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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-22474
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AMERICAN BUSINESS FINANCIAL SERVICES, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 87-0418807
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 Presidential Boulevard, Bala Cynwyd, PA 19004
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(Address of Principal Executive Offices)(Zip Code)
(610) 668-2440
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each
Exchange on which
Title of Each Class Registered
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Common Stock, par value
$.001 per share Philadelphia Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Check if is there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB.
[ ]
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State issuer's revenues for its most recent fiscal year: $12,378,733.
The aggregate market value for the 750,109 shares of common stock, $.001
par value per share (the "Common Stock"), held by non-affiliates of the
Registrant as of August 30, 1996 was $12,564,326.
The number of shares outstanding of the Registrant's sole class of Common
Stock as of August 30, 1996 was 2,353,166 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Transitional Small Business Disclosure Format (Check one):
[ ] Yes [ X ] No
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ITEM 1. DESCRIPTION OF BUSINESS
FORWARD LOOKING STATEMENTS
When used in this Form 10-KSB and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"projected" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including but not limited to changes in interest rate, credit risk related to
the Company's borrowers, market conditions and real estate values in the
Company's lending area, competition, the Company's dependence on debt financing
and securitizations to fund operations, fluctuations in quarterly operating
results, unseasoned nature of the Company's consumer loan and leasing
portfolios, state and federal regulation and licensing requirements applicable
to the Company's lending activities and environmental concerns that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
GENERAL. American Business Financial Services, Inc. ("ABFS" or
collectively with its subsidiaries the "Company") was incorporated in Delaware
in 1985 under the name Kingsway Enterprises, Inc., which name was subsequently
changed to Geriaco. In early 1993, ABFS acquired one hundred percent ownership
of American Business Credit, Inc. ("ABC") through a tender offer to the equity
security holders of ABC, offering shares of ABFS's common stock in exchange for
each share of ABC common stock and preferred stock outstanding, pursuant to
which the former shareholders of ABC gained control of ABFS and the Geriaco name
was changed to ABFS. ABFS's only activity as of the date hereof has been: (i)
acting as the holding company for the Company's operating subsidiaries and (ii)
raising capital for use in the Company's lending operations and otherwise. The
Company presently employs 120 people on a full time basis and two people on a
part-time basis.
ABFS, through its business lending subsidiary ABC, began its operations in
1988 as a privately-held enterprise offering commercial loans to credit impaired
customers whose borrowing needs were not being serviced by commercial banks.
Since its inception ABFS has significantly expanded its product line and
geographic scope. Currently, ABFS is a full service financial services company
operating primarily throughout the Mid-Atlantic Region of the United States.
ABFS, through direct and indirect subsidiaries described below, originates,
services, purchases and sells a full spectrum of financial services products,
including business, consumer and home equity loans and business leases.
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ABFS is the parent holding company of ABC and its subsidiaries, American
Business Finance Corporation, HomeAmerican Credit, Inc., Processing Service
Center, Inc., HomeAmerican Consumer Discount Company, American Business Leasing,
Inc., and ABC Holdings Corporation (collectively, the "Company"). The Company's
subsidiaries, ABFS 1995-1, Inc., ABFS 1995-2, Inc. and ABFS 1996-1, Inc. were
incorporated to facilitate the Company's securitizations and do not engage in
any business activity other than holding the subordinated certificate and the
residual. See "Securitizations." American Business Finance Corporation was
incorporated in connection with the issuance of subordinated debentures in 1990
through 1994. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources." ABC Holdings
Corporation was incorporated to hold properties acquired through foreclosure.
Processing Service Center, Inc. processes home equity loan applications for
local banks. The Company's principal businesses are described herein.
ABFS's Common Stock is traded on the Philadelphia Stock Exchange under the
symbol "AFX".
All information contained herein has been adjusted to reflect a 3 for 2
stock split declared by the Board of Directors of ABFS and paid on November 1,
1995 to stockholders of record of the Company on October 1, 1995.
BUSINESS STRATEGY. The Company's objective is to enhance its significance
as a participant in the financial services industry. The Company believes that
its growth has been sustained by its commitment to servicing segments of the
market which the Company believes are not adequately serviced by commercial
banks. In servicing its markets, the Company stresses the importance of
customer service, including prompt response to requests for loans or leases.
The Company remains committed to increasing revenues by: (i) developing new
financial services profit centers; (ii) broadening its geographic business base;
(iii) expanding its capabilities to service an expanding customer base and
portfolio of customer loans; and (iv) continuing to utilize securitizations of
its loan (the process of aggregating loans into pools that are used to
collateralize securities which are issued to third party investors) and possibly
its lease portfolios.
SECURITIZATIONS. The sale of the Company's home equity and business loans
through securitizations is an important objective of the Company. In
furtherance of this objective, the Company, during fiscal year 1996, sold in the
secondary market senior interests in two pools of loans it securitized.
Generally, a securitization involves the transfer by the Company of receivables
representing a series of loans to a single purpose trust in exchange for
certificates or securities issued by the trust. The certificates represent an
undivided ownership interest in the loans transferred to the trust. The
certificates consist of a class of senior certificates, and a residual interest
and may include a class of subordinated certificates. In connection with
securitizations, the senior certificates are sold to investors and the
subordinate certificates, if any, and residual interest are typically retained
by the Company. As a result of the sale of the senior certificates, the Company
receives a cash payment representing a substantial portion of the principal
balance of the loans held by the trust. The senior certificates will entitle
the holder to be repaid the principal of its purchase price and the certificates
bear interest at a stated rate of interest. The stated rate of interest is
typically substantially less than the interest rate required to be paid by the
borrowers with respect to the underlying loans. As a consequence, the Company
is able to receive cash for a portion of its portfolio and to pay the principal
and interest required by the senior certificate with the cash flows from the
underlying loans owned by the trust. However, since the interest in the loans
held by the Company (the subordinate certificate and the residual interest) is
subordinate to the senior certificate, the Company retains a portion of the risk
that the full value of the underlying loans will not be realized. Additionally,
the holder of the senior
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certificates will receive certain additional payments on account of principal in
order to reduce the balance of the senior certificates in proportion of the
subordinated amount held by the Company. The additional payments of principal
are designed to increase the senior certificate holder's protection against loan
losses. In the typical subordination structure, the Company, as the holder of
the residual interest in the trust will be entitled to receive all of the
remaining interest in the loans at the time of the termination of the trust.
The pooling and servicing agreements that govern the distribution of cash
flows from the loans included in the securitization trusts require the
overcollateralization of the senior interests by using interest receipts on the
mortgage loans to reduce the outstanding principal balance of the senior
interests to a pre-set percentage of the mortgage loans. The
overcollateralization percentage may be reduced over time according to the
delinquency and loss experience of the loans. The Company's interest in each
overcollateralized amount is reflected in the Company's financial statements as
a portion of the "residual". To the extent that a loss is realized on the
loans, losses will be paid first out of the excess interest spread received and
ultimately out of the overcollateralization amount available to the residual
certificates, and the subordinated certificate, if available. If losses exceed
the Company's projected amount, the excess losses will result in a reduction in
the value of the residual certificate held by the Company.
The Company may be required either to repurchase or to replace loans which
do not conform to the representations and warranties made by the Company in the
pooling and servicing agreements entered into when the loans are pooled and sold
through securitizations.
The Company generally retains the servicing rights with respect to all
loans securitized . Such loans are serviced by ABC, a subsidiary of the
Company. See "American Business Credit, Inc."
As set forth in greater detail below, subject to market conditions, the
Company anticipates that it will continue to build portfolios of business loans,
home equity loans and possibly business leases and enter into securitizations of
these portfolios. The Company believes that a securitization program provides a
number of benefits by allowing the Company to diversify its funding base,
provide liquidity and lower its cost of funds.
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AMERICAN BUSINESS CREDIT, INC.
GENERAL. ABC, a Pennsylvania corporation incorporated in 1988, is a
commercial finance company which originates, services and sells business loans
collateralized by real estate. ABC typically makes loans to owners of small
businesses who do not meet all of the credit criteria of commercial banks, but
who ABC determines has the business purpose, motivation and real estate
collateral required to repay his, her or its obligation. ABC has sustained
growth in this business by carefully identifying a niche market and building an
experienced organization capable of responding to customer needs and servicing
the loan portfolios.
LENDING. ABC operates in Pennsylvania, Delaware, New Jersey, New York,
Virginia and Maryland and plans to expand into the Southeastern Region of the
United States. ABC makes business loans to corporations, partnerships, sole
proprietors and other business entities. ABC primarily makes loans to borrowers
with non-perfect credit histories. As a result, ABC typically requires lower
loan-to-value ratios (amount of loan as compared to appraised value of
collateral securing the loan) than are typically required of borrowers with
unblemished credit histories. All loans are collateralized by a first or second
mortgage lien on a principal residence or some other parcel of real property,
such as office and apartment buildings and mixed use buildings, owned by the
borrower, a principal of the borrower, or a guarantor of the borrower. ABC,
generally, further collateralizes its loans by obtaining a lien on the
borrower's other tangible and intangible assets by filing appropriate Uniform
Commercial Code financing statements.
ABC makes loans for various business purposes including, but not limited
to, working capital, business expansion, equipment acquisition and debt-
consolidation. ABC does not target any particular industries or trade groups
and, in fact, takes precautions against concentrations of loans in any one
industry group.
Loans made by ABC generally range from $15,000 to $350,000 and have an
average balance of approximately $70,000.
STRATEGY. ABC markets its business loans through various forms of
advertising, and a direct sales force. The advertising includes large direct
mail campaigns directed at owners of small businesses located in its service
area. Newspaper and radio advertising are also utilized. ABC's marketing
efforts are principally undertaken by its commissioned sales staff, which
consists of full time professional sales persons who are responsible for
converting advertising leads into loan applications.
LENDING POLICIES AND PRACTICES. Summarized below are certain of the
lending policies and practices which ABC follows. It should be noted that such
policies and practices will be altered, amended and supplemented as conditions
warrant. ABC reserves the right to make changes in its day to day practices and
policies in its sole discretion. Such changes may be made by management without
a vote of the Company's shareholders.
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ABC endeavors at all times to keep its interest and other charges
competitive with the lending rates of other finance companies. Generally, loans
are made at fixed rates for fixed terms ranging from one to fifteen years.
Generally, ABC computes interest due on its outstanding loans using the simple
interest method. ABC requires that title insurance be obtained in connection
with its loans. In all instances, ABC permits borrowers to prepay such loans.
Where permitted by applicable law, ABC may impose a prepayment penalty. Whether
a prepayment fee is imposed and the amount of such fee, if any, is negotiated
between ABC and the individual borrower prior to consummation of the loan.
Generally, ABC will not make a loan collateralized by residential real
estate where the overall loan to value ratio (based on independent appraised
fair market value) on the properties collateralizing the loans is equal to or
greater than seventy-five (75%) percent. Generally, ABC will not make a loan
collateralized by commercial real estate where the overall loan to value ratio
(based on independent appraised fair market value) is equal to or greater than
sixty (60%) percent. Occasionally, exceptions to these maximum levels are made
if other collateral is available or if there are other compensating factors.
UNDERWRITING PROCEDURES. ABC's underwriting standards are applied to
evaluate prospective borrowers' credit standing and repayment ability and the
value and adequacy of the mortgaged property as collateral. Initially, the
borrower is required to fill out a detailed application providing pertinent
credit information. As part of the description of the borrower's financial
condition, the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the existence of
sufficient income and equity, ABC obtains and reviews an independent credit
bureau report on the credit history of the borrower and verification of the
borrower's income by obtaining and reviewing one or more of the borrower's pay
stubs, income tax returns, checking account statements, W-2 tax forms or
verification of business or employment forms.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraisal is
completed by a qualified appraiser on a FNMA form including pictures of
comparable properties and generally pictures of the subject property's interior.
Once all applicable employment, credit and property information is
obtained, a determination is made by ABC as to whether sufficient unencumbered
equity in the property exists and whether the prospective borrower has
sufficient monthly income available to meet the borrower's monthly obligations.
SERVICING OF LOANS. Generally, ABC will be responsible for servicing the
loans it maintains in its portfolio or which are securitized by the Company in
accordance with its established servicing procedures. In servicing its loans,
ABC initiates the collection process one day after a borrower misses a monthly
due date. When a loan becomes forty-five (45) to sixty (60) days delinquent, it
is transferred to ABC's loan work-out department. The work-out department
attempts to reinstate a delinquent loan, seek a payoff, or occasionally enter
into a loan modification agreement with the borrower to avoid foreclosure. If a
borrower declares bankruptcy, the matter is immediately referred to counsel.
ABC in its capacity as the servicer of securitized loans is obligated to advance
funds (an "Advance") in respect of each monthly loan interest payment that
accrued during the collection period for the loans but was not received, unless
ABC determines that such advances will not be recoverable from subsequent
collections in respect to the related loans.
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PURCHASING OF EXISTING LOANS. In the normal course of business, ABC may in
the future purchase business/commercial loan portfolios from individuals, banks,
other commercial finance companies as well as other sources of commercial loans.
Any loans so purchased would be collateralized by real estate located in ABC's
market area. Each such individual loan would be reviewed by a lending officer
of ABC prior to acquisition to see if the loan and all related matters conform
to ABC's lending procedures and policies.
SALE AND SECURITIZATION OF LOANS. In the normal course of its business,
ABC sells loans which it has made to unrelated third party investors through the
(i) sale of individual loans; (ii) bulk sale of several loans; and (iii)
securitization of an entire portfolio of loans. Such sales may occur shortly
after the consummation of a loan by ABC, out of ABC's portfolio or after ABC has
built a portfolio of loans. In all instances, ABC sells such loans to unrelated
entities for a premium, thereby generating income for ABC. Since the Company
has recently emphasized the securitization of its loans, the sale of individual
loans and the bulk sale of loans have become, on a relative basis, a smaller
portion of ABC's day to day business.
COMPETITION. As a finance company, ABC competes against many other finance
companies, some of which have larger capitalization and better name recognition.
ABC competes with these larger entitles by focusing on servicing a portion of
this market which ABC believes is not adequately serviced by banks and by
providing highly responsive and quick customer service.
HOMEAMERICAN CREDIT, INC.
GENERAL. HomeAmerican Credit, Inc. d/b/a Upland Mortgage ("HAC" or
"Upland"), which was incorporated in Pennsylvania in 1991, is principally a
consumer home equity lender currently operating in Pennsylvania, New Jersey,
Delaware, Maryland and Virginia.
In February of 1996, HAC acquired substantially all of the assets of Upland
Mortgage Corporation, a Pennsylvania, New Jersey and Delaware mortgage broker.
Believing Upland Mortgage's name had better recognition and marketing potential
HAC adopted Upland's name and now does business as "Upland Mortgage". HAC is
herein after referred to as Upland.
In recent years, Upland has experienced growth in its loan business in a
highly competitive business environment. Upland is expanding its professional,
service oriented infrastructure to accommodate and service an increasing volume
of home equity loans. The Processing Service Center, Inc., an ABC subsidiary
("PSC"), has recently entered into business arrangements with certain banks
pursuant to which PSC will process non-conforming first and second mortgage
loans generated by the banks for purchase by Upland. Upland intends to utilize
this relationship to expand its lending base.
LENDING. Upland primarily originates residential mortgages and consumer
home equity loans but will originate business loans in limited situations where
certain state licensing does not permit ABC to make such loans. Historically,
each of the non-business residential mortgages and home equity consumer loans
originated and funded by Upland were sold to one of several third party lenders,
at a premium. Currently, Upland builds portfolios of consumer home equity loans
for the purpose of selling or securitizing such loans.
STRATEGY. Upland primarily markets its residential mortgage and consumer
home equity loans through print advertisement in newspapers, radio
advertisements and through direct mail campaigns. Beginning in September of
1996, Upland embarked on a television advertising campaign for the marketing of
its home equity loan products. Supporting this television campaign will be
radio and print advertising designed to capitalize on the Company's television
ads.
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LENDING POLICIES AND PRACTICES. Upland takes applications from potential
borrowers over the phone and in person. The loan request is then processed and
closed. Upland attempts to provide its home equity borrowers with a loan
approval within 24 hours and to close its home equity loans within five days of
obtaining a loan approval.
Upland attempts to maintain its interest and other charges competitive with
the lending rates of other finance companies and banks. Generally, its consumer
home equity loans are made at fixed rates for fixed terms and may extend for a
term of up to thirty (30) years. Its residential mortgage loans are offered in
varied forms. In all instances, Upland permits borrowers to prepay their loans.
Where permitted by applicable law, Upland may impose a prepayment penalty.
Whether a prepayment penalty is imposed and the amount of such penalty , if any,
is negotiated between Upland and the individual borrower prior to closing of the
loan. In the majority of cases, Upland does not impose a prepayment penalty.
UNDERWRITING PROCEDURES. Upland's underwriting standards are applied to
evaluate prospective borrowers' credit standing and repayment ability and the
value and adequacy of the mortgaged property as collateral. Initially, the
borrower is required to fill out a detailed application providing pertinent
credit information. As part of the description of the borrower's financial
condition, the borrower is required to provide information concerning assets,
liabilities, income, credit, employment history and other demographic and
personal information. If the application demonstrates the existence of
sufficient income and equity, Upland obtains and reviews an independent credit
bureau report on the credit history of the borrower and verification of the
borrower's income by obtaining and reviewing one or more of the borrower's pay
stubs, income tax returns, checking account statements, W-2 tax forms or
verification of business or employment forms.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraisal is
completed by a qualified appraiser on a Federal National Mortgage Association
("FNMA") form including pictures of comparable properties.
