terms of any endorsement by the
Seller of any Note evidencing a Loan purchased by the Buyer from the Seller,
including, but not limited to, an endorsement stating that the assignment of the
Note is without recourse, the remedies and terms of this Agreement shall govern
and control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
Buyer: ASTORIA FEDERAL SAVINGS AND LOAN
ASSOCIATION
BY:
----------------------------
Name:
Title:
Seller: Michael Strauss, Inc. dba
American Home Mortgage
--------------------------------
BY: /s/ Michael Strauss
----------------------------
Name: Michael Strauss
Title: President
17
<PAGE>
OFFICER'S CERTIFICATE
The undersigned, Leonard Schoen, a Vice President of Michael
Strauss, Inc. dba American Home Mortgage (Seller), a New York corporation,
hereby certifies in connection with that certain Master Agreement for Sale and
Purchase of Loans dated April 19, 1994 (the "Master Agreement") by and between
Astoria Federal Savings and Loan Association, a federally chartered savings and
loan association ("Astoria"), and Michael Strauss, Inc. dba American Home
Mortgage that the following individuals are authorized on behalf of Michael
Strauss, Inc. dba American Home Mortgage to execute and deliver this Agreement;
endorse Note(s), Mortgage(s), and Assignment(s); and authorize the bank accounts
for Buyer to utilize for funding Loans.
FACSIMILE
NAME TITLE SIGNATURE
Michael Strauss President /s/ Michael Strauss
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
IN WITNESS WHEREOF, the undersigned has executed this certificate, this
19th day of April 1994.
By: /s/ Leonard Schoen
------------------------------------
Name: Leonard Schoen
----------------------------------
Title: Vice President
---------------------------------
ATTEST:
By: /s/ Arthur Strauss
-----------------------------------------
Name: Arthur Strauss
---------------------------------------
Title: Secretary of Michael Strauss, Inc. dba
American Home Mortgage
--------------------------------------
18
<PAGE>
SECRETARY'S CERTIFICATE
The undersigned, Arthur Strauss, a Secretary of Michael Strauss,
Inc. dba American Home Mortgage (Seller), a New York corporation, hereby
certifies in connection with that certain Master Agreement for Sale and Purchase
of Loans dated April 19, 1994 (the "Master Agreement") by and between Astoria
Federal Savings and Loan Association, a federally chartered savings and loan
association ("Astoria"), and Michael Strauss, Inc. dba American Home Mortgage
that the following individuals are authorized on behalf of Michael Strauss, Inc.
dba American Home Mortgage to execute and deliver this Agreement; endorse
Note(s), Mortgage(s), and Assignment(s); and authorize the bank accounts for
Buyer to utilize for funding Loans.
FACSIMILE
NAME TITLE SIGNATURE
Michael Strauss President /s/ Michael Strauss
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
- ------------------- ------------------ --------------------------
IN WITNESS WHEREOF, the undersigned has executed this certificate,
this 19th day of April 1994.
By: /s/ Arthur Strauss
------------------------------------
Name: Arthur Strauss
----------------------------------
Title: Secretary
---------------------------------
ATTEST:
By: /s/ Ray Weigold
------------------------------------
Name: Ray Weigold
----------------------------------
Title: Assistant Secretary of Michael Strauss, Inc. dba
American Home Mortgage
------------------------------------------------
19
<PAGE>
ATTACHMENT A
Essential Mortgage File Documents
The following documents must be included in the package when submitted by the
Seller to the Buyer for purchase:
1. Original Note.
2. Executed endorsement or Assignment of the Note.
3. Loan Application (FNMA 1012).
4. Verification of Employment, Deposits and Income as expressed in the
"Product Descriptions."
5. Credit Reports as expressed in the "Product Descriptions."
6. Appraisal Report as expressed in Exhibit C and the "Product Descriptions."
7. Disclosure Statements, Federal and State.
8. Rescission Documents.
9. Fair Lending and Equal Credit Notices, Federal and State.
10. Note and Disclosure Riders, when applicable.
11. Certified or True Copy of the Mortgage or Deed of Trust.
12. Original, Recordable Assignment of the Mortgage.
13. Preliminary Title Report and evidence that an ALTA policy will be issued.
Survey, if applicable.
14. Evidence of Hazard Insurance and documentation showing proper coverage and
loss payable endorsement has been ordered.
15. Evidence of delivery of Flood Insurance disclosures and Flood Insurance
coverage with loss payable endorsement in effect or ordered. (Only if the
subject property is in Flood Zone "A")
16. Authorization to Release Information.
17. Balloon Rider, if applicable.
20
<PAGE>
ATTACHMENT B
General Underwriting Guidelines and Product Descriptions
Loans will be underwritten in accordance with the following guidelines.
[Insert Astoria Underwriting Parameters]
Except as otherwise specified above or as otherwise agreed to by the
parties from time to time in writing, all Loans will be underwritten and
documented in accordance with the requirements of FNMA and FHLMC so as to allow
such loans to be saleable to such agencies. Low document or no document Loans
will not be purchased by the Buyer.
21
<PAGE>
ATTACHMENT C
APPROVAL ADVICE
22
<PAGE>
ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION NOTICE OF UNDERWRITING
APPROVAL
================================================================================
Date: Loan Number:
- --------------------------------------------------------------------------------
To: Lender Number:
--------------------------------------
Lender Loan Number:
================================================================================
Re:
- --------------------------------------------------------------------------------
Astoria Federal Savings and Loan Association ("Buyer") is pleased to inform you
that the above-referenced application has been approved for purchase under the
Commitment Letter identified above, and in accordance with the contract for
purchase between Buyer and Seller which contract is referenced in such
Commitment Letter subject to the following terms and conditions. Buyer reserves
the right to modify this approval, or to declare it null and void if any
representations made in the loan application are incorrect or incomplete, if any
material facts appear which have not been previously revealed to us, or if there
is any adverse change in the Borrower's credit, outstanding obligations, or
employment, or in the value or condition of the property securing the loan,
prior to closing.
================================================================================
Basic Terms:
================================================================================
Appraised Value (Refi): Loan Amount: Loan Type:
- --------------------------------------------------------------------------------
Loan Term: Guaranteed Interest Rate: Maximum Qualifying
Rate:
- --------------------------------------------------------------------------------
Interest Rate Expiration Date: Commitment Expiration Date: Credit Documents
Expiration Date:
================================================================================
Security Instrument Riders:
Seller is required to attach all applicable riders to the security instruments.
Conditions of Approval:
The following conditions must be satisfied prior to purchase by Buyer. All
conditions set forth in the above-referenced Commitment Letter and contract for
purchase must also be satisfied.
The following conditions must be satisfied prior to closing:
This approval for purchase is subject to final review of any underwriting
contingencies and the closing package by Astoria Federal Savings and Loan
Association.
- --------------------------------------------
Astoria Federal Savings and Loan Association
1 Astoria Federal Plaza
Lake Success, NY 11042
23
<PAGE>
ATTACHMENT D
ENDORSEMENTS
Pay to the order of Astoria Federal
Savings and Loan Association,
without recourse.
- ------------------------------------
Officer Name and Title
Company Name
24
<PAGE>
ATTACHMENT D
ENDORSEMENTS
Pay to the order of Astoria Federal
Savings and Loan Association,
without recourse.
- ------------------------------------
Officer Name and Title
Company Name
25
<PAGE>
EXHIBIT 10.19
MORTGAGE LOAN
PURCHASE AND SALE OPERATING AGREEMENT
AGREEMENT made as of this day of February, 1996 between
AMERICAN HOME MORTGAGE, a New York corporation having its office and principal
place of business at 60 East 42nd Street, New York, New York 10165 (hereinafter
referred to as "Seller") and INDEPENDENCE SAVINGS BANK, a New York State Banking
Corporation, having an office and principal place of business at 195 Montague
Street, Brooklyn, New York 11201, (hereinafter referred to as "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is a New York State Licensed Mortgage Banker engaged
in the business of making loans to individual consumers (hereinafter referred to
as "Borrowers") secured by first mortgage liens on real property improved by
owner-occupied one to four family homes, individual condominium units or first
liens on ownership interests in owner-occupied cooperative apartment units
(hereinafter collectively referred to as "Loan" or "Loans"); and
WHEREAS, Seller desires to sell Loans from time to time, on a non
exclusive basis and Purchaser is willing to purchase Loans on a non exclusive
basis offered to it by the Seller, under all of the terms and conditions
hereinafter set forth; and
WHEREAS, Purchaser and Seller have mutually agreed that upon the
sale of any Loan under the terms and conditions hereinafter set forth, the
servicing of the Loan sold shall be released to the Purchaser.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed by and between the parties
<PAGE>
hereto as follows:
1. PURCHASE AND SALE
The Seller agrees to submit Loans to the Purchaser from time to time
and the Purchaser agrees to purchase the Loans so delivered subject to
compliance with and satisfaction of all terms and conditions set forth in this
Agreement. Seller shall submit approximately $3,000,000.00 in such Loans to
Purchaser per month, totalling approximately $36,000,000.00 in such Loans per
year. It is understood however that the aforementioned minimum dollar amounts
may be amended from time-to-time by mutual agreement of the Seller and
Purchaser.
2. PROCEDURE
Individual Loans shall be purchased and sold according to the
following procedure:
2.1 Seller in the course of its business shall solicit individual Loan
applications and register each such application with Purchaser by delivering a
Notice of Registration in the form annexed as Exhibit "A". Such Notice of
Registration shall include, among other things, the Borrower's name, address of
the property to be liened, loan amount requested, mortgage product requested,
anticipated loan-to-value ratio, and loan term. Upon receipt of such Notice,
Purchaser in its sole discretion may accept or reject such application. In the
event Purchaser accepts such application, Purchaser shall sign and date the
Notice and confirm the interest rate applicable for such application. This
interest rate shall equal a rate which is one quarter of one (0.25%) percent
below the "Advertised Rate" as set forth in Exhibit "E" and shall be locked in
for a period expiring ninety (90) days after the
2
<PAGE>
Notice of Registration is so dated by the Purchaser. The "Advertised Rate" may
be changed from time-to-time, in the Purchaser's sole discretion, by written
notice to the Seller in the form set forth as Exhibit "E".