Once all applicable employment, credit and property information is
obtained, a determination is made as to whether sufficient unencumbered equity
in the property exists and whether the prospective borrower has sufficient
monthly income available to meet the borrower's monthly obligations.
SERVICE AREA. Upland is licensed to act and currently operates as a first
and second mortgage banker/lender in Pennsylvania, New Jersey, Delaware,
Maryland and Virginia. Upland has recently been granted licenses to act as a
mortgage lender in Georgia, North Carolina, Connecticut and Florida. Upland
anticipates beginning to lend on a limited basis in those states during
calendar year 1997. Upland currently conducts its business from two offices.
Its primary or main office is located at the Company's main offices and its
branch office is located in Cherry Hill, New Jersey. Upland may open additional
locations within or outside of its present service area as its markets develop
in such other areas.
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REGULATION. The consumer home equity lending business is highly regulated
by both federal and state laws. All consumer loans must meet the requirements
of the federal Truth-In-Lending Act, the Real Estate Settlement Procedures Act
and Federal Reserve Regulations X, Z and B. In addition to the federal laws,
Upland is licensed and regulated by the Departments of Banking in the various
states in which it is licensed. Upland maintains compliance with the various
federal and state laws through its in-house and outside counsel which
continually review Upland's documentation and procedures and monitor and apprise
Upland on various changes in the laws.
COMPETITION. Upland has significant competition in the consumer home
equity market. Upland competes with banks, thrift institutions and other
financial companies, which may have greater resources and name recognition.
Upland attempts to mitigate these factors through a highly trained staff of
professionals and rapid response to prospective borrowers' requests.
AMERICAN BUSINESS LEASING, INC.
GENERAL. American Business Leasing, Inc. ("ABL"), a Pennsylvania
corporation, was incorporated in December of 1994 for the purpose of offering
financing in the form of leasing to businesses for equipment acquisition
purposes. Since the commencement of its business in 1995, ABL has identified
and pursued a niche in the leasing market, small to medium-sized office and
industrial equipment, and has established a lease portfolio of approximately
$4.5 million as of June 30, 1996.
LEASING. ABL markets its products and originates business equipment leases
throughout the United States with primary emphasis on the Northeast corridor of
the United States. ABL makes business leases to corporations, partnerships,
other entities and sole proprietors. All such lessees must meet certain
specified financial and credit criteria.
ABL leases various types of business equipment including, but not limited
to, computer equipment, phone systems, copiers, and construction equipment. ABL
does not target any particular industry or trade group and avoids the
concentration of leases in any one particular industry group. While ABL retains
a security interest in and to the equipment, it is not dependent on the value of
the equipment as the principal means of securing the lease. The primary
security for the lease is the borrower's financial strength and its credit
history.
Generally, ABL's leases are of two types: (i) finance leases which have a
term of twelve (12) to sixty (60) months and provide a purchase option
exercisable by the lessee at $1.00 at the termination of the lease and (ii) fair
market value or true leases which have a similar term but provide a purchase
option exercisable by the lessee at the fair market value of the equipment at
the termination of the lease.
ABL's leases generally range in size from $1,000 to $250,000, with an
average lease size of approximately $12,000.
STRATEGY. ABL primarily obtains its business leasing customers through
equipment manufacturers, brokers and vendors with whom it has a relationship and
through a direct sales force. The Company also believes that ABL will benefit
from the customer base and advertising efforts of ABC and that ABC may benefit
as well from ABL's network of vendors.
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LEASING POLICIES AND PRACTICES. Generally, ABL's interest rate and other
terms and conditions of its leases are competitive with the leasing terms of
other leasing companies in the area. As stated above, the leases are for terms
of twelve (12) to sixty (60) months and are structured with purchase options
whose exercise prices range from $1.00 to the fair market value of the equipment
at the time of the lease termination.
ABL secures all of its leases with a lien on the leased equipment.
However, creditworthiness and financial strength of the lessee are the primary
criteria utilized by ABL in determining whether to enter into a lease
arrangement with a specific lessee. Currently, ABL retains all leases it makes
in its lease portfolio and services all such leases. It is anticipated that in
the future, ABL may develop relationships with third party purchasers of leases
and will sell a portion of the leases it makes to such third parties. The sale
of leases to third party purchasers may or may not require ABL to retain the
servicing rights to such leases.
It should be noted that the above policies and practices may and will be
altered, amended and supplemented as conditions and circumstances warrant. ABL
reserves the right to make changes in its day to day practices and policies in
its sole discretion.
SALE OF LEASES. The Company has and intends to continue to build its lease
portfolio which may be at the appropriate time sold in bulk. The Company may,
in the future, attempt to securitize its lease portfolio provided economic
conditions warrant such activity.
SERVICE AREA. ABL markets, services and originates business equipment
leases throughout the United States with particular emphasis on the Northeastern
corridor of the United States. ABL conducts its business operations from the
Company's main offices. As markets develop in other areas, ABL may open
additional offices within or outside its present service area.
COMPETITION. ABL has significant competition in the equipment leasing
industry. ABL competes with banks, leasing and financial companies with
greater resources, capitalization and name recognition throughout its market
area. It is the intention of ABL to capitalize on its vendor relationships and
the efforts of its direct sales force to combat these competitive factors.
HOMEAMERICAN CONSUMER DISCOUNT COMPANY
HomeAmerican Consumer Discount Company ("HCDC"), a Pennsylvania
corporation, was incorporated in November 1993 for the purpose of offering
secured and unsecured small consumer loans (i.e., loans up to $15,000) to
residents of Pennsylvania and New Jersey. Currently, HCDC builds a portfolio
and periodically, sells such portfolio of loans to third party investors. As
of June 30, 1996, HCDC maintained a portfolio of small consumer loans of
approximately $100,000. The Company presently views this line of business as
ancillary to its principal lines of business and does not actively pursue small
consumer loans.
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ITEM 2. DESCRIPTION OF PROPERTY
Except for real estate acquired in foreclosure as part of the Company's
normal course of business, neither ABFS nor its subsidiaries presently hold
title to any real estate for operating purposes. The interests which the
Company presently holds in real estate are in the form of mortgages against
parcels of real estate owned by HAC's or ABC's borrowers or affiliates of HAC's
or ABC's borrowers and real estate acquired through foreclosure.
The Company presently leases office space at 111 Presidential Boulevard,
Bala Cynwyd, Pennsylvania, just outside the city limits of Philadelphia. The
Company is currently leasing its office space under a five (5) year lease with a
current year annual rental of approximately $431,000. The Company is currently
negotiating with its landlord to lease additional office space in the building
where its executive offices are located. In addition, the Company leases an
executive suite in Boca Raton, Florida, expiring in February, 1997.
Upland leases its New Jersey office in Cherry Hill, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
On or about February 17, 1995, American Business Leasing, Inc. was served
with a Writ of Summons captioned MONTGOMERY LEASING COMPANY V. AMERICAN BUSINESS
LEASING, INC., AMERICAN BUSINESS CREDIT, INC. AND AMERICAN BUSINESS FINANCIAL
SERVICES, INC., Court of Common Pleas of Montgomery County (Pennsylvania), No.
95-03554. In connection therewith, on or about May 18, 1995, American Business
Leasing, Inc. was served a complaint captioned MONTGOMERY LEASING COMPANY V.
AMERICAN BUSINESS LEASING, AMERICAN BUSINESS CREDIT, AMERICAN BUSINESS FINANCIAL
SERVICES, INC., DONNA WESEMANN AND CHRISTINE ADAMS, Court of Common Pleas of
Montgomery County (Pennsylvania) No. 95-07219. The complaint alleges that the
named defendants acted in a conspiracy to damage the plaintiff; misappropriated
assets of the plaintiff; interfered with the plaintiff's contractual
relationships and with plaintiff's prospective business opportunities.
Currently, the Company is in the process of negotiating a settlement agreement
with Montgomery Leasing Company.
Additionally, on or about August 24, 1995, American Business Leasing, Inc.
filed a complaint against Montgomery Leasing Company, the above named plaintiff,
Uriel and Arlene Yogev, shareholders and officers of Montgomery Leasing Company,
and Mark Halpern, Georgeann Fusco and Furnan & Halpern, P.C. attorneys for
Montgomery Leasing Company. The complaint is captioned AMERICAN BUSINESS
LEASING V. MONTGOMERY LEASING COMPANY, URIEL YOGEV, ARLENE YOGEV, FURMAN &
HALPERN, P.C., MARK HALPERN AND GEORGEANN FUSCO, Court of Common Pleas of
Montgomery County (Pennsylvania). The American Business Leasing complaint seeks
damages from the defendants based on abuse of process as a result of their
malicious filing of their above referenced complaint and conspiracy to drive
American Business Leasing, Inc. out of business. The complaint also seeks
damages from Montgomery Leasing Company and the Yogevs for interfering with
contractual relationships and prospective business opportunities and defamation
based on statements made by the Yogev's and Montgomery Leasing Company as to
American Business Leasing, Inc. Upon settlement of the suit brought by
Montgomery Leasing Company, described above, it is anticipated that this suit
will be settled as well.
12
<PAGE>
The Company is also involved in various legal proceedings of its business
loan borrowers. These actions were instituted in the normal course of business
to obtain repayment of monies under the terms of the business loans.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 31, 1996. All
members of the board were reelected at such meeting for terms of one year. The
following table lists other matters voted upon at such meeting and the number of
votes cast for and against such proposal, as well as, the number of abstentions
and broker non-votes received thereon.
Proposal Number of Votes
-------- ---------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
---- ------- ------- ---------
Approval of Amendment
and Restatement of
the Company's 1,704,059 685 616 0
Certificate of
Incorporation
Approval of the Company's
Non-Employee Director
Stock Option Plan. 1,702,339 1,413 1,608 0
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION. The Common Stock is traded on the Philadelphia
Stock Exchange ("PHLX") under the symbol "AFX". The Common Stock began trading
on the PHLX on May 13, 1996. The average high and low sales prices of the
Common Stock from the date on which the Common Stock commenced trading on the
PSE through June 30, 1996 were $17.00 and $10.00, respectively. Prior to the
commencement of trading on the PHLX, there was no active trading market for the
Common Stock. As a result, stock price information for the Common Stock is not
available for any period prior to May 13, 1996.
On August 30, 1996, the closing sales price of the Common Stock on the
PHLX was $16.75.
(b) STOCKHOLDERS. As of August 30, 1996, there was approximately 120
record holders and approximately 500 beneficial holders of the Common Stock.
(c) DIVIDENDS. During fiscal 1996, the Company paid dividends of $0.03 per
share, for an aggregate dividend payment of $70,595. Subsequent to fiscal year
end, the Company declared a dividend of $0.015 per share for the fourth quarter
of fiscal 1996. The continuing payment by the Company of dividends in the
future rests within the discretion of its Board of Directors and will depend,
among other things, upon the Company's earnings, its capital requirements and
its
13
<PAGE>
financial condition, as well as other relevant factors. As a Delaware
corporation, the Company may not declare and pay dividends on its capital stock
if the amount paid exceeds an amount equal to the excess of the Company's net
assets over paid-in-capital or, if there is no excess, its net profits for the
current and/or immediately proceeding fiscal year. In addition, one of the
Company's loan agreements prohibits the payment of dividends in excess of the
lesser of 33% of net income for the current year or $250,000.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to fund its loans principally through
(i) institutional debt financing, (ii) the securitization and sales of loans
which it purchases or originates, (iii) the sale of the Company's registered
subordinated debentures, and (iv) retained earnings. The Company's cash
requirements include the funding of loan originations, payment of interest
expense, funding over-collaterization requirements, operating expenses and
capital expenditures.
To a limited extent, the Company presently intends to continue to augment
the interest and fee income it earns on its loan and lease portfolio, from time
to time, by selling loans either at the time of origination or from its
portfolio to unrelated third parties. These transactions also create additional
liquid funds available for lending activities.
Between November 1990 and February 1994, American Business Finance
Corporation ("ABFC"), an indirect subsidiary of ABFS, sold approximately
$1,700,000 in principal amount of subordinated debentures which mature at
varying times between September 1996 and June 1998. In February 1994,
the Company ceased selling subordinated debentures through ABFC. As of June 30,
1996, approximately $1,300,000 of subordinated debt was outstanding
In addition, between July 1993 and June 1996, ABFS sold $48,169,910 in
principal amount of subordinated debentures (including redemptions and
repurchases by investors) pursuant to registered offerings with varying
maturities ranging between three months and ten years. As of June 30, 1996,
approximately $32,300,000 of subordinated debentures were outstanding. The
proceeds of such debenture sales have been used to fund general operating and
lending activities. The Company intends to meet its obligations to repay such
debentures as they mature with income generated through its lending activities
and funds generated through repayment of its outstanding loans. The repayment
of such obligations should not effect the Company's operations.
During the fiscal year 1996, the Company completed two loan
securitizations. These securitizations which were consummated in October 1995
and May 1996, involved $14,500,000 of business loans and $22,000,000 of business
and home equity loans, respectively. These securitizations resulted in proceeds
of approximately $34.2 million. The Company intends to utilize the proceeds of
the securitizations to fund the origination of new loans and leases. In
accordance with the terms of the securitizations, the Company will receive less
cash flow from the portfolios of loans securitized than it would otherwise
receive absent securitizations.
Additionally, pursuant to the terms of the securitizations, ABC will act as
the servicer of the loans and in that capacity will be obligated to advance
funds in certain circumstances in respect of each monthly loan interest payment
that accrued during the collection period for the loans but was not received,
unless ABC determines that such advances will not be recoverable from subsequent
collections in respect of the related loan. ABC's obligation to advance funds
in
14
<PAGE>
its capacity as servicer of the loans may create greater demands on the
Company's cash flow than either selling loans or maintaining a portfolio of
loans.
Subject to economic, market and interest rate conditions, the Company
intends to continue to implement additional securitizations of its loan
portfolios and may in the future securitize its lease portfolio. Adverse
conditions in the Securitization market could impair the Company's ability to
sell loans through securitizations on a favorable or timely basis. Since the
sale of loans through securitizations is an important source of revenues, any
such delay or impairment could have a material adverse impact in the Company's
results of operations.
The Company's Revolving Credit and Security Agreement with CoreStates Bank,
N.A. (formerly Meridian Bank) was renewed as of December 1995 and expires in
December 1996. The credit facility is in the amount of $3,500,000, bears an
interest rate equal to the bank's prime rate plus 1.6%.
In April 1996, Upland entered into an Interim Warehouse and Security
Agreement with Prudential Securities Realty Funding Corporation. The credit
facility is for $25,000,000, bears interest at the 30 day LIBOR plus 1.25% and
expires in September 1996. Subsequent to fiscal year end, this credit facility
was extended to March 1997.
Additionally, in May 1996, Upland entered into a $7,500,000 Revolving Loan
and Security Agreement with BankAmerica Business Credit, Inc. The credit
facility bears interest at the bank's prime rate plus 1.25% and expires in May
1998.
The Company is currently discussing the possibility of obtaining additional
lines of credit with other lenders and providers of credit.
As of June 30, 1996, the Company had $21,206,784 of debt scheduled to
mature during the fiscal year ending June 30, 1997, including approximately
$18.85 million of subordinated debentures and approximately $2.35 million of
debt under a revolving credit facility. It is currently anticipated that the
maturing credit facility will be paid from the proceeds of the Company's next
securitization. The Company currently expects to refinance the $18.85 million
of maturing debt through extensions of maturing debentures or new debt financing
and, if necessary, may retire the debt through cash flow from operations and
loan sales or securitizations. Despite the Company's current use of
securitizations to fund loan growth, the Company continues to be dependent upon
borrowings to fund a portion of its operations. As a result, the Company's
ability to continue to expand its operations in the future will at least, in
part, be dependent on the Company's continuing access to debt financing.
The Company from time to time considers potential acquisitions of related
businesses or assets which could have a material impact upon the Company's
liquidity position.
The Company leases certain of its facilities under a five-year operating
lease expiring in November 2000 at a minimum annual rental of $430,637. The
lease contains a renewal option for an additional period at increased annual
rental. See "Item 2 - Description of Property."
15
<PAGE>
INTEREST RATE RISK MANAGEMENT.
The Company is subject to interest rate risk to the extent it holds fixed
rate mortgage loans in its held for sale portfolio prior to securitization. In
August 1995, the Company implemented an "interest-rate lock" strategy in an
attempt to mitigate the effect of changes in interest rates on its fixed rate
mortgage loan portfolio between the date of originatination and securitization.
This strategy involves short sales of a combination of U.S. Treasury securities
with an average life which closely matches the average life of the loans to be
securitized. The settlement date of the short sale, as well as, the buy back of
the Treasury Securities coincides with the anticipated settlement date of the
underlying securitization. At June 30, 1996, the Company sold short $15,000,000
of U.S. Treasury securities. The deferred loss related to these activities was
approximately $27,000 at June 30, 1996. The Company also prefunds loan
orginations in connection with its loan securitizations.
The nature and quantity of hedging transactions are determined by the
Company's management based on various factors, including market conditions and
the expected volume of mortgage loan originations and purchases.
The Company believes that it has implemented a cost-effective hedging
program to provide a level of protection against changes in market value of its
fixed-rate mortgage loans held for sale. However, an effective interest rate
risk management strategy is complex and no such strategy can completely insulate
the Company from interest rate changes. In addition, hedging involves
transaction and other costs, and such costs could increase as the period covered
by the hedging protection increases In the event of a decrease in market
interest rates, the Company would experience a loss on the purchase of Treasury
securities involved in the interest rate lock transaction which would be
reflected on the Company's financial statements during the period in which the
buy back of the Treasury Securities occurred. Such loss would be offset by the
income realized from the securitization in future periods. As a result, the
Company may be prevented from effectively hedging its fixed-rate loans held for
sale, without reducing the Company's income in current periods.
In the future, the Company intends to continue to engage in short sales of
Treasury securities as part of its interest rate risk management strategy.
BALANCE SHEET INFORMATION
Total assets increased $24,719,267, or 111%, to $46,894,163 at June 30,
1996 from $22,174,896 at June 30, 1995. The primary reasons for the increase
were increases in loan and lease receivables, other receivables and other
assets. Loan and lease receivables increased $9,162,146, or 102%, from
$8,997,357 at June 30, 1995 to $18,159,503 at June 30, 1996 as a result of the
Company's strategy of holding loans in its portfolio prior to securitization.
Other receivables increased $9,853,470, or 233% , from $4,237,072 at June 30,
1995 to $14,090,542 at June 30, 1996 due to the Company's retention of the
residual interest in the trusts in connection with its loan securitizations.
Other assets increased $3,580,419, or 122%, from $2,924,375 to $6,504,794 at
June 30, 1996 due primarily to an increase in subordinated certificates obtained
as a result of the Company's securitizations.
Total liabilites increased $22,471,166, or 112%, from $20,031,482 to
$42,502,648 at June 30, 1996 primarily due to an increase in debt. The increase
in debt was due to sales of subordinated debentures of $19,687,982 during fiscal
1996 and a net increase in institutional debt
16
<PAGE>
of $2,348,465. At June 30, 1996, the Company had approximately $33,600,000 of
subordinated debentures outstanding. The Company's ratio of total debt
(subordinated debentures plus credit facilities) to equity at June 30, 1996 was
8.2:1.
Stockholders' equity increased $2,248,101, or 105%, due to an increase in
retained earnings net of dividends paid.
RESULTS OF OPERATIONS
OVERVIEW
The Company derives income from three basic sources: interest and other
charges paid on its loans, loan origination fees and the sale and securitization
of loans, not necessarily in that order.
All of the Company's loans and leases are made at fixed rates. Generally
due to such circumstances, a general rise or fall in interest rates in the
economy will have the effect of decreasing or increasing the "spread" which the
Company enjoys between its cost of funds on any variable rate source or short
term source of funds which it utilizes and the interest rates it earns on its
portfolio of loans.
17
<PAGE>
The following table sets forth certain information concering the lending
and loan and lease origination and sale activities of the Company for each of
fiscal 1996.
<TABLE>
<CAPTION>
Combined
Year ended
Year Ended June 30, 1996 June 30,
--------------------------------------------------------------- -----------
ABL ABC(1) HAC(2) HACD Combined 1995
--------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dollar Amt of Loans/Leases Originated
(Net of Refinances)
Business . . . . . . . . . . . . . . . . $5,967,126 $21,55,561 $ 7,346,836 -- $34,839,523 $20,390,122
Consumer . . . . . . . . . . . . . . . . -- -- $36,479,393 $ 240,049 $36,719,442 $18,071,345
Number of Loans/Leases Originated
Business . . . . . . . . . . . . . . . . 530 266 105 -- 901 450
Consumer . . . . . . . . . . . . . . . . -- -- 772 52 824 602
Average Loan/Lease Size
Business . . . . . . . . . . . . . . . . 11,259 80,923 69,970 -- 38,668 70,700
Consumer . . . . . . . . . . . . . . . . -- -- 47,253 4,616 44,562 30,109
Weighted Average Interest Rate
Business . . . . . . . . . . . . . . . . 17.22% 15.82% 15.88% 24.5% 16.07% 16.05%
Consumer . . . . . . . . . . . . . . . . -- -- 9.94% -- 10.06% 18.60%
Weighted Average Term (in months)
Business . . . . . . . . . . . . . . . . 42 169 171 -- 148 213
Consumer . . . . . . . . . . . . . . . . -- -- 194 50 193 132
Dollar Amount of Loans/Leases Sold
Business . . . . . . . . . . . . . . . . $2,258,829 $20,664,709 $ 7,587,956 -- $30,511,494 $24,761,552
Consumer . . . . . . . . . . . . . . . . -- -- $24,324,720 $1,107,788 $25,432,508 $16,962,883
Number of Loans/Leases Sold
Business . . . . . . . . . . . . . . . . 193 268 110 -- 571 384
Consumer . . . . . . . . . . . . . . . . -- -- 512 252 764 365
</TABLE>
- --------------
(1) All ABC loans are business loans.
(2) All HAC loans, as indicated, are either (i) business loans or (ii)
conventional consumer home equity loans or consumer sales finance
transactions.
18
<PAGE>
The Company's strategy of selling loans through securitizations requires
the Company to build an inventory of loans over time. Accordingly, the Company
may experience fluctuations in operating results as a consequence of incurring
costs and expenses in a fiscal period prior to the fiscal period in which the
securitization is consummated. As such, the results of operations for a given
period may not be indicative of results for subsequent comparable periods.
As a result of securitizations, the Company derives a significant portion
of its income by realizing gains upon the sale of loans due to the excess spread
associated with such loans at the time of sale. Excess spread represents the
excess of the interest rate payable by an obligator on a loan over the interest
rate passed through to the purchaser acquiring an interest in such loans, less
the Company's servicing fee and other applicable recurring fees. When loans are
sold in securitizations, the Company recognizes as current revenue and an
associated receivable the present value of the excess spread expected to be
realized over the anticipated average life of loans sold less future estimated
credit losses relating to the loans sold. These excess spreads and the
associated receivable are computed using prepayment, loss, delinquency and
discount rate assumptions that the Company believes are reasonable. The Company
periodically reviews these assumptions in relation to actual experience and, if
necessary, adjusts the receivable to the net present value of the estimated
remaining future excess spreads. The receivable is also reduced to reflect the
receipt of cash.
Although the Company believes that it has made reasonable estimates of the
excess spread receivables likely to be realized, the rate of prepayment and the
amount of defaults utilized by the Company are estimates and actual experience
may vary from its estimates. The gain recognized by the Company upon the sale
of loans will have been overstated if prepayments or losses are greater than
anticipated. Higher levels of future payments, delinquencies and/or
liquidations could result in decreased excess spreads and the write down of the
receivable which would adversely affect the Company's income in the period of
adjustment. Should the estimated average loan life assumed for this purpose be
shorter than the actual life, the amount of cash actually received over the
lives of the loans would reduce the gain previously recognized at the time the
loans were sold. If the Company's assumptions are correct or if prepayment,
delinquencies and/or liquidations are less than assumed, the Company would
realize additional income in the adjustment periods.
The following discussion provides information which management believes is
relevant to an understanding of the Company's financial condition and results of
operations. This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included herein.
FISCAL 1996 COMPARED WITH FISCAL 1995
Total revenues increased $6,734,656, or 119%, to $12,378,733 in fiscal 1996
from $5,644,077 in fiscal 1995. As described in more detail below, the increase
in revenues was primarily the result of higher gains on sales of loans through
securitizations.
Gain on sale of loans increased $7,562,232, or 524%, to $9,005,193 for the
year ended June 30, 1996 from $1,442,961 for the comparable period of 1995.
This increase was the result of increased loan sales through securitizations in
fiscal 1996. The Company consummated loan securitizations in October 1995 and
May 1996 generating gain on securitizations of $8,858,839 (representing the fair
value of residual certificates of $10,447,862 less $1,589,023 of costs
associated with the transactions) on the Company's participation in $36.5
million of loans sold through securitizations.
19
<PAGE>
Interest and fee income consists of interest income, fee income and
amortization of orgination costs. Interest and fee income decreased $706,927,
or 17%, to $3,350,716 in fiscal 1996 from $4,057,643 in fiscal 1995 due to a
decline in fee income as a result of the Company's securitization program
discussed below.
Interest income consists of interest income the Company earns on the loans
and leases it holds in its portfolio. Interest income from loans and leases
held in portfolio increased $777,609 to $2,180,816 in fiscal 1996 or a 55%
increase over the $1,403,207 reported for fiscal 1995. The Company's leasing
subsidiary, which commenced operations in January 1995 contributed $493,000 of
the increase. The remaining increase was attributable to increased originations
of consumer and business loans, as well as, management's decision to retain
home equity loans in portfolio in contemplation of securitization in the future.
During fiscal 1996, the Company originated approximately $37,000,000 of consumer
loans and $35,000,000 of business loans. During fiscal 1995, the Company
originated approximately $18,000,000 of consumer loans, the majority of which
were sold to third parties (with servicing released) . Beginning in October
1995, as part of the Company's securitization strategy, the Company placed loans
into its held for sale portfolio until sold as part of a securitization. As a
result of this strategy, the Company has the ability to hold a greater amount of
loans in its portfolio thereby generating an increase in interest income and a
decrease in fee income, as described below.
Fee income, includes primarily premium and points earned when loans are
closed, funded and immediately sold to unrelated third party purchases. Fee
income decreased $1,692,152 from $3,167,188 for fiscal 1995 to $1,475,036 for
fiscal 1996. The reduction in fee income was due to the Company's current
strategy of building a portfolio of loans and securitizing them . As a result
of this strategy, the Company is not selling as many loans upon origination
thereby reducing fee income in the form of premiums received on the sale of
loans.
Amortization of origination costs, the third component of interest and fee
income, decreased $207,616 from $512,752 to $305,136 at June 30, 1996.
Amortization of origination costs attributable to leasing activities increased
$166,830 as the leasing company was only in operation for six months of the
prior fiscal year. However, amortization of origination costs attributable to
mortgage loans decreased $374,446 in fiscal 1996. The amount of origination
cost recognized is in part determined by the length of time a loan is held in
portfolio. In fiscal 1995, the Company securitized its loan portfolio in March
1995 resulting in the average loan being held in portfolio for 5.5 months. In
fiscal 1996, loans were securitized in October 1995 and May 1996, reducing the
average holding period to three months.
Total expenses increased $4,507,896, or 95%, to $9,258,070 in 1996 from
$4,750,174 in 1995. As described in more detail below, this increase was
primarily a result of increases in interest and sales expenses attributable to
the Company's continued sale of subordinated debentures, and increased payroll,
sales and marketing and general and administrative expenses related to increased
loan originations during fiscal 1996.
Interest expense increased $1,454,747, or 120%, to $2,667,858 in fiscal
1996 from $1,213,111 in fiscal 1995. The increase was primarily attributable to
an increase in the amount of the Company's subordinated debt outstanding as
management utilized the proceeds from the sale of such subordinated debt to fund
the increase in loan originations experienced during fiscal 1996. Outstanding
subordinated debentures issued for terms ranging from three months to ten years
and rates ranges from 7% to 10.5% increased from an average $12.0 million in
fiscal 1995 to $25.0 million during fiscal 1996. Average interest rate paid on
the subordinated debt increased from 8.75% to 9.02%, due to an increase in
market rates of interest.
20
<PAGE>
The Company maintains an allowance for credit losses based upon
management's estimate of the expected collectibility of loans and leases
outstanding. The allowance is determined based upon management's estimate of
potential losses in the portfolio in light of economic conditions, the credit
history of the borrowers, and the nature and characteristics of the underlying
collateral as well as the Company's historical loss experience. Although the
Company's historical loss experience has been minimal, the increase in the
allowance reflects the increase in originations experienced during fiscal 1996.
Although the Company maintains its allowance for credit losses at the level it
considers adequate to provide for potential losses, there can be no assurances
that such losses will not exceed the estimated amounts or that additional
provisions will not be required. The allowance is increased through an increase
in the provision for credit losses. The Company had an allowance for credit
losses of $707,424 at June 30, 1996. The provision for credit losses
increased to $681,228 from $165,143 in the prior period. The increase in the
provision for credit losses was due to the increases in the Company's loan and
lease portfolios. The ratio of the allowance for credit losses to total net
loan and lease receivables, was 3.86% at June 30, 1996 as compared to 1.76% at
June 30, 1995.
Payroll and related costs increased $208,045, or 21%, to $1,203,260 in
fiscal 1996 from $995,215 in fiscal 1995. This increase was primarily due to an
increase in the number of administrative employees as a result of the Company's
growth in loan originations, geographic expansion and increase in loans serviced
for others. Management anticipates that such expenses will continue to increase
in the future as the Company expands its service area.
Sales and marketing expenses increased $1,174,946, or 78%, to $2,685,173 in
fiscal 1996 from $1,510,227 in fiscal 1995. The increase was attributable to an
increase in advertising costs as a result of increased newspaper and direct mail
advertising related to the Company's sale of debentures and loan products and
the initiation of a radio advertising program for the home equity loan product.
In fiscal 1997, the Company intends to expand its home equity loan advertising
programs through the use of television. The increase in sales and marketing
expenses was also due to the expansion of the Company's service area during
fiscal 1996 into Maryland, New York City and Florida. During fiscal 1996, the
Company offered its subordinated debentures in Florida and business loan
products in Maryland and New York City. The Company plans to continue to expand
its service area along the Atlantic Coast subject to market conditions in the
future. As a result of the Company's planned expansion, it is anticipated that
sales and marketing expenses will continue to increase in future periods.
General and administrative expenses increased $1,154,073, or 133%, to
$2,020,551 in 1996 from $866,478 in 1995. The increase was primarily
attributable to increases in rent, telephone, office expense, professional fees
and other expenses incurred as a result of the previously discussed increase in
loan originations and loan servicing experienced during fiscal 1996.
Net income increased $1,737,659, or 299%, from $581,037 at June 30, 1995 to
$2,318,696. As a result of the increase in income, earnings per share increased
to $1.01 on weighted average common shares outstanding of 2,296,913 in fiscal
1996 compared to $.27 on weighted average common shares outstanding of 2,128,154
for fiscal 1995 representing a 274% increase for 1996 from 1995.
The Company's ability to sustain the level of growth in net income
experienced during fiscal 1996 is dependent upon a variety of factors outside
the control of the Company, including interest rates, economic conditions in the
Company's primary market area, competition and regulatory restrictions. As a
result, it is unlikely that the rate of growth experienced in fiscal 1996 will
be sustained in the future.
21
<PAGE>
ASSET QUALITY
The following table provides data concerning delinquency experience, real estate
owned ("REO") properties and loss experience for the Company's serviced
portfolios. Total Portfolio Serviced by ABC includes business loans originated
by HAC. Neither HAC, ABL nor HACD had REO for the periods presented.
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
--------------------------------- ----------------------------
$ Amount % $ Amount %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Company Combined
Total Portfolio Serviced . . . . . . . . $59,890,895 $ 17,774,239
------------ ------------
------------ ------------
Period of Delinquency
31-60 Days. . . . . . . . . . . . . $ 60,600 .10% $ 205,796 1.16%
61-90 Days. . . . . . . . . . . . 212,608 .35 145,464 .82
Over 90 Days. . . . . . . . . . . . 1,110,335 1.85 330,866 1.86
------------ -------------- ----------- --------
Total Delinquencies . . . . . . . . $1,383,543 2.30% $ 682,126 3.84%
------------ -------------- ----------- --------
------------ -------------- ----------- --------
REO. . . . . . . . . . . . . . . . . . . $ 444,270 .74% $ 641,287 3.61%
------------ -------------- ----------- --------
------------ -------------- ----------- --------
Dollar Amount of Losses
Experienced . . . . . . . . . . . . . . $ 129,062 .22% $ 87,885 .49%
------------ -------------- ----------- --------
------------ -------------- ----------- --------
<CAPTION>
June 30, 1996 June 30, 1995
--------------------------------- ----------------------------
$ Amount % $ Amount %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Delinquency by Company
American Business Credit, Inc.
Total Portfolio Serviced. . . . . $37,949,806 $14,677,938
------------ -----------
------------ -----------
Period of delinquency
31-60 Days. . . . . . . . . . . . $ 37,291 .10% $ 141,033 .96%
61-90 Days. . . . . . . . . 180,942 .48 75,484 .51
Over 90 Days. . . . . . . . . . . 1,018,955 2.69 309,895 2.11
------------ -------------- ----------- --------
Total Delinquencies . . . . . . . $ 1,237,188 3.26% $ 526,412 3.59%
------------ -------------- ----------- --------
------------ -------------- ----------- --------
REO . . . . . . . . . . . . . . . . $ 444,270 $ 641,287
------------ -----------
------------ -----------
HomeAmerican Credit, Inc.
Total Portfolio Serviced. .. . . . $17,223,996 $ 0
------------ -----------
------------ -----------
Period of Delinquency
31-60 Days. . . . . . . . . . . . $ 0 0% $ 0 0%
61-90 Days. . . . . . . . . . . . 0 0 0 0
Over 90 Days. . . . . . . . . . . 0 0 0 0
------------ -------------- ----------- --------
Total Delinquencies . . . . . . . $ 0 0% $ 0 0%
------------ -------------- ----------- --------
------------ -------------- ----------- --------
American Business Leasing, Inc.
Total Portfolio Serviced. . . . . $ 4,607,367 $ 2,031,063
------------ -----------
------------ -----------
Period of Delinquency
31-60 Days . . . . . . . . . . . $ 23,309 .51% $ 48,649 2.40%
61-90 Days . . . . . . . . . . . 13,503 .29 39,980 1.97
Over 90 Days . . . . . . . . . . 41,109 89 0 0
------------ -------------- ----------- --------
Total Delinquencies . . . . . . . $ 77,921 1.69% $ 88,629 4.37%
------------ -------------- ----------- --------
------------ -------------- ----------- --------
HomeAmerican Consumer Discount Co.