2.2 Seller shall thereafter deliver such applications to the Purchaser
together with complete credit packages for each application, so registered (the
"Application Package"). Each Application Package shall include all documents as
set forth in Exhibit "B".
2.3 Upon receipt of each Application Package, Purchaser shall review such
Package promptly by application of its underwriting standards in effect at the
time of receipt of the Application Package and provide Seller with written
notice of Purchaser's acceptance or rejection of the Application Package by
written Notice of Acceptance/Rejection. Purchaser's decision with respect to the
acceptance or rejection of any Application Package shall be in Purchaser's sole
discretion. Such Notice shall be given to Seller not later than three (3)
business days after receipt of the Application Package by Purchaser, shall be in
the form annexed as Exhibit "C" and shall include the names of the Borrowers,
loan terms, address of the property to be liened and any additional terms or
conditions to closing.
2.4 Seller must close the Loan prior to the expiration date of the lock-in
period as set forth in the Notice of Registration. After Seller closes the Loan,
Seller shall deliver to Purchaser all documents set forth in Exhibit "D" annexed
hereto. The form of all such documents shall be subject to the review and
approval of Purchaser prior to the sale of the first Loan. All costs and
expenses of origination and
3
<PAGE>
assignment of each Loan shall be borne by the Seller. Provided however that the
Purchaser shall reimburse the Seller for the payment of the one quarter of one
(0.25%) percent mortgage tax required to be paid by lenders pursuant to New York
State Tax Law Section 253-A. All Loans shall be closed by counsel for Seller as
approved by Purchaser. Purchaser agrees that it will not object to closing
documents prepared and accepted by closing counsel approved by Purchaser.
2.5 Following the closing, provided Purchaser has (i) received all of the
documents set forth above in Section 2.3 and Exhibit "D"; and (ii) determined
such documentation to be acceptable and in accordance with all terms and
conditions of the Notice of Acceptance/Rejection, Purchaser shall pay to Seller
the Purchase Price as defined pursuant to Section 3 hereof. Purchaser shall
inform Seller immediately as to any defect in the documentation delaying such
purchase and shall allow Seller up to five (5) business days within which time
any such defect must be corrected.
3. TERMS/TYPES OF LOANS-PURCHASE PRICE
Each Loan submitted to Purchaser shall conform in all respects to
the Purchaser's One, Two, Three, Four or Five Year ARM loan product being
offered at the time the application is registered. Each loan must be secured by
a first mortgage lien on either real property improved by a one to four family
residence or an individual condominium unit or a first lien on the stock and
proprietary lease representing all ownership interest in an individual
cooperative apartment unit (collectively, the "Mortgaged Property"). Each such
Mortgaged Property must be occupied by the Borrower as his primary residence and
each Mortgaged Property must
4
<PAGE>
be located in one of the following counties in New York State: New York, Kings,
Queens, Bronx, Richmond, Westchester, Nassau, Suffolk, Westchester and Rockland;
in Fairfield County in Connecticut or in Passaic, Union, Hudson Middlesex,
Bergen or Essex Counties in New Jersey. No Loan shall exceed the principal sum
of $500,000.00. Upon the purchase of any Loan, the Purchaser will pay to the
Seller the purchase price (hereinafter referred to as "Purchase Price") equal to
one hundred and one half (100.5%) percent of the original principal balance of
the Loan as closed for all Loans with original principal balances of $300,000.00
or less, and one hundred (100%) of the original principal balance of the Loan as
closed for Loans exceeding $300,000.00, up to and including $500,000.00.
Purchaser shall also pay to Seller per diem interest calculated at the Loan note
rate from the date the Seller funded the Loan until date of receipt of Purchase
Price by Seller as well as any mortgage tax reimbursement required under Section
2.4 and adjustments for any real estate, insurance and/or other escrows as may
be applicable.
4. PAYMENT OF PURCHASE PRICE
Payment of the Purchase Price shall be made by the Purchaser by wire
transfer of funds in accordance with the written instructions of the Seller.
Purchaser agrees to pay Seller the Purchase Price hereof, as adjusted,
immediately upon Seller's delivery to Purchaser and Purchaser's approval of the
Loan Documents as set forth in Section 2.4 hereof but not prior to expiration of
the Borrower's Right of Rescission.
5. PREPAYMENT RESERVE ACCOUNT
Prior to the purchase of the first Loan by Purchaser, Seller shall
deliver to Purchaser the sum of $12,500.00 to be held in an
5
<PAGE>
interest bearing account to be maintained by the Purchaser designated "American
Home Mortgage - Prepayment Reserve" (hereinafter the "Reserve Account"). Seller
shall continue to make payments into the Reserve Account equal to $12,500.00
each, at three (3) month intervals until such time as the balance in the Reserve
Account equals $50,000.00. The amount to be held in the Reserve Account
thereafter shall be reviewed annually commencing with the anniversary date of
the purchase of the first Loan under this agreement and shall be adjusted to
equal the greater of $50,000.00 or one eighth of one (0.125%) percent of the
total dollar amount of all loans purchased by the Purchaser in the preceding
year.
5.1 (a) In the event a Borrower exercises an option to prepay a Loan in
full within twelve (12) months after purchase, Purchaser shall debit the Reserve
Account for an amount equal to the premium above par that the Purchaser
originally paid for the Loan.
(b) Should any such prepayment occur within ninety (90) days from
the date the Loan was purchased, the Seller shall reimburse the Reserve Account
for the full amount of the debit caused by such prepayment.
5.2 Any amount collected by Purchaser as a penalty for prepayment of any
Loan shall be retained by the Purchaser.
5.3 Upon termination of this Agreement or in the event that the Purchaser
does not purchase any Loan from Seller pursuant to the terms of this Agreement
for a period in excess of six (6) months, the Purchaser shall retain in the
Reserve Account for a period of one year from the date of such termination a sum
equal to the greater of
6
<PAGE>
$50,000.00 or one eighth of one (0.125%) percent of the total dollar amount of
all Loans purchased by Purchaser during the preceding twelve month period.
5.4 Purchaser agrees that for the purposes of this Section 5, the term
"prepayment" shall only include a full prepayment of the entire principal
balance of the Loan resulting from Borrower's exercise of his option to prepay.
Any other unscheduled repayment of the Loan, whether by acceleration or
otherwise, shall not be deemed a prepayment nor be subject to the provisions of
this Section.
5.5 Purchaser further agrees that prepayment of any Loan brought about by
Purchaser's offer to or solicitation of a Borrower to refinance the Loan shall
not subject the Reserve Account to any debit.
6. SERVICING OF LOANS
Purchaser shall service each Loan purchased hereunder. Both
Purchaser and Seller shall deliver to the Borrower for each Loan such notices of
transfer of servicing as each are required to provide pursuant to the Federal
Real Estate Settlement Procedures Act. Purchaser may sell any Loan or the
servicing on any Loan at any time after such Loan is sold to Purchaser.
7. REPRESENTATIONS OF THE SELLER
As of the date hereof, and upon the sale of any Loan to Purchaser,
the Seller represents to the Purchaser that:
7.1 The Seller is a corporation duly organized, validly existing, in good
standing and a Licensed Mortgage Banker under the laws of the State of New York,
has all necessary licensing and authorizations to originate and close
Residential Loans in New Jersey and Connecticut and has the corporate power and
authority to enter into and perform its obligations under this Agreement.
7
<PAGE>
7.2 The Seller is authorized to do business in the State of New York and
in any other state in which it makes loans.
7.3 The Seller shall be the sole owner of each Loan, and shall have full
authority to sell, transfer and assign the same to the Purchaser.
7.4 Each borrower will have been at the time of completion of the
Application and at the closing of a Loan, of full age and have a valid interest
in the Mortgaged Property and all information in the Application Package is
true, accurate and complete in all respects.
7.5 No Loan is subject, in whole or in part, to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto.
7.6 No Borrower shall be in default under any provision of the Loan note;
the payment of the principal amount shown in the Loan note shall be secured by
either a first mortgage or, for coop loans, a first lien, covering the Mortgaged
Property; the mortgage, and for coop loans the loan security agreement, shall
have been executed in the manner required by law for the conveyance of a first
lien by all persons having an interest in the Mortgaged Property as set forth in
the title insurance policy or, for coop loans, cooperative apartment search; and
at the date of purchase by the Purchaser, the mortgage and the mortgage
assignment and, for coop loans, the UCC-1 and UCC-3 financing statements shall
have been submitted for recording in the land records of the jurisdiction in
which the Mortgaged Property is situate.
7.7 Each lien is a valid and subsisting first lien on the Mortgaged
Property, and the Mortgaged Property is free and clear of all
8
<PAGE>
encumbrances and liens having priority over the lien of the mortgage except for
those prior liens in the amounts set forth in the title report or cooperative
apartment search or otherwise disclosed in writing to and approved by the
Purchaser and liens for real estate taxes and special assessments not yet due
and payable; the terms of the lien shall not have been waived, altered or
modified in any respect, except those acceptable to Purchaser, in instruments of
record described in a title insurance policy accompanying the mortgage or loan
security agreement, as the case may be; the mortgage/loan security agreement
shall not have been satisfied, in whole or in part, and the Mortgaged Property
shall not have been released from the lien of the mortgage/loan security
agreement, in whole or in part; and the Mortgaged Property shall be free of any
and all asbestos and hazardous waste material and shall not have been damaged so
as to adversely affect the value thereof.
7.8 Seller has complied with all applicable State, Federal and local laws,
rules and regulations as they are amended from time to time with respect to the
brokering and processing of applications, loan commitments and the origination
of the Loans, including but limited to: a) The Federal Truth in Lending Act and
Regulation Z, b) The Federal Equal Credit Opportunity Act and Regulation B, c)
The Federal Fair Credit Reporting Act, d) The Federal Real Estate Settlement
Procedures Act and Regulation X, e) The Home Mortgage Disclosure Act and
Regulation C, f) The Flood Hazard Protection Act and National Flood Insurance
Reform Act of 1994, g) The Fair Housing Act, h) The National Affordable Housing
Act, i) Parts 38, 39 and 82 of the General Regulations of the New York State
Banking Board, and j) all applicable New Jersey and
9
<PAGE>
Connecticut state laws and regulations.