Total Portfolio Serviced. . . . . . $ 109,726 $ 1,065,238
------------ -----------
------------ -----------
Period of Delinquency
31-60 Days . . . . . . . . . . . $ 0 0% $ 16,114 1.51%
61-90 Days. . . . . . . . . . . . 18,163 16.55 30,000 2.82
Over 90 Days. . . . . . . . . . . 50,271 45.82 20,971 1.97
------------ -------------- ----------- --------
Total Delinquencies . . . . . . . $ 68,434 62.37% $ 67,085 6.30%
------------ -------------- ----------- --------
------------ -------------- ----------- --------
</TABLE>
22
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONTENTS
x
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Independent Auditors' Reports 24
Consolidated financial statements
Balance sheets 26-27
Statements of income 28
Statements of stockholders' equity 29
Statements of cash flows 30-32
Notes to consolidated financial statements 33-46
23
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Business Financial Services, Inc.
and Subsidiaries
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheet of American Business
Financial Services, Inc. and subsidiaries as of June 30, 1996, and the related
consolidated statements of income and stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Business Financial Services, Inc. and subsidiaries as of June 30, 1996, and
the consolidated results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
August 23, 1996
24
<PAGE>
Stockholders and Directors
American Business Financial Services, Inc.
Bala Cynwyd, Pennsylvania
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of AMERICAN
BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES as of June 30, 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
American Business Financial Services, Inc. and Subsidiaries as of June 30, 1995,
and the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ FISHBEIN & COMPANY, P.C.
FISHBEIN & COMPANY, P.C.
Elkins Park, Pennsylvania
September 20, 1995
25
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 30, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 5,345,269 $ 4,734,368
Loan and lease receivables, net
Available for sale 17,625,178 8,668,956
Other 534,325 328,401
Other receivables 14,090,542 4,237,072
Prepaid expenses 1,341,160 594,046
Property and equipment, net of accumulated
depreciation and amortization 1,452,895 687,678
Other assets 6,504,794 2,924,375
- --------------------------------------------------------------------------------
Total assets $ 46,894,163 $ 22,174,896
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
26
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 30, 1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $ 35,987,401 $ 17,824,007
Accounts payable and accrued expenses 3,132,170 1,117,930
Deferred income taxes 1,506,271 704,304
Other liabilities 1,876,806 385,241
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 42,502,648 20,031,482
- --------------------------------------------------------------------------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value
Authorized 1,000,000 shares
Issued and outstanding none - -
Common stock, par value $.001
Authorized 9,000,000 shares
Issued and outstanding 2,353,166 shares in
1996 and 2,128,154 shares in 1995 2,353 2,128
Additional paid-in capital 1,931,699 1,331,892
Retained earnings 3,057,495 809,394
- --------------------------------------------------------------------------------
4,991,547 2,143,414
Less note receivable 600,032 -
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,391,515 2,143,414
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,894,163 $ 22,174,896
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATMENTS OF INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1996 1995
- --------------------------------------------------------------------------------
REVENUES
Gain on sales of loans $ 9,005,193 $ 1,442,961
Interest and fees 3,350,716 4,057,643
Other income 22,824 143,473
- --------------------------------------------------------------------------------
TOTAL REVENUES 12,378,733 5,644,077
- --------------------------------------------------------------------------------
EXPENSES
Interest 2,667,858 1,213,111
Provision for credit losses 681,228 165,143
Payroll and related costs 1,203,260 995,215
Sales and marketing 2,685,173 1,510,227
General and administrative 2,020,551 866,478
- --------------------------------------------------------------------------------
TOTAL EXPENSES 9,258,070 4,750,174
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,120,663 893,903
INCOME TAXES 801,967 312,866
- --------------------------------------------------------------------------------
NET INCOME $ 2,318,696 $ 581,037
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EARNINGS PER SHARE $ 1.01 $ .27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,296,913 2,128,154
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
COMMON STOCK
-------------------------
ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1994 2,128,154 $ 2,128 $ 1,331,892 $ 228,357 $ 1,562,377
Net income - - - 581,037 581,037
- ----------------------------------------------------------------------------------------------------
Balance, June 30, 1995 2,128,154 2,128 1,331,892 809,394 2,143,414
Options exercised 225,012 225 599,807 - 600,032
Cash dividends ($.03 per share) - - - (70,595) (70,595)
Net income - - - 2,318,696 2,318,696
- -----------------------------------------------------------------------------------------------------
Balance, June 30, 1996 2,353,166 $ 2,353 $ 1,931,699 $ 3,057,495 $ 4,991,547
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,318,696 $ 581,037
Adjustments to reconcile net income to net
cash (used in) provided by operating activities
Gain on sales of loans/leases (8,969,880) (1,442,961)
Amortization of origination fees and costs 305,136 528,554
Amortization of deferred servicing rights 69,489 -
Provision for credit losses 681,228 165,143
Accounts written off (129,063) (87,885)
Depreciation and amortization of property
and equipment 318,493 177,632
Amortization of financing and organization costs 505,012 436,260
(Increase) decrease in accrued interest
and fees on loan and lease receivables (268,010) 119,407
Increase in deferred income taxes 801,967 285,791
Decrease (increase) in other receivables 683,797 (328,081)
(Increase) in prepaid expenses (747,114) (241,164)
Decrease (increase) in other assets 332,009 (117,992)
Increase in accounts payable and accrued expenses 2,014,240 328,022
Increase in other liabilities 1,491,565 316,868
- -----------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (592,435) 720,631
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and leases originated (60,472,812) (15,408,775)
Loan and lease payments received 4,549,979 3,065,676
Proceeds of loans sold 40,627,246 8,747,265
Purchase of property and equipment (1,022,926) (382,154)
Decrease in securitization gain receivable 58,693 9,958
Principal receipts on investments 33,307 3,567
- -----------------------------------------------------------------------------------------------------
NET CASH (USED) IN INVESTING ACTIVITIES (16,226,513) (3,964,463)
- -----------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Financing costs incurred $ (662,950) $ (483,732)
Net proceeds of (principal payments on)
revolving line of credit 2,348,465 (1,999,431)
Principal payments on term notes payable, bank - (245,555)
Dividends paid (70,595) -
Principal payments on note payable, other (5,606) (4,814)
Proceeds from issuance of subordinated debentures 19,687,982 12,049,581
Principal payments on subordinated debentures (3,867,447) (1,420,432)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,429,849 7,895,617
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 610,901 4,651,785
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,734,368 82,583
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,345,269 $ 4,734,368
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 1,183,745 $ 706,506
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Income taxes $ 78,475 $ 8,250
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Noncash transactions recorded in connection with
the sale of and foreclosure on loans receivable
Increase in other receivables, securitization gains $ 10,595,960 $ 3,271,770
Increase in other assets
Investment, held to maturity 2,332,247 684,380
Foreclosed real estate held for sale 111,890 448,801
Other holdings held for sale 308,933 -
Transfer from loans and leases, other (62,085) -
Deferred servicing rights 1,165,000 -
- -----------------------------------------------------------------------------------------------------
$ 14,451,945 $ 4,404,951
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
AMERICAN BUSINESS
FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Reclassification of other assets,
leased equipment to fixed assets $ 60,784 $ -
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Stock options for 225,012 shares of common stock were
exercised. Shares with a total price of $600,032 were
issued in exchange for a note receivable of the
same amount.
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
32
<PAGE>
AMERICAN BUSINESS FINANCIAL
SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
American Business Financial Services, Inc. ("ABFS") and its wholly-owned
subsidiaries (the "Company"). All significant intercompany transactions and
balances have been eliminated.
The Company makes secured loans in the Mid-Atlantic Region and is subject to the
risks of the real estate market in that area. The Company also makes business
equipment leases and unsecured consumer loans. The Company securitizes its
secured loans.
CASH EQUIVALENTS
Cash equivalents consist of short-term investments purchased with a maturity of
three months or less.
LOAN AND LEASE RECEIVABLES AVAILABLE FOR SALE
Loan and lease receivables available for sale represent receivables that the
Company generally intends to sell or securitize within the next twelve months.
These assets are stated at the lower of cost (principal balance including unam-
ortized origination costs/fees) or estimated market value in the aggregate.
Market value is determined by most recent sale or securitization transactions.
The Company sells loans through secondary market securitizations and is subject
to certain limited recourse provisions. Income is recorded at the time of sale
approximately equal to the present value of the anticipated future cash flows
("residuals"), offset by unamortized loan origination costs/fees, related
transaction expenses and estimated credit losses (see Note 3). Subsequent to
the initial sale, securitization income is recorded in proportion to the actual
cash flow received. To the extent that the anticipated cash flows exceed actual
cash flows, losses are recognized through the use of an allowance account. If
actual cash flows exceed anticipated cash flows, the allowance account is
adjusted.
33
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based upon the Company's estimate of expected
collectibility of loans and leases outstanding. The allowance is increased by
periodic charges to operations as necessary.
ORIGINATION COSTS AND FEES AND AMORTIZATION
Direct origination costs, net of origination fees, are deferred and amortized
over the contractual life of the receivable using the interest method.
Unamortized amounts are recognized as (expense) income when the receivable is
sold or paid in full.
PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line and declining balance methods over the
estimated useful lives of the assets (ranging from 5 to 10 years). Expenditures
for additions, renewals and betterments are capitalized; expenditures for
maintenance and repairs are charged to expense as incurred.
FINANCING COSTS AND AMORTIZATION
Costs incurred in obtaining revolving lines of credit are amortized using the
straight-line method over the terms of the agreements.
Financing costs incurred in connection with public offerings of debentures are
amortized using the interest method over the term of the related debentures.
INVESTMENTS, HELD TO MATURITY
The investments classified as held to maturity consist of mortgage-backed
securities that the Company has the positive intent and ability to hold to
maturity. These investments are stated at amortized cost, which approximates
market.
Foreclosed property held for sale is stated at the lower of cost or fair market
value.
34
<PAGE>
INTEREST INCOME
Interest income from loan and lease receivables is recognized using the interest
method. Accrual of interest income is suspended when the receivable is
contractually delinquent for ninety days or more. The accrual is resumed when
the receivable becomes contractually current, and past due interest income is
recognized at that time. In addition, a detailed review of receivables will
cause earlier suspension if collection is doubtful.
INCOME TAXES
The Company files a consolidated federal income tax return.
The Company uses the liability method in accounting for income taxes.
Principal differences between the Company's financial and income tax reporting
include amortization of loan and lease origination costs/fees, the allowance for
credit losses, depreciation and amortization of property and equipment,
securitization gains, servicing rights and net operating losses.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares out-
standing; the effect of outstanding stock options is not dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
35
<PAGE>
2. LOAN AND LEASE RECEIVABLES
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Real estate secured loans $ 12,960,229 $ 4,761,778
Leases (net of unearned income of
$1,136,621 and $557,880) 4,393,713 2,034,981
Other loans 109,726 1,134,742
Unamortized origination
costs/fees 868,934 892,713
- -------------------------------------------------------------------------------
18,332,602 8,824,214
Less allowance for credit losses 707,424 155,258
- -------------------------------------------------------------------------------
LOAN AND LEASE RECEIVABLES, net $ 17,625,178 $ 8,668,956
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Substantially all of the leases are sales-type leases whereby the lessee has the
right to purchase the leased equipment at lease expiration for a nominal amount.
The Company sells real estate secured loans through securitizations and retains
collection and administrative responsibilities as servicer for the trusts
holding the loans. Under terms of the sales, the purchasers have limited re-
course ($2,834,783 at June 30, 1996) should certain amounts of the loans prove
to be uncollectible. However, the Company believes that allowances established
for these off-balance sheet instruments are adequate to provide for any amounts
found to be uncollectible. At June 30, 1996, the uncollected balance of
receivables securitized was approximately $42,100,000.
At June 30, 1996, the accrual of interest income was suspended on real estate
secured loans of $599,564. Based on its evaluation of the collateral related to
these loans, the Company expects to collect all contractual interest and
principal.
At June 30, 1996, the contractual maturities of loan and lease receivables are
as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 Thereafter Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate
secured loans $1,175,085 $ 369,635 $ 422,257 $ 422,529 $ 477,495 $ 10,093,228 $ 12,960,229
Leases 1,785,696 1,280,863 767,481 415,126 144,547 - 4,393,713
Other loans 23,921 28,184 32,847 19,660 5,114 - 109,726
Unamortized origination
costs/fees 614,865 132,547 70,126 34,644 13,712 3,040 868,934
- -----------------------------------------------------------------------------------------------------------------------------
Total loans
receivable $3,599,567 $1,811,229 $1,292,711 $ 891,959 $ 640,868 $ 10,096,268 $ 18,332,602
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
3. ALLOWANCE FOR CREDIT LOSSES
BALANCE, July 1, 1994 $ 78,000
Provision for credit losses 165,143
Accounts written off (87,885)
- -------------------------------------------------------------------------------
BALANCE, June 30, 1995 155,258
Provision to credit losses 681,228
Accounts written off (129,062)
- -------------------------------------------------------------------------------
BALANCE, June 30, 1996 $ 707,424
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4.OTHER RECEIVABLES
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Sales of loans $ 86,090 $ 415,521
Home equity loan fees 121,874 506,236
Residuals 13,447,674 2,969,812
Other 434,904 345,503
- -------------------------------------------------------------------------------
$14,090,542 $4,237,072
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Computer equipment and software $ 1,296,769 $ 754,732
Office furniture and equipment 803,445 393,423
Leasehold improvements 171,542 49,999
- -------------------------------------------------------------------------------
2,271,756 1,198,154
Less accumulated depreciation
and amortization 818,861 510,476
- -------------------------------------------------------------------------------
$1,452,895 $ 687,678
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
37
<PAGE>
6. OTHER ASSETS
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Deposits $ 296,582 $ 113,483
Financing costs, debt offerings,
net of accumulated amortization
of $1,074,212 in 1996 and
$581,324 in 1995 1,138,455 968,393
Investments, held to maturity
(mature in September 2004
through April 2011) 2,834,783 680,813
Foreclosed property held for sale 607,905 761,523
Servicing rights 1,387,511 -
Other 239,558 400,163
- -------------------------------------------------------------------------------
$ 6,504,794 $2,924,375
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7. DEBT
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Subordinated debentures, due
September 1996 through June
1998; interest at rates ranging
from 8% to 12% payable quarterly;
subordinated to all of the
Company's senior indebtedness. $ 1,345,421 $ 1,422,421
Subordinated debentures, due
July 1996 through June 2006;
interest at rates ranging from
7% to 10.50%; subordinated to
all of the Company's senior
indebtedness. 32,275,058 16,377,523
Note payable, $25,000,000 revolving
line of credit expiring September
1996; interest at LIBOR plus 1 1/4%
(an effective rate of 6 3/4% at
June 30, 1996) payable monthly;
collateralized by loans receivable. 2,348,465 -
38
<PAGE>
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Note payable in monthly installments
of $655 including interest at 11.8%;
final payment due in March 1999;
collateralized by related equipment. $ 18,457 $ 24,063
- -------------------------------------------------------------------------------
$35,987,401 $17,824,007
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Principal payments on debt for the next five years are due as follows: year
ending June 30, 1997 - $21,206,784; 1998 - $4,329,462; 1999 - $2,884,971; 2000 -
$1,995,153 and 2001 - $2,557,366.
Effective December 18, 1995, the Company authorized the issuance through a
public offering of up to $50,000,000 of unsecured, subordinated debentures to be
offered on an ongoing and continuous basis. During the year ended June 30,
1996, subordinated debentures of $16,810,707 were issued through this offering.
At June 30, 1996, the Company has available unused revolving lines of credit of
$7,500,000 and $3,500,000, respectively. The lines expire in December 1996 and
May 1998, respectively. Advances under the lines, if any, are collateralized by
certain loans receivable. One of the loan agreements contains various re-
strictive covenants, including the following: the Company must maintain (on a
consolidated basis) a ratio of subordinated debt to bank debt (as defined) of
not less than 1.50:1, a ratio of senior indebtedness to capital funds (as
defined) of not more than .95:1, minimum capital funds (as defined) of
$23,200,000, and minimum pre-tax income of $3,000,000, and may not pay any divi-
dends in excess of the lesser of 33% of current year net income or $250,000.
8. COMMON AND PREFERRED STOCK
On May 31, 1996, the stockholders approved an amended and restated Certificate
of Incorporation which increased the authorized common shares from five million
shares to nine million shares and established a class of preferred shares with
one million shares authorized.
On September 12, 1995, the Board of Directors declared a 3 for 2 stock split of
common stock to stockholders of record on October 1, 1995. The stock split has
been reflected in the June 30, 1995 consolidated financial statements.
39
<PAGE>
9. STOCK OPTIONS
On May 31, 1996, the stockholders approved a non-employee director stock option
plan which authorizes the grant to non-employee directors of options to purchase
135,000 shares of common stock at a price equal to the market price of the stock
at the date of grant. Options are fully vested when granted and expire ten
years after grant. At June 30, 1996, 45,000 shares were available for future
grants under this plan. Transactions under this plan were as follows:
NUMBER OF PRICE PER
SHARES SHARE
- -------------------------------------------------------------------------------
Options granted and
outstanding, June 30,1996 90,000 $ 5.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company has an employee stock option plan which authorizes the grant to
employees of options to purchase 375,000 shares of common stock at a price equal
to the market price of the stock at the date of grant. Options are fully vested
when granted and expire five to ten years after grant. At June 30, 1996, 83,988
shares were available for future grants under this plan. Transactions under the
plan were as follows:
NUMBER OF PRICE PER
SHARES SHARE
- -------------------------------------------------------------------------------
Options outstanding, July 1, 1994 225,012 $2.67
Options granted 43,500 2.67
- -------------------------------------------------------------------------------
Options outstanding, June 30, 1995 268,512 2.67
Options granted 22,500 5.00
Options exercised (225,012) 2.67
- -------------------------------------------------------------------------------
Options outstanding, June 30, 1996 66,000 $2.67-$5.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
On September 29, 1995, options for 225,012 shares were exercised at $2.67 per
share by an officer of the Company. The purchase price of $600,032 was advanced
to the officer, by the Company, on a ten year loan with interest at 6.46%,
payable annually. The loan is secured by 450,000 shares of the
40
<PAGE>
Company's stock (at date of exercise, market value of collateral was
approximately $1,200,000) and is shown as a reduction of stockholders' equity on
the accompanying balance sheet.
10. INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Current
Federal $ - $ 27,075
State - -
- -------------------------------------------------------------------------------
- 27,075
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Deferred
Federal 858,617 457,439
State (56,650) (171,648)
- -------------------------------------------------------------------------------
801,967 285,791
- -------------------------------------------------------------------------------
$ 801,967 $ 312,866
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The current provision for federal income taxes for the year ended June 30, 1995
is net of the tax benefit of approximately $249,000 from the utilization of net
operating loss carryforwards.
41
<PAGE>
The cumulative temporary differences resulted in net deferred income tax assets
or liabilities consisting primarily of:
JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Deferred income tax assets
Allowance for credit losses $ 287,214 $ 62,568
Net operating loss carryforwards 461,954 126,435
Loan and lease receivables 68,058 -
Accrued expenses 246,500 -
- -------------------------------------------------------------------------------
1,063,726 189,003
Less valuation allowance 148,500 126,435
- -------------------------------------------------------------------------------
915,226 62,568
- -------------------------------------------------------------------------------
Deferred income tax liabilities
Loan and lease origination costs/fees, net 368,849 365,679
Book over tax basis of property
and equipment 131,751 54,965
Other receivables 1,548,423 346,228
Servicing rights 372,474 -
- -------------------------------------------------------------------------------
2,421,497 766,872
- -------------------------------------------------------------------------------
Net deferred income tax liabilities $ 1,506,271 $ 704,304
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The valuation allowance represents the income tax effect of State net operating
loss carryforwards of the Company which are not presently expected to be
utilized.
42
<PAGE>
A reconciliation of income taxes at federal statutory rates to the Company's tax
provision is as follows:
YEAR ENDED JUNE 30, 1996 1995
- -------------------------------------------------------------------------------
Federal income tax at statutory rates $ 1,061,005 $ 303,927
State income tax, net of federal tax benefit - (48,614)
Nondeductible expenses 13,545 11,080
Increase in state tax valuation allowance - 46,453
Other, net (272,583) 20
- -------------------------------------------------------------------------------
$ 801,967 $ 312,866
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
For income tax reporting, the Company has net operating loss carryforwards
aggregating approximately $1,650,000 available to reduce future state income
taxes for various states. If not used, substantially all of the carryforwards
will expire at various dates from June 30, 1997 to June 30, 1999.
11. COMMITMENT AND CONTINGENCIES
COMMITMENT
The Company leases certain of its facilities under a five-year operating lease
expiring in November 2000, at a minimum annual rental of $430,637. The lease
contains a renewal option for an additional five year period at an increased
annual rental. Rent expense under all operating leases for such facilities was
$373,694 and $199,368 for the years ended June 30, 1996 and 1995, respectively.
CONTINGENCIES
A subsidiary of the Company makes home equity loans on behalf of unaffiliated
lenders for a fee equal to a percentage of the loan amount. Certain agreements
require that all or a portion of the fee be refunded if the loan is paid off
during the first six to twelve months after origination. At June 30, 1996 and
1995, approximately $292,000 and $394,000, respectively, of fee income is
subject to this provision. The actual amount of the fee refunded during the
years ended June 30, 1996 and 1995, which was recorded as income prior to July
1, 1995 and 1994, was $138,187 and $14,267, respectively.
43
<PAGE>
The Company is a defendant in a lawsuit filed by one of its competitors for
alleged interference with existing contractual relations between the competitor
and its customers and vendors. Currently, the Company is negotiating a
settlement which is expected to be immaterial to the Company's operations.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
No market exists for certain of the Company's assets and liabilities, therefore,
fair value estimates are based on judgments regarding credit risk, investor
expectation of future economic conditions, normal cost of administration and
other risk characteristics, including interest rates and prepayment risk. These
estimates are subjective in nature and involve uncertainties and matters of
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
In addition, the fair value estimates presented do not include the value of
assets and liabilities that are not considered financial instruments.
The table below summarizes the information about the fair value of the financial
instruments recorded on the Company's financial statements at June 30, 1996:
JUNE 30, 1996
- -------------------------------------------------------------------------------
CARRYING FAIR
VALUE VALUE
- -------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 5,345,269 $ 5,345,269
Loans and leases available
for sale 18,332,602 20,800,000
Residuals 13,447,674 13,447,674
44
<PAGE>
JUNE 30, 1996
- -------------------------------------------------------------------------------
CARRYING FAIR
VALUE VALUE
- -------------------------------------------------------------------------------
LIABILITIES
Borrowings under revolving
lines of credit $ 2,348,465 $ 2,348,965
Subordinated debentures 33,620,479 33,620,479
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments are as follows:
CASH AND CASH EQUIVALENTS - For these short-term instruments the carrying
amount is a reasonable estimate of the fair value.
LOANS AND LEASES AVAILABLE FOR SALE - The Company has estimated the fair
values reported based upon recent sales and securitizations.
RESIDUALS - Fair value is determined using estimated discounted future cash
flows taking into consideration anticipated prepayment rates.
BORROWINGS UNDER REVOLVING LINES OF CREDIT - The carrying value reported
approximates the fair value due to the short-term nature of the borrowings,
and the variable rate of interest charged on the borrowings.
SUBORDINATED DEBT - The fair value of fixed maturity subordinated debentures
is estimated using the rates currently offered for debentures of similar
maturities.
13. HEDGING TRANSACTIONS
The Company regularly securitizes and sells fixed rate mortgage loans. To
offset the effects of interest rate fluctuations on the value of its fixed rate
loans held for sale, the Company in certain cases will hedge its interest rate
risk related to the loans held for sale by selling U.S. Treasury securities
short. The Company classifies these sales as hedges of specific loans held for
sale and does not record the derivative securities on its financial statements.
The gain or loss derived from these sales is deferred and recognized as an
adjustment to gain on sale of loans when the loans are securitized.
45
<PAGE>
At June 30, 1996, the Company sold short $15,000,000 of U.S. Treasury securities
due June 30, 1998 to settle on September 30, 1996. The deferred loss at June
30, 1996 was approximately $27,000.
During the year ended June 30, 1996, the Company included a gain of $35,312 on
short sales of U.S. Treasury securities as part of gains on sales of loans.
46
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 11, 1996, the Company engaged BDO Seidman, LLP as the
Company's independent accountants to succeed Fishbein and Company,
P.C. For additional information regarding the Company's change in
accountants, see the Company's Current Report on Form 8-K, dated March
11, 1996, which report is hereby incorporated by reference herein.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The present management structure of the Company is as follows:
Anthony J. Santilli, Jr. is Chairman, President, Chief Executive and Operating
Officer, Treasurer and a Director of the Company. Beverly Santilli is President
of ABC and an Executive Vice President of ABFS. Jeffrey M. Ruben, Senior Vice
President and General Counsel of the Company, is responsible for compliance and
other legal matters. David M. Levin, CPA, Senior Vice President - Finance and
Chief Financial Officer, is responsible for the Company's accounting functions.
Harold Sussman, Michael DeLuca, Richard Kaufman, and Leonard Becker are
directors of the Company but take no part in the day-to-day operating activities
of the Company.
DIRECTORS AND EXECUTIVE OFFICERS
All directors and executive officers of the Company hold office during the
term for which they are elected and until their successors are elected and shall
qualify.
The Board of Directors of the Company is currently comprised of five (5)
persons who are serving for terms expiring at the next annual meeting of the
Company's shareholders.
ANTHONY J. SANTILLI, JR. - CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER,
CHIEF OPERATING OFFICER, TREASURER AND DIRECTOR
Anthony J. Santilli, Jr., age 53 is the Chairman, President, Chief
Executive Officer, Chief Operating Officer, Treasurer and a Director of the
Company and is an executive officer of its subsidiaries. He has held the
positions with the Company since early 1993 when the Company became the parent
company of American Business Credit, Inc. and the positions with the
subsidiaries since the formation of ABC in June 1988. In addition, Mr. Santilli
is a member of the Company's Executive and Finance Committees.
Prior to the founding of ABC in 1988, Mr. Santilli was Vice President and
Department Head of the Philadelphia Savings Fund Society ("PSFS"). As such,
Mr. Santilli was responsible for PSFS' commercial relationships with small and
middle market business customers. Mr. Santilli also served as the secretary of
PSFS' Asset/Liability Committee and Policy Committee from May, 1983 to June,
1985 and June, 1986 to June, 1987, respectively.
47
<PAGE>
Mr. Santilli graduated with a Bachelor of Science Degree in Economics from
St. Joseph's University, Philadelphia, PA and with a Master of Business
Administration in Marketing from Drexel University, Philadelphia, PA.
LEONARD BECKER - DIRECTOR
Mr. Becker, age 73, has been a Director of the Company since 1993 and a
director of ABC since 1988. Mr. Becker is a member of the Company's Executive
and Finance Committees.
Mr. Becker is a former 50% owner and officer of the SBIC of the Eastern
States, Inc., a federally licensed small business corporation which made medium
term loans to small business concerns. For the last 30 years, Mr. Becker has
been heavily involved in the investment in and management of real estate; and,
has been involved in the ownership of numerous shopping centers, office building
and apartments. Mr. Becker formerly served as a Director for Eagle National Bank
and Cabot Medical Corp.
Mr. Becker graduated from Temple University with a Bachelor of Science
degree in Business Administration in 1968.
MICHAEL DELUCA - DIRECTOR
Mr. DeLuca, age 65, has been a Director of the Company since 1993 and a
director of ABC since 1991. He is a member of the Company's Audit, Compensation
and Finance Committees.
Mr. DeLuca was President, Chairman of the Board and Chief Executive Officer
and a former owner of Bradford-White Corporation, a manufacturer of plumbing
products for a period of approximately thirty years. Presently, Mr. DeLuca
serves as a Director of BWC-West, Inc., Bradford-White International and is
Chief Executive Officer and a Director of Lux Products Corporation.
RICHARD KAUFMAN - DIRECTOR
Mr. Kaufman, age 54, has been a Director of the Company since 1993 and a
director of ABC since 1988. Mr. Kaufman is a member of the Company's
Compensation, Executive and Finance Committees.
Mr. Kaufman has been self employed since 1982 and involved in making and
managing investments for his own benefit. From 1976 to 1982, Mr. Kaufman was
President and Chief Operating Officer of Morland International, Inc., a cemetery
and financial services conglomerate. From 1970 to 1976 Mr. Kaufman served as a
Director and Vice President-Real Estate and Human Services Division of Texas
International, Inc., an oil and gas conglomerate.
Mr. Kaufman graduated from Michigan State University with a Bachelor of
Science degree in 1965.
48
<PAGE>
HAROLD E. SUSSMAN - DIRECTOR
Mr. Sussman, age 71, has been a Director of the Company since 1993 and a
director of ABC since 1988. Mr. Sussman is a member of the Company's Audit and
Compensation Committees. Mr. Sussman is currently a principal in the real
estate firm of Lanard & Axilbund, Inc., a major commercial and industrial real
estate brokerage and management firm in the Philadelphia area with which he has
been associated since 1972.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
BEVERLY SANTILLI - EXECUTIVE VICE PRESIDENT AND SECRETARY OF ABFS
PRESIDENT OF AMERICAN BUSINESS CREDIT
Mrs. Santilli, age 37, is responsible for all sales, marketing and
human resources for ABC and for the day-to-day operation of ABC. Prior to
joining ABC and from September, 1984 to November, 1987, Mrs. Santilli was
affiliated with the Philadelphia Savings Fund Society initially as an Account
Executive and later as a Commercial Lending Officer with such institution's
Private Banking Group. Mrs. Santilli graduated from Temple University in 1982.
Mrs. Santilli is the wife of Anthony J. Santilli, Jr.
JEFFREY M. RUBEN - SENIOR VICE PRESIDENT AND GENERAL COUNSEL
Mr. Ruben, age 33, is responsible for the Company's legal and
regulatory compliance matters. From June 1990 until he joined the Company in
April, 1992, Mr. Ruben was an attorney with the law firm of Klehr, Harrison,
Harvey, Branzburg & Ellers in Philadelphia, Pennsylvania. From December, 1987
until June, 1990, Mr. Ruben was employed as a credit analyst with the CIT Group
Equipment Financing, Inc. From July 1985 until December 1987, Mr. Ruben was a
Portfolio Administrator with LFC Financial Corp. in Radnor, Pennsylvania. Mr.
Ruben graduated with honors and distention from the Pennsylvania State
University with a degree in Economics in 1985 and received his Juris Doctorate
from Temple University Law School in 1990. Mr. Ruben is a member of the
Pennsylvania and New Jersey Bar Associations. Mr. Ruben holds both a New Jersey
Mortgage Banker License and a New Jersey Secondary Mortgage Banker License.
DAVID M. LEVIN - SENIOR VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL
OFFICER
Mr. Levin, age 51, is Senior Vice President - Finance of the Company
and its subsidiaries. Mr. Levin is also Chief Financial Officer of the Company.
He has held these positions since May 1995. Prior to joining the Company, Mr.
Levin was associated with Fishbein & Company, P.C., Certified Public Accountants
(previous auditors for the Company), as a staff member from 1983 to 1988 and as
a shareholder from 1989 to 1995. Mr. Levin graduated with a Bachelor of Arts
Degree in Business Administration from Rutgers University, New Brunswick, New
Jersey and with a Master of Business Administration in Finance from Rutgers
University, Newark, New Jersey. Mr. Levin is licensed as a Certified Public
Accountant in Pennsylvania and New Jersey.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive an annual stipend of
$5,000 and a monthly stipend of $1,000. No director may receive more than
$17,000 per year. Mr. Santilli, the only director who is also an officer of the
Company, does not receive any separate fee for acting as a director.
49
<PAGE>
The Company adopted a Non-Employee Director Stock Option Plan pursuant
to which each Non-Employee director of the Company received an option to
purchase 22,500 shares of ABFS Common Stock at an exercise price of $5.00 per
share. The Non-Employee Director Plan was adopted by the Board of Directors on
September 12, 1995 and became effective upon its ratification by the
stockholders at the Annual Meeting held on May 31, 1996.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company's Amended and Restated Certificate of Incorporation
provides that to the fullest extent permitted by Delaware law, directors of the
Company shall not be personally liable to the Corporation or stockholders of the
Company for monetary damages for breach of fiduciary duty as a director. ABFS's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") also provides that, if Delaware law is hereafter amended to
authorize the further elimination or limitation of the liability of the
directors of ABFS, then the liability of such directors shall be eliminated or
limited to the fullest extent permitted by applicable law.
The Amended and Restated Certificate of Incorporation and the Amended
and Restated Bylaws (the "Bylaws") of ABFS provide that the Company shall, to
the full extent permitted by the laws of the State of Delaware, as amended from
time to time, indemnify all persons whom they may indemnify pursuant thereto.
The Bylaws of ABFS also provide that the Company may obtain insurance on behalf
of such persons.
(c) FAMILY RELATIONSHIPS
Beverly Santilli, Executive Vice President and Secretary of the
Company and President of ABC, is married to Mr. Santilli. Other than such
relationship, there are no family relationships among or between such directors
and executive officers.
(d) SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company during the fiscal year ended June 30,
1996 and written representations that no other reports were required
received by the Company, all Section 16(a) filing requirements applicable to
its officers, directors and greater than 10% beneficial owners were complied
with except for the late filing of the Initial Statement of Beneficial
Ownership on Form 3 by Mr. Levin.
50
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
ABFS has no direct salaried employees. Each of the executive officers of
ABFS is an executive officer of the Company's principal operating subsidiary,
ABC, and is a salaried employee of such entity.
The following table sets forth information regarding compensation paid by
ABFS and its subsidiaries to the Chief Executive Officer and each other
executive officer who made in excess of $100,000 during fiscal 1996 (the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation
------------------------------- --------------------------
Fiscal Salary Bonus Other Restricted Securities All
Name and Year Annual Stock Underlying Other
Principal Position Compensation Award(s) $ Options (#) Compensation
- -------------------- ------- -------- ---------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony J. Santilli, 1996 $237,500 $300,000(1) - - 22,500(3) -
Jr., Chairman, 1995 191,667 - - - - -
President, Chief 1994 175,000 - - - - -
Operating Officer,
Chairman, President,
Treasurer and
Director, ABFS
Beverly Santilli, 1996 $120,000 $ 65,000 - - - -
President, ABC and 1995 86,892 - - - - -
Executive Vice 1994 80,163 - - - - -
President, ABFS
Jeffrey M. Ruben 1996 $96,125 $50,000 - - - -
Senior Vice President 1995 80,353 - - - 7,500(4) -
and General Counsel, 1994 75,228 - - - - -
ABFS
David M. Levin 1996 $85,000 $20,000 - - - -
Senior Vice President, 1995(2) - - - - - -
Finance and Chief 1994(2) - - - - - -
Financial Officer,
ABFS
</TABLE>
- ------------------------
(1) This represents Mr. Santilli's yearly bonus of $250,000 plus a one-time
bonus of $50,000 paid in October 1996.