7.9 In the event of a breach of any of Seller's representations contained
in this Agreement and provided Purchaser notifies Seller in writing within
ninety (90) days after the Purchaser becomes aware of such breach, Seller shall,
within a reasonable time after such notice from Purchaser, repurchase the Loan
for the then outstanding balance together with any premium over par paid by the
Purchaser on the original sale of the Loan, and accrued but unpaid interest.
Notice by Purchaser hereunder shall set forth in detail the facts constituting
such breach. Seller shall also repurchase any Loan which falls more than sixty
(60) days delinquent within one year after its sale to Purchaser. Any Loan
repurchased by Seller hereunder shall thereafter be serviced by Seller.
7.10 It is understood and agreed that Purchaser shall in no way or event
be liable to Seller for any and all claims made by any third party against
Seller or in any way connected with Seller's origination of the Loans. Seller
hereby indemnifies and holds the Purchaser, its directors, officers, and
employees harmless from any and all claims, liabilities, loss, injury and/or
damages including but not limited to incidental and consequential damages
together with all costs and expenses relating thereto whether arising out of or
resulting from a breach of any of Seller's representations in this Agreement or
in any way connected with Seller's origination and sale of Loans under this
Agreement. Seller hereby grants Purchaser a right of setoff against any and all
property and/or accounts of Seller which Purchaser may have or control
including, but not limited to the Reserve Fund, in the event any amounts due and
owing under this indemnity or Section 7.9 remain unpaid
10
<PAGE>
beyond ninety (90) days after notice and demand.
7.11 Seller agrees that it shall not engage in any kind of advertising or
promotion regarding this Agreement with the Purchaser.
7.12 While this Agreement is in full force and effect, Seller will permit
Purchaser or its designees, at any reasonable time or times, to inspect, audit,
check and make abstracts from Seller's books, accounts, records, correspondence
or other papers or any matters pertaining to Loans purchased hereunder. Seller
shall also submit annually to the Purchaser an audited annual financial
statement within ninety (90) days after the end of each calendar year.
7.13 Prior to any change in the equity ownership or composition of the
Seller, Seller shall inform Purchaser in writing of such change.
8. REPRESENTATIONS OF THE PURCHASER
The Purchaser hereby represents to the Seller as follows:
8.1 The Purchaser is duly qualified and permitted to transact the business
contemplated by this Agreement;
8.2 The execution of this Agreement on behalf of the Purchaser and the
performance by the Purchaser of its obligations hereunder have been authorized
by all necessary corporate action.
8.3 After Purchaser's acceptance of any Application Package Purchaser
shall not hold Seller liable in any way for any fraud, misrepresentation or
other misstatement of or by the Borrower in connection with such Application
Package, except any such fraud, misrepresentation or misstatement of which
Seller has actual knowledge or should have knowledge by application of prudent
underwriting standards.
11
<PAGE>
9. INDEPENDENT CONTRACTOR
This Agreement shall not be construed as creating an
employer-employee or agency relationship, it being within the contemplation of
the parties that all acts performed by the Seller in carrying out the provisions
hereof shall be those of an independent contractor.
10. TERMINATION
This Agreement may be terminated by either party without cause on
five (5) business days prior written notice to the other. Any such termination
shall not apply to Loans for which a Notice of Registration has been issued by
Purchaser. Upon termination, the obligations of the parties to each other shall
cease, except those obligations on Loans for which a Notice of Registration has
been issued, and except as set forth in Sections 5, 6, 7.9 and 7.10 hereof which
shall continue, and the Purchaser and the Seller mutually agree to pay the
appropriate party any monies that may be due under this Agreement as soon as
practicable after the termination date.
11. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New
York.
12. ASSIGNMENT
Neither this Agreement nor any of the rights granted hereunder may
be assigned, or otherwise transferred by Seller without the prior written
consent of the other. Any change in the composition of the ownership of the
Seller, without the prior written approval of the Purchaser, shall be deemed to
be an assignment under this paragraph.
12
<PAGE>
13. NOTICES
Any notice provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or otherwise
actually received or five (5) business days after deposit in the United States
mail, certified, postage prepaid, addressed as follows:
If to the Seller:
If to the Purchaser: Gary M. Honstedt, First Vice President
Independence Savings Bank
195 Montague Street
Brooklyn, New York 11201
or at such other place as either party may designate by notice given in
accordance with this Section 13.
14. AGREEMENT NON-EXCLUSIVE
Both Purchaser and Seller understand that the mutual agreement to
purchase and sell Loans is non-exclusive and that both parties are free to
contract for the purchase and/or sale of loans under any other arrangement with
any third parties as Purchaser and Seller, in their respective sole discretion,
may decide.
15. CONFIDENTIALITY
Both Purchaser and Seller shall hold in confidence any information
concerning any Borrower acquired in connection with the origination,
administration and sale of any Loan under the terms of this Agreement.
16. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties
13
<PAGE>
and shall not be modified except in writing and executed by duly authorized
representatives of both the Purchaser and the Seller. This Agreement supersedes
and incorporates all representations, promises, and statements, oral or written,
made in connection with the subject matter of this Agreement and the negotiation
hereof, and no such representation, promise or statement not written herein
shall be binding on the parties. This Agreement shall be binding on the parties
hereto and their successors in interest.
17. SEVERABILITY
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions thereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
18. WAIVER
Any waiver by either party of any of its rights hereunder, shall not
be a waiver of any other, or further rights, either hereunder, or cognizable at
law or equity, and shall apply only to the particular rights waived.
19. COUNTERPARTS
This Agreement may be executed in several counterparts all of which
taken together shall constitute one single agreement between the parties.
14
<PAGE>
20. HEADINGS
The section headings are for reference and convenience only and
shall not enter into the interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective proper corporate officers on the day and year first
above written.
AMERICAN HOME MORTGAGE, Seller
BY: /s/ Michael Strauss
-------------------------------------
INDEPENDENCE SAVINGS BANK, PURCHASER
BY: [ILLEGIBLE]
-------------------------------------
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the 29 day of February, 1996, before me personally came Michael Strauss
to me known who, being by me duly sworn, did depose and say that he resides at
New York, that he is the President of AMERICAN HOME MORTGAGE CORP., the
corporation described in, and which executed the foregoing instrument by order
of the Board of Directors of said corporation, and that he signed his name
thereto by like order.
/s/ Leonard Schoen Jr.
----------------------------------------
Notary Public
LEONARD SCHOEN JR
Notary Public, State of New York
No. 4950344
Qualified in Suffolk County
Commission Expires April 24,1997
15
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF KINGS )
On the 27th day of February, 1996, before me personally came Joseph S.
[ILLEGIBLE] to me known who, being by me duly sworn, did depose and say that he
resides at [ILLEGIBLE], that he is the Executive Vice President of INDEPENDENCE
SAVINGS BANK, the corporation described in, and which executed the foregoing
instrument by order of the Board of Trustees of said corporation, and that he
signed his name thereto by like order.
/s/ Julie Serrentino
----------------------------------------
Notary Public
JULIE SERRENTINO
Notary Public, State of New York
No. 43-4935098
Qualified in Richmond County
Commission Expires June 20, 1996
16
<PAGE>
EXHIBIT 10.20
[LOGO]
DIME
MORTGAGE INC.
National Correspondent Division
CORRESPONDENT ORIGINATION AND SALES AGREEMENT
This Origination and Sales Agreement ("Agreement") is made this 25th day
of April, 1997, by and between DIME MORTGAGE INC. ("DIME"), a New York
corporation having an office located at 1201 Hudson Lane, Suite A, Monroe, LA
71201, its successors and assigns, and Michael Strauss, Inc. dba American Home
Mortgage dba ("Correspondent"), whose principal office is located at 12 East
49th Street, New York, NY 10017.
PURPOSE
This Agreement governs the origination, sale, and transfer of
conventional, FHA, and VA residential mortgage loans, including the transfer of
Servicing Rights. From time to time, Correspondent may offer to sell and DIME
may agree to buy individual loans which meet DIME requirements in accordance
with the terms set forth herein.
In consideration of the mutual promises, covenants, and agreements
contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. As used in this Agreement, the following capitalized terms
shall have the following meanings, unless the context requires otherwise:
"Best Efforts Commitment" means a Commitment which Correspondent is
required to use its best efforts to fulfill by selling the Loan set forth in
such Best Efforts Commitment to DIME. A Best Efforts Commitment with respect to
a Locked Loan shall become a Mandatory Delivery with respect to such Loan on the
related Closing Date.
"Closing Date" means the date of execution of a Mortgage Note and Mortgage
by a Mortgagor and the concurrent funding of a Mortgage Loan by Correspondent.
"Commitment" means DIME's written agreement for the purchase of a Loan.
"Conventional Loan(s)" means a residential mortgage loan, other than an
FHA or VA Loan, eligible for purchase by FNMA or FHLMC, or a private investor,
with a loan term not exceeding 360 months.
Revised 3/11/97 1
<PAGE>
"Credit File" means all documentation required by DIME for underwriting
review as established by Dime Correspondent Manual.
"Dime Correspondent Manual" means the written information and instructions
provided to Correspondent by DIME which establishes guidelines and procedures,
rate reservation, underwriting, and delivery requirements of the Credit File
and Loan File to be purchased by DIME, as amended by DIME from time to time in
its sole discretion, including notices or bulletins issued by DIME.
"Expiration Date" with respect to any Locked Loan, that date which the
loan file must be received by Dime for the Purchase Price Percentage to be
honored.
"FHA Loan(s)" means a residential mortgage loan, the payment of which is
insured by the Federal Housing Administration, or any successor thereto.
"Fraudulent Document"; means any Loan File document which, in the
reasonable judgment of DIME, is falsified, defective, misleading or inaccurate
in any material respect.
"Investor Rights" means any and all rights and privileges associated with
the ownership of a Loan, including but not limited to the right to receive all
payments of principal and interest paid by a Mortgagor.