(2) No disclosure of salary information is included for Mr. Levin for fiscal
1995 and 1994 as he was not an executive officer at such time.
(3) Represents an option to purchase 22,500 shares of Common Stock granted
to Mr. Santilli at an exercise price of $5.00 per share.
(4) Represents an option to purchase 7,500 shares of Common Stock granted
Mr. Ruben at an exercise price of $2.67 per share.
51
<PAGE>
The Company currently has a stock option plan for officers and key
employees, pursuant to which options to purchase 83,988 shares of Common Stock
were still remaining to be granted as of August 30, 1996. The following table
sets forth information regarding options exercised by the Named Officers during
fiscal 1996 and option values of options held by such individuals at fiscal year
end.
AGGREGATED OPTIONS/SAR EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER VALUE
OF UNEXERCISED OF UNEXCERISED
OPTIONS/ IN-THE-MONEY
SARS AT FISCAL OPTIONS/SARS AT
YEAR END FISCAL YEAR END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------ ---------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C>
Anthony J. 225,012 0 22,500/0 $143,438/0(1)
Santilli, Jr.
Chairman, President,
Chief Executive Officer,
Chief Operating Officer,
Treasurer and Director, ABFS
Beverly Santilli 0 0 N/A N/A
President, ABC and
Executive Vice President
Secretary of ABFS
Jeffrey M. Ruben 0 0 7,500/0 $ 65,288/0(2)
Sr. Vice President and
General Counsel, ABFS
David M. Levin 0 0 N/A N/A
Senior Vice President -
Finance and Chief
Financial Officer, ABFS
</TABLE>
- --------------
(1) This represents the aggregate market value (market price of the common
stock less the exercise price) of the options granted based upon the
closing sales price per share of $11.375 on June 30, 1996. The
exercise price of the options held by Mr. Santilli is $5.00 per share.
(2) This represents the aggregate market value (market price of the common
stock less the exercise price) of the options granted based upon the
closing sales price per share of $11.375 on June 30, 1996. The
exercise price of the options held by Mr. Ruben is $2.67 per share.
52
<PAGE>
The following table sets forth information regarding options granted to the
Named Officers during fiscal 1996. No stock appreciation rights ("SARs") were
granted in fiscal 1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARS
underlying granted to
Options/SARS Employees in Exercise or Base
Name granted (#) Fiscal Year Price ($/sh) Expiration Date
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anthony J. Santilli, Jr. 22,500 100% $5.00 October 1, 2005
Chairman, President, Chief Executive
Officer, Chief Operating Officer,
Treasurer and Director of ABFS
Beverly Santilli -- -- -- --
President of ABC and Executive
Vice President and Secretary
of ABFS
Jeffrey M. Ruben -- -- -- --
Senior Vice President and
General Counsel of ABFS
David M. Levin -- -- -- --
Sr. Vice President - Finance
and Chief Financial Officer
</TABLE>
53
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 30, 1996 by the directors
of the Company, the Named Officers, each person known by the Company to be the
beneficial owners of five (5%) percent or more of the Common Stock of the
Company, and all directors and executive officers of the Company as a group.
- -------------------------------------------------------------------------------
NAME AND POSITION NUMBER OF SHARES PERCENTAGE OF CLASS
(IF APPLICABLE) BENEFICIALLY
OWNED(1)
- -------------------------------------------------------------------------------
Anthony J. Santilli, Jr. 899,544 (2) (3) 37.9%
Chairman, President, Chief
Executive Officer, Chief Operating
Officer Treasurer and Director of
ABFS and Beverly Santilli,
President of ABC and Executive Vice
President of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
Leonard Becker, Director of ABFS 310,706 (4) 13.1%
Becker Associates
111 Presidential Blvd., Suite 140
Bala Cynwyd, PA 19004
Michael DeLuca, Director of ABFS 189,735 (4) 8.0%
Lux Products
6001 Commerce Park
Mt. Laurel, NJ 08054
Richard Kaufman, Director of ABFS 165,561 (4) 7.0%
c/o Presidential Securities
3 Bala Plaza
East Suite 415
Bala Cynwyd, PA 19004
Harold Sussman, Director of ABFS 96,711(4) 4.1%
Lanyard & Axilbund
399 Market Street, 3rd Floor
Philadelphia, PA 19106
Jeffrey M. Ruben 7,500(5) (6)
Senior Vice President and General
Counsel of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
David M. Levin --- ---
Senior Vice President - Finance and
Chief Financial Officer of ABFS
111 Presidential Blvd., Suite 215
Bala Cynwyd, PA 19004
All executive officers and 1,669,757 67.5%
directors as a group
(eight persons)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
54
<PAGE>
- ---------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations of the Securities and Exchange Commission.
Accordingly they may include securities owned by or for, among others,
the wife and/or minor children or the individual and any other
relative who has the same home as such individual, as well as other
securities as to which the individual has or shares voting or
investment power or has the right to acquire under outstanding stock
options within 60 days after the date of this table. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Shares listed are held in joint tenancy by Mr. and Mrs. Santilli
(3) Includes options to purchase 22,500 shares awarded to Mr. Santilli
pursuant to the Company's Employee Stock Option Plan.
(4) Includes options to purchase 22,500 shares awarded to each non-employee
director of the Company pursuant to the Company's 1995 Stock
Option Plan for Non-Employee Directors.
(5) Represents an option to purchase 7,500 shares of the Company's common
stock granted pursuant to the Company's Employee Stock Option Plan.
(6) Less than one percent.
55
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company does not have any formal policy concerning the direct or
indirect pecuniary interest of any of its officers, directors, security holders
or affiliates in any investment to be acquired or disposed of by the Company or
in any transaction to which the Company is a party or has an interest. The
Company will not enter into any such transactions unless approved by a majority
of the entire Board of Directors, not including any interested director.
On September 29, 1995, the Company made a loan in the amount of $600,032 to
Anthony J. Santilli, Jr., President and Chief Executive Officer. The proceeds
of the loan were used to exercise 225,012 stock options of the Company at a
price of $2.67 per share. The loan bears interest at the rate of 6.46% with
interest due annually and the principal due in September 2005. The loan is
secured by the stock purchased with the proceeds of the loan as well as an
additional 225,000 shares of ABFS Common Stock owned by Mr. Santilli.
Mr. Santilli is a limited guarantor on the Company's line of credit
from Meridian Bank. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
56
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Number Description
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws (Incorporated by Reference to
Exhibit 3.2 of the Registration Statement on Form S-11 filed
on February 26, 1993, Registration No. 33-59042 (the Form
S-11")).
4.1 Form of Unsecured Subordinated Investment Note (Incorporated
by Reference to Exhibit 4.1 of Amendment No. 1 to Form SB-2
Filed June 23, 1993, Registration Number 33-62154 (the "Form
SB-2")).
4.2 Form of Unsecured Subordinated Investment Note issued
pursuant to the Indenture with First Trust National
Association (Incorporated by reference to Exhibit 4.5 of the
Amendment No. 1 to the Form SB-2 filed on December 14, 1995,
Registration Number 33-98636, (the "1995 Form SB-2")).
4.3 Form of Indenture by and between ABFS and First Trust
National Association (Incorporated by reference to Exhibit
4.6 of the 1995 Form SB-2 filed on October 26, 1995).
10.1 Promissory Note of Anthony J. Santilli, Jr. and Stock Pledge
Agreement dated September 29, 1996 (Incorporated by
reference to Exhibit 10.14 of Amendment No. One to the 1995
Form SB-2).
10.2 Stock Option Plan (Incorporated by Reference to Exhibit 10.2
of the Form S-11).
10.3 Stock Option Award Agreement (Incorporated by Reference to
Exhibit 10.3 of the Form S-11). (Incorporated by Reference
to Exhibit 10.3 of the Form S-11).
10.4 Line of Credit Agreement by and between American Business
Credit, Inc. and Eagle National Bank (Incorporated by
Reference to Exhibit 10.4 of the Form SB-2).
57
<PAGE>
Exhibit Number Description
10.5 Agreement dated April 12, 1993 between American Business
Credit, Inc. and Eagle National Bank (Incorporated by
Reference to Exhibit 10.5 of the Form SB-2).
10.6 Loan and Security Agreement between BankAmerica Business
Credit, Inc. and Upland Mortgage dated May 23, 1996.
10.7 Revolving Credit and Security Agreement by and between ABFS,
ABC, HAC and Meridian Bank dated August 12, 1994.
10.8 Agreement of Lease between TCW Realty Fund IV Pennsylvania
Trust (Landlord) and American Business Financial Services,
Inc. (Tenant) dated January 7, 1994.
10.9 First Amendment to Agreement of Lease by and between TCW
Realty Fund IV Pennsylvania Trust and ABFS dated October 24,
1994.
10.10 Second Amendment to Agreement of Lease by and between TCW
Realty Fund IV Pennsylvania Trust and ABFS dated December
23, 1994.
10.11 Third Amendment to Agreement of Lease by and between TCW
Realty Fund IV Pennsylvania Trust and ABFS dated July 25,
1995.
10.12 1995 Stock Option Plan for Non-Employee Directors.
10.13 Form of Option Award Agreement.
10.14 Interim Warehouse and Security Agreement between Upland
Mortgage and Prudential Securities Realty Funding
Corporation dated April 25, 1996.
11 Statement of Computation of Per Share Earnings (Included in
Note 1 of the Notes to Consolidated Financial Statements).
16 Letter on change in certifying accounting (Incorporated by
reference from ABFS's Current Report on Form 8-K dated March
11, 1996).
21 Subsidiaries of the Company.
22 Published Report Regarding Matters Submitted to a
Shareholder Vote (Incorporated by Reference to Form 8-K
dated February 12, 1993).
27. Financial Data Schedule.
58
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
Date: September 26, 1996 By: /s/ Anthony J. Santilli, Jr.
------------------ ----------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman, President, Chief
Executive Officer, Chief
Operating Officer, Treasurer &
Director (Duly Authorized
Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Anthony J. Santilli, Jr.
- -----------------------------------
Name: Anthony J. Santilli, Jr.
Title: Chairman, President, Chief Executive Officer,
Chief Operating Officer, Treasurer,
and Director
(Principal Executive and Operating Officer)
Date: September 26, 1996
-------------------
- ----------------------------------- ------------------------------
Name: Harold Sussman Name: Michael DeLuca
Title: Director Title: Director
Date: Date:
------------------------- ------------------
/s/ David M. Levin /s/ Richard Kaufman
- ---------------------------------- ------------------------------
Name: David M. Levin Name: Richard Kaufman
Title: Senior Vice President - Finance Title: Director
and Chief Financial Officer
(Principal Financial and Accounting Date: September 26, 1996
Officer) -------------------
Date: September 26, 1996
------------------
/s/ Leonard Becker
- ----------------------------------
Name: Leonard Becker
Title: Director
Date: September 26, 1996
September 26, 1996
- -------------------
<PAGE>
AMENDMENT AND RESTATEMENT NO. 1 TO
CERTIFICATE OF INCORPORATION (AS PREVIOUSLY AMENDED AND RESTATED)
OF AMERICAN BUSINESS FINANCIAL SERVICES, INC.
This is to certify that the Certificate of Incorporation of American
Business Financial Services, Inc. (previously known as Geriaco International
Incorporated) originally filed with the Secretary of State of the State of
Delaware on February 25, 1985 and as amended on April 25, 1985, July 3, 1985,
March 11, 1986, and as amended and restated on February 10, 1993, is hereby
further amended in accordance with the provisions of Section 242 of the Delaware
General Corporation Law and further restated in accordance with the provisions
of Section 245(c) of such law to read in full as follows:
FIRST: The name of the corporation is American Business Financial
Services, Inc. (the "Corporation").
SECOND: The address of the registered office in the State of Delaware
is 103 Springer Building, 3411 Silverside Road, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
Organization Services, Inc.
THIRD: The purposes for which the Corporation was formed are to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 10,000,000 shares, consisting of
1,000,000 shares of Preferred Stock, par value $.001 per share, as more fully
described in Section A. below (the "Preferred Stock"), and 9,000,000 shares of
Common Stock, par value $.001 per share, as more fully described in Section B.
below (the "Common Stock").
A. PREFERRED STOCK. The shares of Preferred Stock may be divided and
issued from time to time in one or more series as may be designated by the Board
of Directors of the Corporation, each such series to be distinctly titled and to
consist of the number of shares designated by the Board of Directors. All
shares of any one series of Preferred Stock so designated by the Board of
<PAGE>
Directors shall be alike in every particular, except that shares of any one
series issued at different times may differ as to the dates from which dividends
thereon (if any) shall accrue or be cumulative (or both). The designations,
preferences and relative, participating, optional or other special rights (if
any), and the qualifications, limitations or restrictions thereof (if any), of
any series of Preferred Stock may differ from those of any and all other series
at any time outstanding. The Board of Directors of the Corporation is hereby
expressly vested with authority to fix by resolution the powers, designations,
preferences and relative, participating, optional or other special rights (if
any), and the qualifications, limitations or restrictions and (if any), of the
Preferred Stock and each series thereof which may be designated by the Board of
Directors, including, but without limiting the generality of the foregoing, the
following:
(1) The voting rights and powers (if any) of the Preferred Stock
and each series thereof:
(2) The rates and times at which, and the terms and conditions on
which, dividends (if any) on the Preferred Stock, and each series thereof, will
be paid and any dividend preferences or rights of cumulation;
(3) The rights (if any) of holders of the Preferred Stock, and
each series thereof, to convert the same into, or exchange the same for, shares
of other classes (or series of classes) of capital stock of the Corporation and
the terms and conditions for such conversion or exchange, including provisions
for adjustment of conversion or exchange prices or rates in such events as the
Board of Directors shall determine;
(4) The redemption rights (if any) of the Corporation and of the
holders of the Preferred Stock, and each series thereof, and the times at which,
and the terms and conditions on which, the Preferred Stock, and each series
thereof, may be redeemed; and
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<PAGE>
(5) The rights and preferences (if any) of the holders of the
Preferred Stock, and each series thereof, upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
B. COMMON STOCK. All shares of Common Stock shall be identical and
shall entitle the holders thereof to the same rights and privileges.
(1) DIVIDENDS. When and as dividends are declared upon the Common
Stock, whether payable in cash, in property or in shares of stock of the
Corporation, the holders of Common Stock shall be entitled to share equally,
share for share, in such dividends.
(2) VOTING RIGHTS. Each holder of Common Stock shall be entitled
to one vote per share.
(3) LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after payment
shall have been made to holders of the Preferred Stock of the full amounts to
which they shall be entitled as stated and expressed herein or as may be stated
and expressed pursuant hereto, the holders of Common Stock shall be entitled, to
the exclusion of the holders of the Preferred Stock (except to the extent
otherwise specifically provided in such Preferred Stock), to share ratably
according to the number of shares of the Common Stock held by them in all
remaining assets of the Corporation available for distribution to its
stockholders.
(C) OTHER PROVISIONS. No holder of any of the shares of any class or
series of stock or options, warrants or other rights to purchase shares of any
class of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any class or
series or any additional shares of any class or series to be issued by reason of
any increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, or carrying any right to purchase stock of any class or series, but
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<PAGE>
any such unissued stock, additional authorized shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations,
whether any such persons, firms, corporations or associations are holders or
others, and upon such terms as may be deemed advisable by the Board of Directors
in the exercise of its sole discretion.
FIFTH: The Board of Directors shall consist of not less than one (1)
nor more than fifteen (15) persons, the exact number to be fixed and determined
from time to time by resolution of the Board of Directors.
SIXTH: Prior to the first closing date for the public offering of the
Common Stock which occurs on or after the date of this Certificate, the
directors shall be elected for such term as is specified in the Bylaws of the
Corporation in effect on the date of this Certificate, as such By-Laws are
amended from time to time. On and after the first closing date for the public
offering of the Common Stock which occurs on or after the date of this
Certificate, the directors shall be divided into three (3) classes, known as
Class 1, Class 2, and Class 3. The initial directors of Class 1 shall serve
until the first (1st) annual meeting of stockholders. At the first (1st) annual
meeting of stockholders, the directors of Class 1 shall be elected for a term of
three (3) years and, after the expiration of such term, shall thereafter be
elected every three (3) years for three (3) year terms. The initial directors
of Class 2 shall serve until the second (2nd) annual meeting of stockholders.
At the second (2nd) annual meeting of the shareholder, the directors of Class 2
shall be elected for a term of three (3) years and, after the expiration of such
term, shall thereafter be elected every three (3) years for three (3) year
terms. The initial directors of Class 3 shall serve until the third (3rd)
annual meeting of stockholders. At the third (3rd) annual meeting of the
stockholders, the directors of Class 3 shall be elected for a term of three (3)
years and, after expiration of such term, shall thereafter be elected every
three (3) years for three (3) year terms. Each director shall serve until his
successor shall
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<PAGE>
have been elected and shall qualify, even though his term of office as herein
provided has otherwise expired, except in the event of his earlier death,
resignation, removal or disqualification. This Article Sixth, or any portion
thereof, may be changed by a by-law amendment which is adopted by all of the
then members of the Board of Directors.
SEVENTH: Section 228 of the Delaware General Corporation Law shall not
be applicable unless the resolution or other matter contained in the written
consent or consents from stockholders has been previously approved by all of the
then members of the Board of Directors.
EIGHTH: The Corporation shall indemnify the directors and executive
officers of the Corporation and hold them harmless to the fullest extent
permitted by the provisions of the Delaware General Corporation Law. In the
event that the Delaware General Corporation Law is amended, after the date of
this Certificate, to the authorize corporate action further eliminating or
limiting the personal liability of directors and officers (whether an executive
officer or not), then the liability of a director or officer of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
The Corporation shall pay the expenses incurred by a director
or executive officer in defending any civil, criminal, administrative, or
investigative action, suit or proceeding in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it should be ultimately
determined that he or she is not entitled to be indemnified by the Corporation
as authorized by the Delaware General Corporation Law.
Any amendment or repeal of this Article Ninth by the
stockholders of the Corporation shall not adversely affect any right or
protection of the director or officer of the Corporation existing at the time of
such amendment or repeal. Nothing contained herein shall prevent the
Corporation from supplementing the indemnification provisions contained herein
by By-Law provisions, contracts with directors or officers, insurance or
otherwise.
-5-
<PAGE>
NINTH: To the fullest extent permitted by law as presently in effect
or as hereafter amended from time to time, a director shall have no personal
liability to the Corporation or stockholders for monetary damages for breach of
fiduciary duty as a director. Any amendment to or repeal of this Article Tenth
shall not adversely affect any right or protection of a director of this
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
TENTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors of the Corporation
is expressly authorized and empowered to adopt, amend or repeal the By-laws of
the Corporation.
ELEVENTH: The Corporation reserves the right at any time and from time
to time to amend or repeal any provision contained in this Certificate of
Incorporation; and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
TWELFTH: In the event that all, some or any part of any provision
contained in this Amended and Restated Certificate of Incorporation shall be
found by any court of competent jurisdiction to be illegal, invalid or
unenforceable (as against public policy or otherwise), such provision shall be
enforced to the fullest extent permitted by law and shall be construed as if it
had been narrowed only to the extent necessary so as not to be invalid, illegal
or unenforceable; the validity, legality and enforceability of the remaining
provisions of this Amended and Restated Certificate of Incorporation shall
continue in full force and effect and shall not be affected or impaired by such
illegality, invalidity or unenforceability of any other provision (or any part
or parts thereof) of the Amended and Restated Certificate of Incorporation. If
and to the extent that any provision
-6-
<PAGE>
contained in this Amended and Restated Certificate of Incorporation violates any
rule of a securities exchange or automated quotation system on which securities
of the Corporation are traded, the Board of Directors is authorized, in its sole
discretion, to suspend or terminate such provision for such time or periods of
time and subject to such conditions as the Board of Directors shall determine.
IN WITNESS WHEREOF, American Business Financial Services, Inc. has
caused this Certificate to be signed by this 31st day of May, 1996.
ATTEST: AMERICAN BUSINESS FINANCIAL SERVICES, INC.
/s/ Beverly Santilli By: /s/ Anthony J. Santilli, Jr.
- ------------------------------ ---------------------------------------
Beverly Santilli Anthony J. Santilli, Jr.
Secretary Chief Executive Officer
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<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE OF PLAN
The purpose of the 1995 Stock Option Plan for Non-Employee Directors
(the "Plan") contained herein is to enhance the ability of American Business
Financial Services, Inc. and its current and future subsidiaries (collectively
the "Companies") to attract, retain and motivate members of their respective
Boards of Directors and to provide additional incentive to members of their
respective Boards of Directors by encouraging them to invest in shares of
American Business Financial Services, Inc. (the "Company") common stock and
thereby acquire a proprietary interest in the Company and an increased personal
interest in the Companies' continued success and progress, to the mutual benefit
of directors, employees and stockholders.
2. AGGREGATE NUMBER OF SHARES
135,000 shares of the Company's common stock, par value $.001 per
share ("Common Stock"), shall be the aggregate number of shares which may be
issued under this Plan. Notwithstanding the foregoing, in the event of any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split (other than the 3 for 2 stock split effective
October 1, 1995 for which no adjustment shall be made), combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Board of Directors deems in its sole discretion to be
similar circumstances, the aggregate number and kind of shares which may be
issued under this Plan shall be appropriately adjusted in a manner determined in
the sole discretion of the Board of Directors. Reacquired shares of the
Company's Common Stock, as well as unissued shares, may be used for the purpose
of this Plan. Common Stock of the Company subject to options which have
terminated unexercised, either in whole or in part, shall be available for
future options granted under this Plan.
3. PARTICIPATION
Each person who is, as of October 1, 1995, a director of the Company
and is not as of such date an employee of the Company or any subsidiary
corporation, shall, as of October 1, 1995, automatically be granted an option to
purchase 22,500 shares of the Company's Common Stock (such figure to be subject
to adjustment for the same events described in Section 2 hereof, but not for the
3 for 2 stock split effective October 1, 1995). Each person who (a) is not a
director of the Company or any subsidiary corporation as of October 1, 1995, and
(b) is not an employee of the Company or any subsidiary corporation and who
after October 1, 1995 is first
<PAGE>
elected or appointed as a director of the Company or any subsidiary corporation
shall, as of the date of such election or appointment, automatically be granted
an option to purchase 22,500 shares of the Company's Common Stock (such figure
to be subject to adjustment for the same events described in Section 2 hereof),
subject, however, to the provisions of Section 6 hereof.
4. ADMINISTRATION OF PLAN
This Plan shall be administered by the Board of Directors of the
Company. The Board of Directors of the Company shall adopt such rules for the
conduct of its business and administration of this Plan as it considers
desirable. A majority of the members of the Board of Directors of the Company
shall constitute a quorum for all purposes. The vote or written consent of a
majority of the members of the Board of Directors of the Company on a particular
matter shall constitute the act of the Board of Directors of the Company on such
matter. The Board of Directors of the Company shall have the exclusive right to
construe the Plan and the options issued pursuant to it, to correct defects and
omissions and to reconcile inconsistencies to the extent necessary to effectuate
the purpose of this Plan and the options issued pursuant to it, and such action
shall be final, binding and conclusive upon all parties concerned. No member of
the Board of Directors of the Company shall be liable for any act or omission
(whether or not negligent) taken or omitted in good faith, or for the exercise
of any authority or discretion granted in connection with the Plan to the Board
of Directors, or for the acts or omissions of any other members of the Board of
Directors.
5. NON-QUALIFIED STOCK OPTIONS, OPTION PRICE AND TERM
(a) Options issued pursuant to this Plan shall be non-qualified stock
options. A non-qualified stock option is an option which does not satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). The option price for the non-qualified stock options issued under
this Plan shall be equal to the fair market value, as determined by the Board of
Directors of the Company, of the Company's Common Stock on the date of the grant
of the option, except that options issued as of October 1, 1995 shall have an
exercise price equal to the higher of (i) the fair market value at October 1,
1995 or (ii) the price at which the Company's Common Stock is, to the knowledge
of the Company, first traded within six months after October 1, 1995. The fair
market value of the Company's Common Stock on any particular date shall mean the
last reported sale price of a share of the Company's Common Stock on any stock
exchange on which such stock is then listed or admitted to trading, or on the
NASDAQ National Market System or Small Cap NASDAQ, on such date, or if no sale
took place on such day, the last such date on which a sale took place, or if the
Common Stock is not then quoted on the NASDAQ National
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<PAGE>
Market System or Small Cap NASDAQ, or listed or admitted to trading on any stock
exchange, the average of the bid and asked prices in the over-the-counter market
on such date, or if none of the foregoing, a price determined by the Board of
Directors.
(b) Options issued pursuant to this Plan shall be issued substantially in
the form set forth in Appendix I hereof, which form is hereby incorporated by
reference and made a part hereof, and shall contain substantially the terms and
conditions set forth therein. Options shall expire ten years after the date they
are granted, unless terminated earlier as provided herein.
6. EXPIRATION, AMENDMENT, SUPPLEMENT SUSPENSION AND TERMINATION
Options shall not be granted pursuant to this Plan after the
expiration of eight years from and after the date this Plan is approved by the
stockholders of the Company. The Board of Directors of the Company reserves the
right at any time, and from time to time, to amend or supplement this Plan in
any way, or to suspend or terminate it, effective as of such date, which date
may be either before or after the taking of such action, as may be specified by
the Board of Directors of the Company; provided, however, that such action shall
not affect options granted under the Plan prior to the actual date on which such
action occurred. Notwithstanding the foregoing, if Rule 16b-3 of the Securities
Exchange Act of 1934 is applicable to the Company, the Plan provisions specified
in Rule 16b-3(c)(2)(ii)(A) under the Securities Exchange Act of 1934, as
amended, or any future corresponding rule may not be amended or supplemented
more than once every six months, except as permitted by Rule 16b-3(c)(2)(ii)(B).
If the Board of Directors voluntarily submits a proposed amendment, supplement,
suspension or termination for stockholder approval, such submission shall not
require any future amendments (whether or not relating to the same provision or
subject matter), supplements, suspensions or terminations to be similarly
submitted for stockholder approval.
7. EFFECTIVENESS OF PLAN
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner described in Rule 16b-3(b) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule.
8. GENERAL CONDITIONS
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any director the right to continue as a director of
any of the Companies or interfere in any
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<PAGE>
way with the rights of the Companies to terminate him as a director.
(b) Corporate action constituting an offer of stock for sale to any
director under the terms of the options to be granted hereunder shall be deemed
complete as of October 1, 1995, or as of the automatic grant date hereunder
after October 1, 1995, regardless of when the option is actually delivered to
the non-employee director or acknowledged or agreed to by him.
(c) The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
/s/ Anthony J. Santilli, Jr.
__________________________________
Name: Anthony J. Santilli, Jr.
Title: Chief Executive Officer
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<PAGE>
APPENDIX I
NON-QUALIFIED STOCK OPTION
To: ______________________________________________________________________
Name
______________________________________________________________________
Address
Date: __________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase 22,500 shares of common stock (par value $.001 per share) ("Common
Stock") of American Business Financial Services, Inc. (the "Company") at a price
of $2.67 per share, or if higher, the price at which the Common Stock is, to the
knowledge of the Company, first traded within six months after the date hereof,
pursuant to the Company's 1995 Stock Option Plan for Non-Employee Directors (the
"Plan").
Your option may first be exercised on and after the date hereof for up to
100% of the total number of shares of Common Stock which are subject to this
option minus the number of shares previously purchased by exercise of the option
(as adjusted for any change in the outstanding shares of the Common Stock of the
Company by reason of a stock dividend, stock split, combination shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Board of Directors deems in its sole discretion to be
similar circumstances).
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check; (b) (unless
prohibited by the Board of Directors) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or
(c) (unless prohibited by the Board of Directors) any combination of cash and
Common Stock of the Company valued as provided in clause (b). Any assignment of
stock shall be in a form and substance satisfactory to the Secretary of the
Company, including guarantees of signature(s) and payment of all transfer taxes
if the Secretary deems such guarantees necessary or desirable. Notwithstanding
the foregoing, if you exercise your option within three years after the date
hereof, the option may only be exercised with cash.
<PAGE>
If you exercise your option and cease to be a director of the Company for
any reason whatsoever (except your death) prior to three years after the date
hereof, the Company will have an option to repurchase any Unvested Shares of
Common Stock which you acquired under this option at a purchase price equal to
the option exercise price which you paid to the Company under this option plus
interest thereon at the rate of 8% per annum, such interest to commence on the
date the Company received the option exercise price from you. The term
"Unvested Shares" shall refer to the following number of shares of Common Stock
acquired under this option: if you cease to be a director during the first one
year period after the date hereof, any shares acquired in excess of 40% of the
total number of shares of Common Stock subject to this option; if you cease to
be a director during the second one year period after the date hereof, any
shares acquired in excess of 60% of the total number of shares subject to this
option; if you cease to be a director during the third one year period after
the date hereof, any shares acquired in excess of 80% of the total number of
shares subject to this option. The Company's option must be exercised within
six (6) months after the date you ceased to be a director of the Company for any
reason whatsoever (except your death) provided such cessation occurred within
three years after the date hereof.
In the event that the Plan is not approved by the stockholders of the
Company, the Company shall repurchase, and you shall sell to the Company, all
shares of Common Stock acquired pursuant to the exercise of this option prior to
the stockholders meeting at which the Plan was submitted for stockholder
approval, at a purchase price equal to the option exercise price which you paid
to the Company plus interest thereon at the rate of 8% per annum.
Your option will, to the extent not previously exercised by you, terminate
three months after the date on which you cease to be a director of the Company
or a subsidiary corporation (whether by death, disability, resignation, removal,
failure to be reelected or otherwise and regardless of whether the failure to
continue as a director was for cause or otherwise), but in no event later than
ten years from the date this option is granted. After the date you cease to be
a director, you may exercise this option only for the number of shares which you
had a right to purchase and did not purchase on the date you ceased to be a
director. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship shall not be deemed to have
terminated if you cease being a director of the Company or a subsidiary
corporation but are or concurrently therewith become a director of the Company
or another subsidiary corporation.
2
<PAGE>
If you die while a director of the Company or a subsidiary corporation,
executor or administrator, as the case may be, may, at any time within three
months after the date of your death (but in no event later than ten years from
the date this option is granted), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
directorship with the Company or a subsidiary corporation is terminated by
reason of your becoming disabled, you or your legal guardian or custodian may at
any time within three months after the date of such termination (but in no event
later than 10 years from the date this option is granted), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Board of Directors deems in its sole discretion to be
similar circumstances, the number and kind of shares subject to this option and
the option price of such shares shall be appropriately adjusted in a manner to
be determined in the sole discretion of the Board of Directors. Notwithstanding
the foregoing, there shall be no adjustment made to the number of shares subject
to this option and the option price with respect to the stock split effective
October 1, 1995.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you or such
trust, you do not have any rights as a stockholder of the Company. The Company
reserves the right not to deliver to you the shares purchased by virtue of
exercise of this option during any period of time in which the Company deems, in
its sole discretion, that such delivery may not be consummated without violating
a federal, state, local or securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable during any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
3
<PAGE>
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement
under the Securities Act of 1933, as amended, and under any applicable
state securities laws or an opinion of counsel acceptable to the
Company that the proposed transaction will be exempt from such
registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby
4
<PAGE>
incorporated herein by reference and made a part hereof. In the event of any
conflict between the terms of this option and the terms of the Plan in effect on
the date of this option, the terms of the Plan shall govern. This option
constitutes the entire understanding between the Company and you with respect to
the subject matter hereof and no amendment, supplement or waiver of this option,
in whole or in part, shall be binding upon the Company unless in writing and
signed by the President of the Company. This option and the performances of the
parties hereunder shall be construed in accordance with and governed by the laws
of the Commonwealth of Pennsylvania.
5
<PAGE>
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
(SEAL) By:_______________________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
______________________________ ______________________________
(Signature) (Date)
6
<PAGE>
[EXECUTION COPY]
================================================================================
INTERIM WAREHOUSE AND
SECURITY AGREEMENT
by and between
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION,
as Lender
and
HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE,
as Borrower
Dated as of April 25, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. THE LOAN. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. ADDITIONAL CONDITIONS PRECEDENT TO ADVANCE. . . . . . . . . 6
Section 3. MORTGAGE FILES AND CUSTODIAN. . . . . . . . . . . . . . . . 8
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . . . . 8
SECTION 5. MANDATORY PREPAYMENT OF LOAN. . . . . . . . . . . . . . . . 12
SECTION 6. RELEASE OF MORTGAGE FILES FOLLOWING PAYMENT OF LOAN . . . . 13
SECTION 7. SERVICING.. . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8. NO ORAL MODIFICATIONS; SUCCESSORS AND ASSIGNS; ASSIGNMENT
OF COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 9. REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 10. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . 14
Section 11. REMEDIES UPON DEFAULT. . . . . . . . . . . . . . . . . . . 16
SECTION 12. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 17
Section 13. POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . 17
Section 14. AGREEMENT CONSTITUTES SECURITY AGREEMENT . . . . . . . . . 17
Section 15. LENDER MAY ACT THROUGH AFFILIATES. . . . . . . . . . . . . 17
Section 16. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 17. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . 18
Section 18. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 19. CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . 19
Section 1. The Loan. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Additional Conditions Precedent to Advance; Required
Characteristics of Mortgage Loans, Correspondents and
Servicers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3. Mortgage Files and Custodian. . . . . . . . . . . . . . . . 8
Section 4. Representations, Warranties and Covenants . . . . . . . . . 8
Section 5. Mandatory Prepayment of Loan. . . . . . . . . . . . . . . . 12
Section 6. Release of Mortgage Files following Payment of Loan . . . . 13
Section 7. Servicing.. . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8. No Oral Modifications; Successors and Assigns; Assignment
of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . . 14
Section 11. Remedies Upon Default . . . . . . . . . . . . . . . . . . . 16
Section 12. Indemnification . . . . . . . . . . . . . . . . . . . . . . 17
Section 13. Power of Attorney . . . . . . . . . . . . . . . . . . . . . 17
Section 14. Agreement Constitutes Security Agreement. . . . . . . . . . 17
Section 15. Lender May Act Through Affiliates . . . . . . . . . . . . . 17
Section 16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 17. Severability. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 18. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 19. Certain Definitions . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
INTERIM WAREHOUSE AND SECURITY AGREEMENT
INTERIM WAREHOUSE AND SECURITY AGREEMENT, dated as of April 25, 1996
(as amended or otherwise modified from time to time, this "AGREEMENT") among
PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a Delaware corporation, having
an office at 1220 N. Market Street, Wilmington, Delaware 19801 (the "LENDER"),
and HOMEAMERICAN CREDIT, INC. doing business as UPLAND MORTGAGE, a Pennsylvania
corporation, having its principal office at 111 Presidential Blvd., Bala Cynwyd,
PA 19004 (the "BORROWER").