"Loan(s) " means 1 to 4 unit residential mortgage loans including
Conventional, FHA, and VA loans, (including Investor Rights and Servicing
Rights) which are subject to this Agreement.
"Loan File" means all documentation required for a Loan as established by
the Dime Correspondent Manual.
"Locked Loan" means a loan that has been registered for a guaranteed rate
and price if delivered within a stipulated price term, and for which a price
confirmation has been issued by Dime. A locked loan becomes a mandatory
commitment when closed.
"Mandatory Commitment" means a Commitment which Correspondent is
unconditionally required to fulfill by selling the Loan set forth in such
Mandatory Commitment to DIME.
"Mandatory Delivery" means the required sale of a Locked Loan registered
with, and delivery of the related Loan File to, DIME. A Best Efforts Commitment
with respect to a Locked Loan shall become a Mandatory Delivery with respect to
such Loan on the related Closing Date.
"Mortgage" means the mortgage, deed of trust or other security instrument
which secures a Mortgage Note and creates either (i) a first lien on an estate
in fee simple in the Property (including condominium) (or leasehold where and
when permitted by DIME); or (ii) an interest in a cooperative, in those limited
areas where
Revised 3/11/97 2
<PAGE>
DIME expressly permits cooperative financing.
"Mortgage Note" means the promissory note of a Mortgagor secured by a
Mortgage.
Mortgagor" and "Mortgagors" mean the maker(s), obligor(s) and/or
guarantor(s) of a Mortgage Note.
"Property" means the residential real property consisting of land and a
one-to-four family dwelling thereon which is completed and ready for occupancy.
"Premium" means the amount paid for the loan above the outstanding
balance, calculated by multiplying the outstanding loan balance at purchase by
the Purchase Price Percentage less 100%.
"Purchase Date" means the date when the Loan is sold to Dime and the
Purchase Price is paid by Dime.
"Purchase Price" means the price paid for the loan plus the amount paid
for the related Servicing Rights. Purchase Price is calculated by multiplying a
stated price plus a stated Service Release Premium (SRP) by the outstanding
principal balance of the loan at the time of purchase.
"Purchasable Loan(s)" means a mortgage loan which meets all requirements
for purchase set forth in the Dime Correspondent Manual and has been approved
for purchase by Dime.
"Purchase Price Percentage" means the price paid by DIME pursuant to the
terms of the related Commitment, expressed as a percentage of the outstanding
principal amount as of the related Purchase Date.
"Repurchase Price" means the price to be paid by the Correspondent to
repurchase a loan. The amount will include base price, the service release
premium, all accrued interest and any reasonable expenses and/or attorneys fees
incurred by Dime. The base price of the loan will be the amount needed to make
Dime whole. It will be the outstanding principal balance or the percentage price
paid times the outstanding balance, depending on whether the loan has been
pooled, or sold.
"Servicing Rights" means all rights to service Loans for investors.
"Third Party Origination" means any loan for which a Third Party
Originator performs a significant portion of the origination process for a fee,
including but not limited to, processing the loan application, ordering
appraisals and/or credit reports, verifying income and/or employment.
"Third Party Originator" means any person or entity, not an employee of
Correspondent, who is duly authorized to perform all or part of the origination
process, including but not limited to processing a loan application, ordering
Revised 3/11/97 3
<PAGE>
appraisals and/or credit reports, verifying income and/or employment, and who is
compensated by Correspondent for this activity.
"VA Loan(s)" means a Mortgage guaranteed by the Veterans Administration,
with a loan term of not more than 360 months nor less than 180 months, unless
otherwise provided for in a Commitment, with a maximum Loan amount not exceeding
that permitted in the applicable jurisdiction, and with a combined Loan Guaranty
and equity of not less than 25%.
ARTICLE II
SUBMISSION AND APPROVAL
Section 2.1. Submission and Approval. Correspondent may, from time to
time, submit a Credit File or Loan File to DIME for approval in accordance with
Dime Correspondent Manual.
Section 2.2 Acceptance/Rejection of Loan. Following receipt by DIME of a
Credit File or Loan File, DIME shall notify Correspondent of DIME's underwriting
decision. DIME may accept or reject any proposed Loan based on applicable
underwriting and origination guidelines as interpreted by DIME. If the proposed
Loan is rejected, DIME shall promptly return the Credit File and/or Loan File to
Correspondent.
Section 2.3 Rate Reservation. Correspondent may request a rate quotation
and rate reservation in accordance with the Dime Correspondent Manual. In order
to receive payment for a Loan based on a rate reserved in accordance with this
Section 2.3, Correspondent must deliver to DIME a Purchasable Loan File and
Credit File, including any required fees, and any additional information
concerning the property and/or the applicant which DIME may deem necessary,
prior to the Expiration Date. If timely delivery of a closed Loan is not made,
DIME reserves the right to renegotiate the Purchase Price of the Loan.
Section 2.4 Revision of Requirements. DIME nay from time to time amend or
revise its documentation requirements, underwriting criteria or other
requirements pertaining to any residential mortgage loan program. Any Loan
Package already registered and rate locked by the Correspondent will not be
materially adversely affected by such amendment or revision.
ARTICLE III
DELIVERY AND PAYMENT
Section 3.1 Sole and Purchase. Correspondent acknowledges and agrees that
DIME is purchasing "whole loans" servicing released, that is, the purchase
includes any and all Investor Rights and Servicing Rights associated with all
Loans sold by Correspondent under this Agreement. Correspondent agrees to sell,
endorse, assign, transfer, and deliver, with full warranty of title, and
subrogation to its rights in warranty and free of all liens, claims and
encumbrances, and DIME agrees to
Revised 3/11/97 4
<PAGE>
purchase Loans according to the terms and conditions of this Agreement. Nothing
in this Agreement shall be construed as obligating DIME to purchase any Loan
from Correspondent. DIME shall have the right to review each Loan submitted for
purchase and the right to reject any Loan not in conformance with DIME's
requirements and/or general FHLMC/FNMA or FHA/VA guidelines.
Section 3.2 Delivery of Documents. For each Loan purchased by DIME,
Correspondent shall promptly deliver the Loan File together with an endorsement
of the Mortgage Note, (made payable to the order of DIME), a recorded assignment
of Mortgage or Deed of Trust (or in the case of cooperatives, delivery of the
pledged shares, an assignment of the proprietary lease, and other operative
documents and related duly filed financing statements), to DIME in accordance
with Dime Correspondent Manual. Correspondent shall do all further acts
necessary to perfect DIME's title to and security for each such Loan and to
execute and deliver any additional documents reasonably required by DIME.
Correspondent acknowledges that delivery of all Loans locked under a Mandatory
Commitment and locked and closed under a Best Efforts Commitment is mandatory
and that time is of the essence.
Section 3.3 Failure of Correspondent to Timely Deliver Loans.
Correspondent acknowledges and understands that DIME has executed forward
commitments to sell and immediately deliver Loans to third parties. Loans must
be delivered on or before the Expiration Date. Correspondent covenants and
agrees to reimburse DIME for any and all losses, expenses, and damages incurred
by DIME as a result of such nondelivery within five (5) days of written demand
by DIME. Such reimbursement shall be in addition to any and all legal and
equitable remedies available to DIME.
Section 3.4 Payment of Purchase Price. DIME shall pay Correspondent the
Purchase Price for each Loan in accordance with Dime Correspondent Manual. DIME
will pay the Purchase Price to the Correspondent or to the applicable warehouse
lender as instructed by an appropriate bailee agreement. In order to receive
payment of the Purchase Price, Correspondent must comply with all document
delivery requirements established by Dime Correspondent Manual. Payment of the
Purchase Price shall be made after the rescission period has expired for all
Loans subject to the right of rescission under Regulation Z. Unless earlier
agreed in writing by DIME, no fees, commissions, or any other consideration
shall be paid to Correspondent for any Loan submitted to DIME for purchase.
Correspondent covenants and agrees that: (i) the compensation received by
Correspondent from any borrower shall not exceed the fair market value of its
services as determined and set by Correspondent in a method that insures that
all borrowers are treated in a fair and unbiased method; (ii) Correspondent
shall not accept any fee or other compensation except as permitted by applicable
law and regulation; and (iii) it has disclosed any fee or other compensations in
writing to the borrower, and Dime as required by applicable law and regulation.
Payment of any fee to Correspondent does not evidence the acceptability of Loan
File or the Credit File.
Revised 3/11/97 5
<PAGE>
[LOGO]
DIME
MORTGAGE INC.
National Correspondent Division
DELEGATED UNDERWRITING ADDENDUM
TO CORRESPONDENT ORIGINATION AND SALES AGREEMENT
This Delegated Underwriting Addendum to Correspondent Origination and Sales
Agreement ("Addendum") is entered into this 25th day of April, 1997, by and
between DIME MORTGAGE, INC., its successors and assigns, ("DIME") and Michael
Strauss, Inc. dba American Home Mortgage dba American Brokers Conduit
("Correspondent").
DIME and Correspondent have entered into that certain Correspondent Origination
and Sales Agreement ("Agreement") dated April 25, 1997, pursuant to which DIME
has agreed to purchase conventional, FHA, and VA residential mortgage loans
("Loans"), including the related servicing rights, from Correspondent according
to the terms and conditions contained therein.
Pursuant to the Dime Correspondent Manual, Loans may be underwritten by
Correspondent ("Delegated Underwriting"), provided Correspondent has been given
express written authorization by DIME.
Correspondent desires to submit Loans to DIME underwritten under Delegated
Underwriting authority, and as an inducement for DIME to grant Correspondent
such authority, Correspondent is willing to enter into this Addendum.
NOW THEREFORE, in consideration of the mutual promises, covenants, and
agreements set forth herein, Correspondent and DIME agree as follows:
I. Definitions. All capitalized terms not defined herein shall have the meanings
assigned to them in the Agreement, and/or the Dime Correspondent Manual.
II. Grant of Authority. DIME agrees that so long as Correspondent's Delegated
Underwriting authority remains in effect, DIME shall purchase Loans originated
and underwritten by Correspondent, in accordance with the terms and conditions
set forth in the Agreement, the Dime Correspondent Manual, and this Addendum.
III. Representations and Warranties. In addition to Correspondent's
representations and warranties contained in the Agreement, Correspondent further
represents and warrants to DIME as follows:
3.1 Correspondent will maintain a minimum HUD adjusted net worth of not
less than Five Hundred Thousand Dollars ($500,000) as reflected by
Correspondent's
Rev. 4/10/97 Page 1 of Three Pages
<PAGE>
most recent audited financial statements prepared in accordance with Generally
Accepted Accounting Principles for Level 1, conforming retail approval.
Correspondent will maintain a minimum HUD adjusted net worth of $1,000,000 for
Level 2, jumbo loans and third party origination approval.
3.2 Each Loan underwritten by Correspondent is eligible for purchase by
FNMA and/or FHLMC and complies with all requirements and standards thereof,
including the most current FNMA/FHLMC manuals and lender updates, at the time of
purchase by DIME.
3.3 Each Loan satisfies all of the requirements contained in the
Agreement, and the Dime Correspondent Manual, and Correspondent has furnished
DIME with all documents set forth on the Underwriting Transmittal Checklist.
3.4 Correspondent utilizes only licensed Real Estate Appraisers in
compliance with the regulations and standards contained in the Financial
Institutions Reform Recovery and Enforcement Act. Correspondent maintains a
formal, written Appraiser Approval Policy which includes recertification
procedures for each Appraiser, at intervals not less than annually. (A full and
complete copy of such policy is attached hereto as Exhibit A).
3.5 Correspondent possesses not less than 3 years experience in the
origination of Loans, and not less than 5 years underwriting experience
concerning FNMA/FHLMC loans.
IV. Covenants. In addition to Correspondent's covenants contained in the
Agreement, Correspondent further covenants and agrees as follows:
4.1 Correspondent shall provide DIME with annual, audited financial
statements reflecting Correspondent's net worth (within 90 days following the
end of Correspondent's fiscal year). Correspondent shall furnish unaudited
interim financial statements to DIME upon request. Correspondent shall
immediately notify DIME if Correspondent's net worth is ever less than the
minimum net worth required in Section 3.1 herein and DIME may terminate this
Addendum upon Correspondent's failure to meet minimum net worth requirement.
4.2 DIME shall have the right to perform post-purchase reviews of all
Loans and to request any additional documentation to ensure compliance with
FNMA, FHLMC, or DIME underwriting guidelines.
4.3 Correspondent shall maintain Errors and Omissions Insurance and/or a
blanket Fidelity Bond in an amount not less than Three Hundred Thousand Dollars
($300,000), with insurers acceptable to DIME. (A copy of such insurance policy
or bond is attached hereto as Exhibit B).
Rev. 4/10/97 Page 2 of Three Pages
<PAGE>
V. Indemnification. Correspondent shall indemnify, save, and hold harmless DIME,
its successors and assigns from and against any and all losses, costs, damages,
and expenses (including attorney and professional fees) of DIME resulting from:
5.1 any obligation of DIME to repurchase from an Investor any Loan
(including any Servicing Rights) or any real property held as security for any
Loan arising from any defect or omission in any Loan underwritten by
Correspondent.
5.2 Correspondent's breach of any representation or warranty contained in
this Addendum or in the Agreement;
VI. Termination. The Delegated Underwriting Authority contained in this Addendum
may be terminated by DIME for any reason, and in DIME'S sole discretion, upon
written notice. Termination shell be effective as to all Leans submitted to DIME
on or after such notice of termination.
VI. Miscellaneous. This Addendum may not be assigned by Correspondent and is
binding upon Correspondent, and its successors. This Addendum may be assigned by
DIME without consent or notice to Correspondent, and shall be binding upon and
inure to the benefit of DIME its successors and assigns. This Addendum shall be
governed by and construed in accordance with the laws of the state where this
Addendum was executed by DIME.
IN WITNESS WHEREOF, Correspondent and DIME have executed this Addendum as this
25 day of April, 1997.
DIME MORTGAGE, INC.
By: /s/ William D. Bennett
-------------------------------------
Name: William D. Bennett
-----------------------------------
Title: Vice President
----------------------------------
Michae1 Strauss, Inc. dba American Home
Mortgage dba American Brokers Conduit
----------------------------------------
CORRESPONDENT
By: /s/ Michael Strauss
-------------------------------------
Name: Michael Strauss
-----------------------------------
Title: President
----------------------------------
Rev. 4/10/97 Page 3 of Three Pages
<PAGE>
[LOGO]
DIME
MORTGAGE INC.
National Correspondent Division
THIRD PARTY ORIGINATION RIDER
THIS THIRD PARTY ORIGINATION RIDER ("Rider") is made this 5th day of May, 1997,
and is incorporated into and shall be deemed to amend and supplement the Dime
Mortgage, Inc. Correspondent Origination and Sales Agreement ("Agreement") dated
April 25, 1997, between American Home Mortgage and Dime Mortgage Inc. ("Dime").
All capitalized terms used in this Rider that are not otherwise defined herein
shall have the same meanings assigned to them in the Agreement and Dime
Correspondent Manual.
I. THIRD PARTY ORIGINATION REPRESENTATIONS, WARRANTIES AND COVENANTS. In
addition to the representations, warranties and covenants made in the
Agreement, Correspondent and Dime further represent, warrant, and covenant
as follows:
A. Notwithstanding anything to the contrary in the Agreement (or in the
Dime Correspondent Manual), Correspondent may offer for sale and
transfer to Dime Loans which have been solicited, procured,
packaged, processed or otherwise originated by a third party
originator (hereinafter called "Third Party Originator"), provided
such Loans otherwise conform to the terms and conditions of the
Agreement. Nothing in this Agreement or the Dime Correspondent
Manual shall obligate Dime to purchase Loans offered for sale to it
by Correspondent, and Dime reserves the right to reject any Loan
offered to it by Correspondent for any reason whatsoever, including
but not limited to the fact that it is a Third Party Origination or
the identity of the Third Party Originator.
B. Correspondent and Third Party Originator shall comply with any and
all special bulletins, notices, instructions, or Dime manual
provisions issued by Dime from time-to-time and governing the
submission of loans contemplated by this Rider and shall sell only
Loans that are eligible for purchase by Dime in accordance with be
requirements of the Dime Correspondent Manual.
C. The Agreement, as amended by this Rider, is made and entered into
for the express benefit of Correspondent and Dime, not for the
benefit or interest of any Third Party Originator, or any related
persons or entities, and accordingly, no third party shall obtain or
acquire any rights or interest in the Agreement by reason of the
performance or failure of
Revised 2-07-97 1
<PAGE>
performance of either of the parties hereto or of their respective
rights, privileges, duties or obligations arising hereunder.
D. Correspondent hereby irrevocably assigns to Dime all of its rights,
remedies, indemnities and causes of action arising out of or in
connection with Correspondent's written agreement, understandings,
or other dealings with any Third Party Originator regarding any Loan
sold and transferred to Dime pursuant to this Rider.
E. It is understood and agreed that the representations and warranties
set forth in this Rider survive the sale and delivery of the Loans
to Dime and shall inure to the benefit of Dime and all assignees
thereof, notwithstanding any restrictive or qualified endorsement on
any related Mortgage Note or assignment instrument.
F. It is understood and agreed that all representations and warranties
of Correspondent in the Agreement and/or this Rider made directly
from Correspondent to Dime also shall be deemed to constitute
representations and warranties by Correspondent regarding each Third
Party Originator as if such Third Party Originator was the
Correspondent hereunder, it being understood and agreed that
Correspondent shall bear the risk of the proper performance of Third
Party Originator as if the Third Party Originator was the
Correspondent.
G. Correspondent represents and warrants to Dime that no fee,
commission, kickback or tangible or intangible compensation of any
kind or nature whatsoever has been or will be received or retained
by Correspondent, or to Correspondent's knowledge, by any other
person, firm, or entity, in connection with any Loan or Loans
offered for sale pursuant hereto, except such fees as shall be
permissible by applicable law.
H. Correspondent's represents and warrants to Dime that its decision to
enter into arrangements and agreements, with other financial
institutions, mortgage bankers, mortgage brokers, loan brokers, real
estate brokers and others for or with respect to the solicitation,
procurement, packaging, processing, origination, closing and/or
purchase or sale of Loans has been done within the sole discretion
of Correspondent without the consent, advice or agreement of Dime.
I. Correspondent and its Third Party Originators have complied with all
applicable federal and state laws, rules, regulations and licensing
requirements, including those governing their operations and the
Loans.
Revised 2-07-97 2
<PAGE>
II. TERMINATION OF THIS RIDER. This Rider may be terminated, as to the future
submission of loans, by either party upon written notice of termination, and
such termination shall not terminate the underlying Agreement unless expressly
stated in such notice.
Notwithstanding the foregoing, this Rider shall terminate immediately upon
the revocation, cancellation, or other termination of the underlying
Agreement.
Dime, may in its sole discretion, suspend registrations of Third Party
Originations covered by this Rider with or without affecting the
Correspondent's status in the underlying Agreement.
Other than as described in Article VI of the Agreement, Dime shall not
accept assignment of any Loans after the effective date of termination.
III. SPECIFIC CONDITIONS OF THIS RIDER:
1. Correspondent will collect and remit all FHA mortgage insurance
premiums and VA guaranty fees, and perform all insuring functions.
2. All loans will be table funded.
3. Underwriting will not be delegated to the thin party originator.
4. Current employment of all loan applicants will be verified by an
employee of American Home Mortgage prior to delivery of loan to Dime
for purchase
5. For applicants using tax returns to qualify, a copy of tax return
will be obtained from an independent source prior to delivery of the
Loan to DIME for purchase.
6. American Home Mortgage must maintain a minimum HUD adjusted net
worth of $1,000,000.
7. American Home Mortgage will order an in-house credit report on all
third party originated loans when the original credit report was
supplied by the broker. The reports will be reconciled and all
material discrepancies explained.
BY SIGNING BELOW, Correspondent and DIME accept and agree to the terms and
Revised 2-07-97 3
<PAGE>
provisions contained in this THIRD PARTY ORIGINATION RIDER.
American Home Mortgage
(Correspondent)
By:_____________________________________
Name:___________________________________
Title:__________________________________
Dime Mortgage Inc.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Revised 2-07-97 4
<PAGE>
Section 3.5 Servicing Rights. The Purchase Price of each Loan shall
include all Servicing Rights and benefits pertaining to such Loan. Correspondent
shall execute and deliver documentation sufficient to transfer all Servicing
Rights from Correspondent to DIME free and clear of all claims, liens and
encumbrances, and to enable DIME (or its designated representative) to service
such Loan.
Section 3.6 Inspection of Loan Files. DIME reserves the right to inspect
all Mortgage Loans and satisfy itself that all Mortgage Loans comply with the
applicable Commitment, and Correspondent's representations concerning the
Mortgage Loans. The Loan Files shall evidence compliance with all federal and
state rules, orders and regulations affecting the Loan. Correspondent shall make
DIME the loss payee of each title policy, mortgage guaranty insurance policy and
hazard and Flood insurance policy. Ownership of, and title to, the Mortgage
Loans will not be vested in DIME until accepted and paid for by DIME.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, AND
COVENANTS OF CORRESPONDENT
Section 4.1 Representations and Warranties Regarding Correspondent. After
due diligent investigation and inquiry, and notwithstanding any assignment
without recourse, Correspondent represents and warrants to DIME as follows:
A. Correspondent is duly organized, validly existing, and in good standing
under the laws of the state of its organization and has all qualifications,
registrations, and licenses, and permits necessary to carry on its business in
each state in which Correspondent originates or purchases Loans. Correspondent
agrees to provide DIME with copies of all applicable licenses, permits, etc.
upon request. Correspondent has all requisite power and authority to execute,
deliver and perform this Agreement. All requisite action has been taken by
Correspondent to make this Agreement valid and binding upon Correspondent in
accordance with its terms.
B. No approval of the transactions contemplated by this Agreement from any
regulatory authority having jurisdiction over Correspondent is required, or if
required, such approval has been obtained. There is no clam, litigation,
investigation or proceeding pending or threatened against or otherwise
materially adversely affecting Correspondent's business, performance of its
obligations under this Agreement and Correspondent has no knowledge of any
circumstances indicating that any such suit, investigation or proceeding is
likely or imminent;
C. With respect to any FHA Loan submitted by Correspondent, Correspondent
is approved by FHA to participate in its "direct endorsement" mortgage insurance
program, or is an FHA sponsored lender with underwriting performed by DIME; with
respect to an VA Loan submitted by Correspondent, Correspondent is either
approved to originate and submit Loans to VA for VA approval, or to underwrite
mortgage
Revised 3/11/97 6
<PAGE>
loans with "automatic authority," or is a VA authorized agent with underwriting
performed by DIME.
D. Correspondent is not presently, nor within the one (1) year period
preceding the date of this Agreement has been, subject to any administrative
sanctions imposed by FHA and/or VA.
E. The consummation of the transactions contemplated by this Agreement are
in the ordinary course of business of Correspondent and will not result in: (a)
a breach of any term or provision of the charter or bylaws of Correspondent; (b)
the breach of any term or provision of, or conflict with, or constitute a
default under any agreement to which Correspondent or its property is subject;
or (c) the violation of any law, rule, regulation, order, judgment or decree to
which Correspondent or its property is subject.
F. No representation, warranty or written statement made by Correspondent
in this Agreement, nor any application, documentation, schedule, exhibit,
statement, or certificate furnished to DIME by Correspondent contains any untrue
statement of material fact or fails to state any material fact which could
render such statement misleading.
G. Each of the representations and warranties contained in this Section
4.1 is true and correct upon the execution of this Agreement and upon delivery
of any Loan to DIME for purchase.
Section 4.2. Representations and Warranties Regarding Loan. After due
diligent investigation and inquiry, Correspondent further represents and
warrants to DIME that as of the Purchase Date:
A. Each Loan has been originated by Correspondent and Correspondent has
complied with all of its obligations under this Agreement. Correspondent
warrants that all loans under the terms of this agreement will be originated by
the Correspondent, unless specific approval has been granted for third party
originations and a Third Party Origination Rider has been executed by
Correspondent and DIME;
B. Correspondent has the authority to sell, transfer, and assign such Loan
on the terms herein set forth; there has been no assingment, sale or pledge
thereof by Correspondent, (except any pledge required pursuant to a line of
credit agreement between Correspondent and its warehouse lender); and as of the
Purchase Date, the Loan will be free and clear of liens, claims, security
interests, or encumbrances of any type (including, but not limited to any pledge
in favor of any warehouse lender);
C. All Loans purchased by DIME comply with all of the FHA, VA, GNMA, FNMA,
FHLMC, DIME, and applicable private investor regulations, requirements, and
standards, and all representations and warranties required to be made by Sellers
therein are hereby made by Correspondent to DIME.
D. All FHA Loans are fully insurable by FHA and a Mortgage Insurance
Revised 3/11/97 7
<PAGE>
Certificate will be issued by FHA. All VA Loans are eligible for guaranty by VA
and a Loan Guaranty Certificate will be issued by VA and all Conventional Loans
are insurable by private mortgage guaranty insurers, when required, and an
appropriate certificate or other evidence of such insurance will be issued by
the insurer. There are no defenses, counter claims or rights of set-off
affecting the validity or enforceability of any private mortgage insurance, FHA
insurance or VA guaranty with respect to the Loan or eligibility of such Loan
for insurance or guaranty.
E. All FHA and VA Loans are eligible for inclusion in pools of mortgages
for GNMA, FNMA, or FHLMC mortgage-backed securities.
F. With respect to the Mortgagor, the Property, or the Loan, there are no
facts or circumstances that exist which could be reasonably expected to cause
private institutional investors to regard the Loan as an unacceptable
investment, cause the Loan to become delinquent, or adversely affect the value
or marketability of the Loan.
G. Correspondent has complied with all applicable Federal, State, and
Local laws, rules ordinances, and regulations, including, but not limited to:
(i) the Federal Truth In Lending Act of 1969, and Federal Reserve Regulation Z
thereunder; (ii) the Federal Equal Credit Opportunity Act ("ECOA") and Federal
Reserve Regulation B thereunder; (iii) the Federal Fair Credit Reporting Act;
(iv) the Federal Real Estate Settlement Procedures Act of 1974, and Regulation X
thereunder; (v) the Flood Disaster Protection Act of 1973 (as if it were a
covered entity and regardless of whether Correspondent is specifically subject
to such statute and/or regulations); (vi) the Fair Housing Act; (vii) the Home
Mortgage Disclosure Act; (viii) the Financial Institutions Reform Recovery and
Enforcement Act of 1989, all as amended, including all regulations issued
pursuant thereto; (ix) any and all licensing requirements for Mortgage Brokers
and/or Lenders; (x) requirements as applicable to the Loans of FNMA, FHLMC,
GNMA, FHA, and VA; and (xi) any and all laws, rules, ordinances, and regulations
relating to adjustable rate mortgages, negative amortization, and graduated
payment mortgages;
H. The rules, regulations, and all applicable requirements of FHA, VA, and
private mortgage insurance companies, hazard insurance companies or other
insurers have been properly satisfied; including, without limitation, the
payment by Correspondent of all mortgage guaranty and insurance premiums and
fees as and when due, and the submission by Correspondent of insurance binders
enforceable as required by Dime: Correspondent shall make Dime this loss payee
of each mortgage guaranty insurance policy, hazard, and flood insurance policy;
I. The proceeds of the Loan have been fully disbursed; there is no
requirement for future advances; the unpaid principal balance is as stated; all
costs, fees, taxes and expenses incurred in making and closing the Loan and
recording the Mortgage have been paid;
J. The Mortgage Note and the related Mortgage are genuine, and each is a
legal, valid and binding obligation of the Mortgagor(s), enforceable in
accordance with
Revised 3/11/97 8
<PAGE>
their terms. All parties to the Mortgage Note and the Mortgage had legal
capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note
and Mortgage have been duly and properly executed by the Mortgagor(s);
K. The Mortgage has not been satisfied, canceled, subordinated or
rescinded; no part of the Property has been released from the lien of the
Mortgage; the terms of the Loan have in no way been changed, waived, impaired or
modified, except for loan adjustments made in compliance with the Mortgage Note
and applicable regulatory requirements; no waiver of any default, breach,
violation or event of acceleration has occurred; and the Loan is current and not
in default;
L. No representation, warranty or written statement made by Correspondent
in this Agreement, nor any application, documentation, schedule, exhibit,
statement, or certificate furnished to Dime by Correspondent contains any untrue
statement of material fact or fails to state any material fact which could
render such statement misleading. All information contained in the Credit File
or Loan File is true, complete and accurate; Correspondent is not aware of any
fact not set forth in the Credit File or Loan File which Dime might reasonably
consider to be adverse to the approval of the loan, or would make the Loan
ineligible for sale in the secondary market;
M. A title insurance commitment or a title insurance policy including all
applicable endorsements has been issued by a title insurer, acceptable to DIME,
insuring Correspondent, its successors and assigns, or DIME as to the first
priority lien of the Mortgage in the original principal amount of the Mortgage
Note; Correspondent has not by act or omission, done anything which would impair
the title insurance policy coverage;
N. The assignment of the Loan from Correspondent to DIME has been duly
authorized and is valid and sufficient, and all consents and approvals to such
assignment have been obtained, including in the case of cooperatives, the
consent of the cooperative corporation;
O. All documents prepared by Correspondent are genuine, accurate, and
complete and meet the requirements and specifications established by FHA, VA,
GNMA, FNMA, FHLMC, the Dime Correspondent Manual and this Agreement as
applicable;
P. There is in force such flood insurance policy as is required under the
Flood Disaster Protection Act of 1973, as amended, and its implementing
regulations regardless of whether Correspondent is specifically subject to such
statute or regulations;
Q. The improvements on the Property securing each Loan are covered by
hazard insurance policies issued by an insurer acceptable to DIME: (i) in an
amount which, except where limited by applicable law to a lesser amount, is
equal to the outstanding principal balance of the Loan or eighty percent (80%)
of the insurable value of the improvements, whichever is greater; (ii) of a type
substantially in the form of and at least as protective as the fire and extended
coverage contained in the
Revised 3/11/97 9
<PAGE>
"New York" loss mortgage clause (also known as "standard" or "union" loss
mortgage clause), which provides that Correspondent's hazard insurance is not
invalidated by acts of the Mortgagor, and (iii) containing suitable provisions
for payment of all present and future loans on the secured property in order of
precedence; the Property has not been damaged so as to adversely affect its
value;
R. No mortgage brokers or other consultants or finders were consulted or
contacted in connection with or in bringing about this Mortgage or this mortgage
sale transaction, that would be due a fee from DIME.
S. All taxes, governmental assessments, insurance premiums, water, sewer,
municipal charges, leasehold payments, ground rents, home owners association
dues and other charges, have been paid; and all funds paid or due to be paid
have been paid and delivered to Dime in connection with any escrow accounts
created on the Closing Date.
T. There is no proceeding pending for the total or partial condemnation of
the Property and the property is undamaged by waste, fire, flood or other
casualty.
U. The Mortgage Note and the Mortgage are not subject to any right of
rescission, setoff, counterclaim or defense, nor has any such right been
asserted with respect thereto.
V. The actual loan-to-value ratio of each Loan does not exceed the maximum
amount permitted under the Dime Correspondent Manual. The appraisal prepared in
connection with each Property provides an accurate estimate of the bona fide
market value of such Property and was prepared by a licensed Real Estate
Appraiser, acceptable to DIME, (as set forth in the Dime Correspondent Manual),
with no direct or indirect interest in the Property.
W. The Mortgage Note contains the lesser of the maximum late charge
permitted by the state where the property securing the loan is located and the
maximum late charges permitted by the applicable agency;
X. Appropriate escrow amount for property taxes and insurance were
collected from borrowers in conformity with RESPA and any similar state laws
that apply (unless expressly waived by Dime). There are no payments which are
unpaid including, but not limited to taxes, ground rents, water charges, sewer
rents, assessments, including any assessments payable in future installments,
or other outstanding charges affecting the lien of the Mortgage.
Y. All funds collected from borrowers at doing will be properly segregated
and accounted for as per regulations, and will be used for no other purpose than
that for which they have been designated. All funds due FHA and VA for guarantee
and insuring purposes will be promptly submitted in accordance with agency
regulations.
All of the representations and warranties set forth in Article IV shall
survive and continue in force for the full remaining life of the Loan and are
made for the
Revised 3/11/97 10
<PAGE>
benefit of DIME and its successors and assigns.
Section 4.3 COVENANTS OF CORRESPONDENT. Correspondent covenants and agrees
with DIME as follows:
A. Correspondent shall notify DIME immediately of:
(i) any material changes in its ownership, financial condition, or
management;
(ii) any audits, examinations, or reviews by FHA or VA, including
any administrative sanctions imposed upon Correspondent;
(iii) if following the sale of any Loan to DIME, Correspondent
becomes aware of any fact or circumstance regarding any Loan of
which would have caused the Loan to be ineligible for sale to DIME
if known prior to such sale;
B. DIME may, from time to time, review, at Correspondent's place of
business, or at DIME's place of business, Correspondent's loan files, policies,
procedures, and records, in order to determine whether Correspondent meets
DIME's quality control standards.
C. Correspondent shall timely deliver to each applicant a completed
Regulation Z disclosure statement, Good Faith Estimate of Closing Costs,
Federally mandated fixed rate, or ARM disclosures and HUD booklets.
Correspondent shall be responsible for compliance with aggregate accounting
requirements relating to escrow account statements and escrow accounting
procedures mandated by the Federal Real Estate Settlement Procedures Act.
Correspondent shall also be responsible for compliance with ECOA concerning
notification of adverse action to an applicant whose Loan Package DIME does not
accept (DIME may, at its option, deliver notice of adverse action to
Correspondent for further delivery to applicant). Correspondent shall comply
with Regulation Z concerning return of all moneys paid by the applicant to
Correspondent should the applicant rescind and Correspondent shall not seek
reimbursement from DIME for such refund.
D. Correspondent shall deliver evidence, in a form satisfactory to DIME,
of such compliance, including, but not limited to, copies of any notice or
disclosure form furnished to an applicant.
E. Correspondent utilizes only licensed Real Estate Appraisers that meet
the requirements set forth in the Dime Correspondent Manual, and whose approval
and appointment is made in compliance with regulations and standards contained
in the Financial Institutions Reform Recovery and Enforcement Act or, in the
case of FHA or VA Loans, by appraisers approved by FHA or VA respectively.
F. At all times during the term of this Agreement, Correspondent shall
maintain a complete set of files and records of all business activities and
operations conducted by Correspondent in its capacity as loan correspondent of
Dime. Such
Revised 3/11/97 11
<PAGE>
files and records shall be maintained in a neat, orderly and organized manner.
For a period of not less than twenty-five (25) months from and after the date of
termination or expiration of this Agreement, Correspondent shall continue to
maintain all such files and records at a reasonably accessible location.
Alternatively, Correspondent may deliver to Dime all such files and records. At
all times during the term of this Agreement and at all times during the
twenty-five (25) month period following expiration or termination of this
Agreement, Dime, its duly authorized agents, representative and employees, any
necessary party involved in any public offering (such as rating agencies) and
federal and state regulatory agencies which supervise Dime shall have a right,
upon reasonable notice, to audit, inspect and copy any of the foregoing records,
reports, files, and related materials of Correspondent, and Correspondent shall
cooperate and assist any such audit or inspection.
ARTICLE V
REMEDIES/REPURCHASE/INDEMNIFICATION.
Section 5.1 Breach of Representation or Warranty. Upon discovery of a
breach of any of the representations and warranties set forth in Section 4.1, or
4.2, or of the covenants set forth in Section 4.3, the party discovering such
breach shall give written notice to the other. Correspondent shall have sixty
(60) days following its discovery or its receipt of notice of any such breach,
to cure such breach to the reasonable satisfaction of DIME. If in the reasonable
judgment of DIME such breach cannot be cured within such sixty (60) day period,
or is incapable of being cured, Correspondent shall, at the request of DIME,
proceed to repurchase the affected Loan at the related Repurchase Price.
Section 5.2 Repurchase of Loans by Correspondent. Upon the occurrence of
any of the following events, Correspondent agrees to immediately repurchase the
related Loan (or Property, if title thereto is held by DIME), at the Repurchase
Price:
A. Correspondent fails to provide all of the documentation required by
DIME and/or fails to satisfy all other requirements of this Agreement within one
hundred twenty (120) days following the Purchase Date. Such date shall be
extended to a date one hundred and eighty (180) days following the Purchase Date
for documents timely sent out for recording, but not yet returned due to delays
solely within the applicable recording office;
B. With regard to FHA or VA Loans, Correspondent fails to submit an FHA
Mortgage Insurance Certificate ("MIC"), or VA Loan Guaranty Certificate ("LGC")
within one hundred and twenty (120) days following the Purchase Date;
C. With regard to FHA or VA Loans, in the reasonable judgment of DIME, the
related MIC or LGC cannot be obtained, or any required private mortgage
insurance or guaranty, lapses, is rescinded, or claim thereon is denied or not
paid (except for the negligence of DIME);
D. DIME repurchases any Loan previously conveyed, transferred, or
Revised 3/11/97 12
<PAGE>
assigned by DIME to any third party due to defects which existed prior to, or
arose as a result of an occurrence on or before the Purchase Date;
E. The Loan File or Credit File contains any Fraudulent Document
regardless of whether or not such Loan is delinquent.
For any Loan which is incapable of being repurchased due to inclusion in a
GNMA pool, Correspondent agrees to comply with the procedures set forth in the
Dime Correspondent Manual.
Section 5.3 Early Payment Default. With respect to Loans underwritten by
Correspondent under Correspondent's Dime approved delegated underwriting
authority as described in the attached Delegated Addendum, or by Correspondent's
agency approved delegated underwriter, and which Loans have not been
underwritten by Dime prior to purchase, if such Loan is subject to a payment
default on any of the first three (3) scheduled monthly payments due Dime and
such default is not cured for one hundred and twenty (120) days following such
default, then Correspondent shall: (a) pay Dime $2500 for FHA or VA Loans, or
$1,000 for Conventional Loans, as reimbursement for administrative expenses;
(b) return any servicing release premium paid to Correspondent in reference to
such Loan; or (c) if the Loan is uninsured by FHA, not guaranteed by VA or if
private mortgage insurance as been denied due to origination errors, repurchase
and reconvey the Loan in accordance with Section 5.2 and 5.4 of this agreement.
Section 5.4 Reconveyance of Loan following repurchase by Correspondent.
Upon repurchase by Correspondent, DIME will endorse the Mortgage Note without
recourse and execute a recordable assignment of the Mortgage and Loan and
reasonably cooperate in the transfer of the Loan and all information relating
thereto to the Correspondent.
Section 5.5 Indemnification. Correspondent hereby agrees to indemnify,
save, and hold harmless DIME, its successors and assigns, from and against any
and all losses, damages, costs or expenses of any nature, including loss of
marketability and attorneys' fees, resulting from (a) breach of any
representation or warranty, covenant or agreement, made by Correspondent; or (b)
any misstatement or omission of material fact in the Loan File or Credit File,
whether disclosed by actual inspection by DIME or its representative, or
otherwise. This indemnification shall survive any termination or cancellation of
this Agreement.
Section 5.6 Remedies not Exclusive. The remedies sect forth in this
Article V, in other sections of this Agreement, and in the Dime Correspondent
Manual, are in addition to and not to the exclusion of any and all rights and
remedies available to DIME at law or in equity including specific performance.
Revised 3/11/97 13
<PAGE>
ARTICLE VI
TERMINATION OF THIS AGREEMENT
Section 6.1 Termination Without Cause. This Agreement may be terminated by
either party at any time upon 15 days written notification. If the termination
is at Dime's option, the Correspondent will be allowed to continue to register
loans during the 15 day period for those loan programs which Dime has made
available to Correspondent. Any loans registered open may be locked during the
15 day period. After 15 days, no more registrations or locks will be accepted;
however, all lock loans delivered within the rate reservation term will be
purchased provided they meet all funding requirements. Requests for extension of
delivery time on locked loans will not be unreasonably withheld. Notwithstanding
any termination of this Agreement, the representations and warranties,
covenants, agreements, and obligations of Correspondent, including but not
limited to, its continuing responsibility to promptly supply Dime with
outstanding documentation regarding all Loans purchased, and its obligation to
repurchase Loans and to Indemnify Dime as provided herein shall remain in full
force and effect.
Section 6.2 Termination with Cause and/or Suspension. At any point in time
that a Correspondent is in breach of the agreement, Dime, at its sole option,
may take one of two curative measures. For violations that do not appear to pose
a serious threat to the integrity of the program. Dime may suspend the
Correspondent from future registrations as per Section 6.3. For those violations
that Dime deems to be serious enough in nature to pose a risk to the program,
Dime may terminate the Correspondent with cause as per Section 6.4.
Section 6.3 Suspensions. Dime will notify a lender 24 hours in advance
that a breach in the contract exists, and that future registrations are
suspended. A suspended Correspondent may continue to deliver locked loans and
lock all registered open loans during the period of suspension. Failure by Dime
to immediately suspend a Correspondent when the breach is first discovered will
not prevent Dime from taking this action at a later date. At any point in time
that Dime deems the breach has been corrected or that management has taken
proper steps to correct the breach, Dime may lift the suspension.
Notwithstanding any suspension of a Correspondent's registration privileges, the
representations and warranties, covenants, agreements, and obligations of
Correspondent, including but not limited to, its continuous responsibility to
promptly supply Dime with outstanding documentation regarding all Loans
purchased, and its obligation to repurchase Loans and to Indemnify Dime as
provided herein shall remain in full force and effect.
Section 6.4 Termination With Cause. Dime will have no further obligation
to purchase any loans from a Correspondent terminated for cause regardless of
the loan status; however, Dime may choose to purchase some or all of the
Correspondents locked loans without prejudicing the decision to terminate with
cause. Notwithstanding a termination for cause, the representations and
warranties, covenants, agreements, and obligations of Correspondent, including
but not limited to, its continuing responsibility to promptly supply Dime with
outstanding documentation regarding all Loans purchased, and its obligation to
repurchase Loans and to Indemnity Dime as provided herein shall remain in full
force and effect.
Revised 3/11/97 14
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Assignment. Correspondent may not assign, or delegate any of
its rights, duties, and/or obligations hereunder without the written permission
of DIME which may be withheld in its sole discretion. A change in ownership,
merger, or consolidation of Correspondent shall be considered an assignment for
purposes of this Agreement.
Section 7.2 Relationship between Parties. No exclusive relationship
between Correspondent and DIME shall result from this Agreement. Correspondent
is an independent contractor and nothing herein shall be construed to make
Correspondent a partner, joint venturer, employee or agent of DIME.
Correspondent shall not make any statement which leads any third party to
reasonably believe that it is an agent of DIME, and shall have no authority to
bind or make any representations on behalf of DIME. Correspondent shall not use
or refer to DIME's name in any form of advertising, written materials or
circulars except as may be required by law.
Section 7.3 No Third Party Benefits. This Agreement is made for the
express benefit of Correspondent and DIME, not for the benefit or interest of
any other persons or entities, and accordingly, no third party shall obtain or
acquire any rights or interest in this Agreement or by reason of the performance
or failure of performance of either of the parties hereto or of their respective
rights, privileges, duties or obligations arising hereunder.
Section 7.4. Entire Agreement. This Agreement, any addendum(s) attached
hereto and executed by all parties, and all applicable Dime Correspondent Manual
constitute the entire understanding of the parties regarding the subject matter
hereof. Any additions, changes, amendments or modifications of this Agreement
must be in writing and executed by an authorized officer of DIME. The invalidity
of any portion of this Agreement shall not affect the remaining provisions.
Section 7.5 Notice. Any notice required to be given to a party hereto
under the provisions of this Agreement must be in writing and delivered either
personally, by telecopy transmission, or by certified mail to the other party at
the addresses indicated herein above, or at any future address that may be
changed via notice by certified mail.
Section 7.6 Non-Solicitation. Correspondent covenants and agrees that it
will not directly or indirectly take any action, or cause any act on to be taken
by any of its agents, contractors, employees or affiliates, to solicit the
repayment of or any alteration in payment procedures or terms of any Loan sold
to DIME under the terms of this Agreement. The preceding statement shall not
preclude Correspondent from engaging in general advertising or from servicing
the refinance needs of a Mortgagor who, without solicitation in violation of
this Section 7.6, contacts Correspondent in connection with the refinance of
such Mortgagor's Loan. Regardless of the method of solicitation, should any loan
sold under this Agreement be refinanced by the Correspondent or its approved
third party originator, who originated the loan being refinanced, within six (6)
months of
Revised 3/11/97 15
<PAGE>
the purchase date, the Correspondent will promptly return the original SRP plus,
in the event the loan is still owned by Dime, any Premium to Dime. The return of
the SRP and loan premium will be required whether Dime is the purchaser of the
new mortgage or not. If the refinance is due to a precipitous drop in interest
rites, Dime will consider a written request from the Correspondent for a waiver
of this requirement or a pro-rata reduction in the amount returned.
Section 7.7 Resolutions. Prior to the execution of this Agreement,
Correspondent shall provide a resolution from its board of directors,
authorizing the individual signing this Agreement to enter into this Agreement
on behalf of Correspondent and authorizing specific individuals who may either
(i) enter into Commitments and/or assign and transfer Mortgage Loan documents or
(ii) appoint other individuals to enter into Commitments and/or assign and
transfer Mortgage Loan documents.
Section 7.8 Annual Requirements. Within one hundred twenty (120) days
following the end of each fiscal year of Correspondent, Correspondent shall
deliver to Dime a financial statement of Correspondent covering such fiscal
period including a balance sheet as of the end of such fiscal year, and related
statements of changes in financial position and shareholders equity for such
fiscal period setting forth in each case in comparative form, figures for the
previous fiscal year all in reasonable detail, and unless otherwise agreed by
Dime, such financial statements shall be audited and certified by an independent
certified public accountant. If correspondent is an approved FHA D/E, said
statement shall include all calculations required by FHA. Correspondent shall
also provide satisfactory evidence that all licenses, insurance, and bonds have
been renewed and are current. Dime may at its option, from time to time, require
unaudited statements on a more frequent basis.
Section 7.9 Set-Off. Correspondent agrees that DIME may, at its option,
deduct from any Servicing Release Premium payment, and/or bonus payment due
Correspondent, any moneys paid by DIME on behalf of Correspondent, or due DIME
based upon Correspondent's failure to perform under the terms of this Agreement,
the Dime Correspondent Manual and/or any related Commitment.
Section 7.10 Governing Law. This agreement and the interpretation of its
terms shall be governed by the laws of the State of New York without giving
effect to its principles of conflict of law. THE PARTIES WAIVE THEIR RIGHTS TO A
JURY TRIAL IN ANY ACTION UNDER THIS AGREEMENT.
Section 7.11 Attorney Fees. In connection with any litigation or court
proceeding arising out of the enforcement of this agreement, the prevailing
party will be entitled to recover from the other party, all costs incurred,
including reasonable attorneys' fees for services rendered before suit is
brought, prior to trial, or appeal, or in federal bankruptcy proceedings.
Section 7.12 Limited Power of Attorney. Correspondent irrevocably appoints
Dime as its attorney-in-fact for the limited purpose of permitting Dime to: (a)
endorse any check, draft or other instrument in its possession which is made
payable to
Revised 3/11/97 16
<PAGE>
Correspondent but which is due Dime under the terms of this agreement, and (b)
endorse Mortgage Notes to Dime and prepare Assignments of Mortgages in
Possession.
IN WITNESS WHEREOF, the DIME and Correspondent have caused this Mortgage
Loan Origination Agreement to be executed as of the day and year first above
written.
DIME MORTGAGE INC.
By: /s/ William S. Bennett
--------------------------------------
Title: Vice President
----------------------------------
CORRESPONDENT
Michael Strauss, Inc.
dba American Home Mortgage
dba American Brokers Conduit
----------------------------------------
(Name of Business)
/s/ Ann Marie Venture By: /s/ Michael Strauss
- ------------------------------- -------------------------------------
Witness Title: President
----------------------------------
Ann Marie Venture
- --------------------------------
Witness
Revised 3/11/97 17
<PAGE>
EXHIBIT 21.1
Subsidiaries of American Home Mortgage Holdings, Inc.
-----------------------------------------------------
American Home Mortgage Corp.
<PAGE>
Exhibit 23.1
Independent Auditors' Consent
We consent to the use in this Registration Statement of American Home Mortgage
Holdings, Inc. on Form S-1 of our report dated March 25, 1999 (June 15, 1999 as
to Note 12) for Michael Strauss Inc. (d/b/a American Home Mortgage Corp.) and
of our report dated July 6, 1999 for American Home Mortgage Holdings, Inc.,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
Deloitte & Touche
Parsippany, New Jersey
July , 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 2,892 2,695
<SECURITIES> 0 0
<RECEIVABLES> 2,893 2,658
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 2,202 2,484
<DEPRECIATION> (627) (707)
<TOTAL-ASSETS> 42,392 36,087
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 318 318
<OTHER-SE> 5,606 6,222
<TOTAL-LIABILITY-AND-EQUITY> 42,392 36,087
<SALES> 0 0
<TOTAL-REVENUES> 20,217 5,658
<CGS> 0 0
<TOTAL-COSTS> 13,272 4,296
<OTHER-EXPENSES> 1,543 577
<LOSS-PROVISION> 153 28
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 5,249 757
<INCOME-TAX> 328 37
<INCOME-CONTINUING> 4,921 720
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,870 707
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