WHEREAS, the Lender intends to lend and the Borrower intends to borrow
up to $25,000,000 (twenty-five million dollars) to fund the purchase or
origination by the Borrower of fixed and floating-rate, first and second lien,
residential mortgage loans; and
WHEREAS, the Lender's affiliate, Prudential Securities Incorporated
("PSI") will act as the sole or lead manager on a mortgage-backed securities
issuance (a "SECURITIZATION") to be sponsored by the Borrower (or by an
affiliate thereof) from time to time and collateralized by the Pledged Mortgage
Loans.
An index to the location of the definitions of the defined terms used
herein is set forth in Section 19 hereof.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the parties hereto hereby agree as follows:
SECTION 1. THE LOAN.
A. Subject to the terms of this Agreement:
1. The Lender agrees to lend to the Borrower up to $25,000,000 (such
borrowing, the "LOAN") to be made in one or more advances (each, an
"ADVANCE"). The Borrower agrees that the Loan shall be used to warehouse
fixed and adjustable rate, first or second lien, residential mortgage loans
that are to be included in a Securitization (the "MORTGAGE LOANS"), as such
Mortgage Loans are identified to the Lender in writing and in electronic
form from time to time. All Mortgage Loans financed hereunder shall be
closed loans; I.E., this facility shall not be used for "wet" or "table"
fundings. The Lender may refuse to lend against any Mortgage Loan(s) which
the Lender reasonably believes will not be eligible for inclusion in a
securitized pool either (x) due to the characteristics of such Mortgage
Loan or (y) due to the expected aggregate characteristics of the Mortgage
Loans.
<PAGE>
2. Each Advance shall be made on a date prior to the Maturity Date
referred to below (each such date, a "FUNDING DATE"); PROVIDED that:
(i) the conditions precedent to the making of Advances set forth in
Section 2 hereof shall have been satisfied, and the representations and
warranties of the Borrower in Section 4 hereof shall be true and correct on
and as of such Funding Date as if made on and as of such date;
(ii) no Event of Default shall have occurred and be continuing or
would exist after the making of the Advance on such Funding Date;
(iii) the Lender shall have received (A) in connection with each
Advance, a certificate from the Custodian referred to below to the effect
that it has in its possession and has reviewed the mortgage files relating
to the Mortgage Loans being pledged in connection with the Advance being
made on such Funding Date and has found no material deficiencies in such
mortgage files (the "CUSTODIAN'S CERTIFICATION") and (B) prior to the
initial Advance, a legal opinion from counsel (which may be in-house
counsel) to the Borrower in the form of Exhibit B-1 attached hereto;
(iv) the Borrower shall have delivered or caused to be delivered to
the Custodian all required documents with respect to the Mortgage Loans
being pledged on such Funding Date;
(v) Borrower shall deliver evidence of release of any prior security
interest that may have been granted with respect to the Pledged Mortgage
Loans.
(vi) to the extent described in Section 5(C) hereof, no notice
described in said Section 5(C) shall have been received by PSI; and
(vii) there shall be in full force and effect from each of American
Business Financial Services, Inc. and American Business Credit (the
"GUARANTORS") a Guaranty (the "GUARANTY") in the forms attached hereto as
Exhibits E-1 and E-2, respectively.
3. The Loan shall accrue interest daily on its outstanding principal
amount, with interest calculated for the actual number of days elapsed,
based on a 360-day year. The interest rate shall be (except as otherwise
provided in Section 1(E)(2) or Section 10(D) hereof) LIBOR plus 1.25%, and
shall be reset on each business day. Interest which accrues during each
calendar month shall be payable on the 3rd (third) business day of the
following month, with any outstanding interest due and payable in its
entirety on the date of termination of this warehouse facility (including
the Maturity Date).
"LIBOR" shall mean, the London interbank offered rate for one-month
U.S. dollar deposits, as set forth in the most recently-published Eastern
edition of THE WALL STREET JOURNAL.
2
<PAGE>
Any amounts pre-paid under this Agreement prior to the Maturity Date
may be re-borrowed, subject to the terms and conditions of this Agreement,
until the Maturity Date.
B. The amount of each Advance shall not be less than $1,000,000 or
greater than the lesser of:
1. 100% of the aggregate outstanding principal balance of the
Mortgage Loans (calculated as of the related Cut-Off Date or, if the
Borrower is using the proceeds of the Advance to purchase or originate the
related Mortgage Loans at their aggregate outstanding principal balance as
of the settlement date for the purchase, then their aggregate outstanding
principal balance as of such settlement date) proposed to be pledged to the
Lender in connection with such Advance, MINUS, in the event that a
Collateral Deficiency Situation exists as of the date of such Advance, the
Restoration Amount as of the date of such Advance; and
2. the product of (x) the Market Value of the Mortgage Loans proposed
to be pledged to the Lender in connection with such Advance and (y) until
such time as the Borrower shall have delivered evidence of the release of
the Liens filed by Meridian Bank and CoreStates Bank, N.A. for which UCC
statements have been filed (copies of which are attached hereto as Exhibit
F), .85 and thereafter, .92, MINUS, in the event that a Collateral
Deficiency Situation exists as of the date of such Advance, the Restoration
Amount as of the date of such Advance.
For purposes of this Agreement:
A COLLATERAL DEFICIENCY SITUATION shall be deemed to be existing as of
any day on which (x) the outstanding principal amount of the Loan as of
such day exceeds (y) the lesser of (i) the outstanding principal balance of
the Pledged Mortgage Loans and (ii) the product of (I) the Market Value of
the Pledged Mortgage Loans (disregarding the Market Value of any Mortgage
Loans proposed to be pledged to the Lender on such day) and (II) until such
time as the Borrower shall have delivered evidence of the release of the
Liens filed by Meridian Bank and CoreStates Bank, N.A. for which UCC
statements have been filed (copies of which are attached hereto as Exhibit
F), .85 and, thereafter, .92.
CUT-OFF DATE means, as of any date, the close of business on the date
set forth in the related Mortgage Loan Schedule (as defined in the
Custodial Agreement). In no event shall the Cut-Off Date precede by more
than two weeks the date on which the related Mortgage Loan Schedule is
delivered.
MARKET VALUE means, as of any date and with respect to any Mortgage
Loans, the whole-loan servicing-retained fair market value of such Mortgage
3
<PAGE>
Loans as of such date as determined by the Lender (or an affiliate thereof)
in its sole discretion.
MATURITY DATE means, the earliest of (i) September 30, 1996 and (ii)
the date on which a Securitization occurs (other than the ABFS Home Equity
Asset Backed Certificates 1996-1 Securitization (the "96-1
SECURITIZATION")). The Maturity Date may be extended by Lender, in
Lender's sole and unreviewable discretion, on any date by the execution and
delivery of a Credit Increase Confirmation and Note Amendment in the form
of Exhibit C hereto.
PLEDGED MORTGAGE LOANS means, as of any date of determination, any
Mortgage Loans then held by the Custodian on behalf of the Lender to secure
the Loan.
RESTORATION AMOUNT means, as of any date of determination, the amount,
if any, by which (x) the outstanding principal amount of the Loan as of
such date (including accrued interest) exceeds (y) the lesser of (i) the
product of (I) the Market Value of the Pledged Mortgage Loans (disregarding
the Market Value of any Mortgage Loans proposed to be pledged to the Lender
on such date) and (II) until such time as the Borrower shall have
delivered evidence of the release of the Liens filed by Meridian Bank and
CoreStates Bank, N.A. for which UCC statements have been filed (copies of
which are attached hereto as Exhibit F), .86 and, thereafter, .93 and (ii)
the outstanding principal balance of the Pledged Mortgage Loans
(disregarding the outstanding principal balance of any Mortgage Loans to be
pledged to the Lender on such date).
C. The Loan evidenced hereby shall mature on the Maturity Date and
all amounts outstanding hereunder shall be due and payable on the Maturity Date.
D. The Loan is pre-payable at any time without premium or penalty, in
whole or in part; PROVIDED, that Pledged Mortgage Loans may not be removed from
this facility (including in connection with any prepayment of the Loan in part)
with the result that, in the Lender's sole reasonable determination, the
remaining Pledged Mortgage Loans, are, in the aggregate, materially inferior as
collateral as compared to the pool of Pledged Mortgage Loans immediately prior
to such removal. In addition, no Pledged Mortgage Loans may be removed from
this facility with the result that a Collateral Deficiency Situation would then
exist. Notwithstanding the foregoing, however, a Pledged Mortgage Loan, may in
any event be removed from this facility if such Pledged Mortgage Loan has been
paid in full by the mortgagor. If the Borrower intends to prepay the Loan in
whole or in substantial part from a source other than the proceeds of the
Securitization, the Borrower shall give two business days' written notice to the
Lender.
E.1. If the Loan is not extended by means of a Credit Increase
Confirmation and Note Amendment, the Loan shall immediately and automatically
become due and payable without any further action by the Lender on the then
scheduled Maturity Date, and in the event of non-payment in full on such
Maturity
4
<PAGE>
Date the Lender may exercise all rights and remedies available to it as the
holder of a first perfected security interest under the Uniform Commercial Code
of the State of New York (the "NEW YORK UCC").
1. If the Borrower awards a Securitization or whole-loan trade
involving any Pledged Mortgage Loans to an investment banking house, agent,
broker or underwriter other than PSI or to a group of managers for which PSI is
not the lead manager, then the interest rate on the Loan shall increase to LIBOR
plus 500 basis points, which higher rate shall retroactively be applied as of
the related Funding Date for all prior Advances or Pledged Mortgage Loans so
involved; PROVIDED, HOWEVER, that if the Borrower had first offered such
Securitization or whole-loan trade to PSI and PSI refused such offer, then this
subsection 2 shall have no effect.
F. The Loan shall be evidenced by the secured promissory note of the
Borrower in the form attached hereto as Exhibit A (the "Secured Note").
G. In the event that the Loan is extended beyond its then scheduled
Maturity Date by means of a Credit Increase Confirmation and Note Amendment, the
factors set forth in the definitions of "Collateral Deficiency Situation" and
"Restoration Amount" may be revised downward by the Lender in its sole
discretion.
5
<PAGE>
SECTION 2. ADDITIONAL CONDITIONS PRECEDENT TO ADVANCE.
A. Not later than two business days prior to the proposed Funding
Date for an Advance the Borrower shall deliver to the Lender (i) a written
notice in the form of Exhibit D hereto and (ii) an electronic disk or tape, in a
mutually satisfactory form to be agreed upon detailing certain specified
characteristics of the Mortgage Loans proposed to be pledged in connection with
such Advance (each such schedule, a "MORTGAGE LOAN SCHEDULE").
B. Prior to the initial Funding Date, Lender shall have received:
1. Duly executed originals of (i) this Agreement, (ii) the Custodial
Agreement, (iii) the Secured Note and (iv) the Guaranties.
2. A certificate of the Secretary of Borrower certifying (i) a copy
of Borrower's articles of incorporation; (ii) a copy of Borrower's by-laws;
(iii) the names and signature of officers of Borrower authorized on its
behalf to execute this Agreement and any other documents to be delivered by
it hereunder (on which Lender may conclusively rely until such time as
Lender shall receive from Borrower a revised certificate); and (iv) a copy
of minutes of a meeting of Borrower's members authorizing the authorized
signatories to enter into this Agreement.
3. Lender shall have received a certificate of the Secretary of each
of the Guarantors certifying (i) a copy of Guarantor's articles of
incorporation; (ii) a copy of Guarantor's by-laws; (iii) the names and
signatures of the officers authorized on its behalf to execute the
Guaranty, and any other documents to be delivered by it thereunder (on
which Lender may conclusively rely until such time as Lender shall receive
from Guarantor a revised certificate); and (iv) a copy of the resolutions
of the executive committee of the board of directors of Guarantor
authorizing the Guarantor to deliver the Guaranty.
4. Lender shall have received an opinion of the counsel to Borrower,
which may be an attorney employed by one of its affiliates, in
substantially the form of Exhibit B-1 hereto.
5. Lender shall have received an opinion of the counsel to each
Guarantor in substantially the form of Exhibit B-2 hereto.
6. Lender shall have received the most recent available servicing
reports, if any, with respect to the Mortgage Loans.
7. Lender and/or any independent contractor appointed by Lender shall
have completed such investigation as Lender may reasonably require with
respect to each Mortgage Loan which is the subject of any funding and the
results of such investigation (and all other legal and documentary matters
with respect to such Mortgage Loan) shall be satisfactory to Lender.
6
<PAGE>
8. The Borrower shall have executed all documents, including but not
limited to financing statements under the Uniform Commercial Code as in
effect in any applicable jurisdictions, as Lender may reasonably require to
effectively perfect and evidence Lender's first priority security interest
in the Collateral.
C. The Borrower shall reimburse the Lender for any of the Lender's
reasonable out-of-pocket costs up to $17,000, including due diligence
review costs and reasonable attorney's fees, incurred by the Lender with
respect to this Agreement and in determining the acceptability to the
Lender of any Mortgage Loans or the identity of any originator or servicer.
The Borrower shall also pay, or reimburse the Lender if the Lender shall
pay, any termination fee which may be due to any servicer.
7
<PAGE>
SECTION 3. MORTGAGE FILES AND CUSTODIAN. The Borrower shall deliver
to The Chase Manhattan Bank, N.A. as custodian (the "CUSTODIAN") on behalf of
the Lender, the documents and instruments listed in Section 2 of that certain
Custodial Agreement dated as of April 25, 1996 (the "CUSTODIAL AGREEMENT") among
the Lender, the Borrower, and the Custodian. Such documents and instruments
evidencing and relating to the Mortgage Loans, together with any proceeds
thereof are hereinafter referred to as the "COLLATERAL". The Borrower hereby
pledges all of its right, title and interest in and to the Collateral to the
Lender to secure the repayment of principal of and interest on the Loan and all
other amounts owing by the Borrower to the Lender hereunder or under any other
agreement or arrangement (collectively, the "SECURED OBLIGATIONS").
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. A. The
Borrower represents and warrants to the Lender that:
1. It has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Pennsylvania.
2. It is duly licensed as a "Licensee" or is otherwise qualified in
each state in which it transacts business and is not in default of such
state's applicable laws, rules and regulations, except where failure to so
qualify or such default would not have a material adverse effect on the
ability of Borrower to conduct its business or to perform its obligations
under this Agreement. It has the requisite power and authority and legal
right to own and grant a lien on all of its right, title and interest in
and to the Collateral, and to execute and deliver, engage in the
transactions contemplated by, and perform and observe the terms and
conditions of, this Agreement, the Custodial Agreement and the Secured
Note.
3. At all times after the Custodian has received a Mortgage Loan from
the Borrower and until payment in full of the Loan, the Borrower will not
knowingly and intentionally commit any act in violation of applicable laws,
or regulations promulgated with respect thereto.
4. The Borrower is solvent and is not in default under any mortgage,
borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money, and the execution, delivery and
performance by the Borrower of this Agreement, the Custodial Agreement, and
the Secured Note do not conflict with any term or provision of the
certificate of incorporation or by-laws of the Borrower or any law, rule,
regulation, order, judgment, writ, injunction or decree applicable to the
Borrower of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Borrower and will not result
in any violation of any such mortgage, instrument or agreement.
5. All financial statements or certificates of the Borrower, any
Affiliate of the Borrower or any of its officers furnished to the Lender
are true
8
<PAGE>
and complete and do not omit to disclose any material liabilities or other
facts relevant to the Borrower's or such Affiliate's condition. As used in
this Agreement, "AFFILIATE" means (i) American Business Financial Services,
Inc., American Business Credit, Inc., Processing Service Center, Inc.,
American Business Leasing, Inc., ABC Holdings Corporation and HomeAmerican
Consumer Discount Company and (ii) any person directly or indirectly
controlling, controlled by, or under common control (within the definition
of "control" set forth in the Securities and Exchange Act of 1934, as
amended) with, the Borrower. All such financial statements have been
prepared in accordance with GAAP. No financial statement or other
financial information as of a date later than that supplied to the Lender,
has been furnished by the Borrower or any of its Affiliates to another
lender of the Borrower or any of its Affiliates that has not been furnished
to the Lender.
6. No consent, approval, authorization or order of, registration or
filing with, or notice to any governmental authority or court is required
under applicable law in connection with the execution, delivery and
performance by the Borrower of this Agreement, the Custodial Agreement and
the Secured Note.
7. There is no action, proceeding or investigation pending with
respect to which the Borrower has received service of process or, to the
best of the Borrower's knowledge threatened against it before any court,
administrative agency or other tribunal (A) asserting the invalidity of
this Agreement, the Custodial Agreement or the Secured Note, (B) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement, the Custodial Agreement or the Secured Note, or (C) which might
materially and adversely affect the validity of the Mortgage Loans or the
performance by it of its obligations under, or the validity or
enforceability of, this Agreement, the Custodial Agreement or the Secured
Note.
8. There has been no material adverse change in the business,
operations, financial condition, properties or prospects of the Borrower or
any Affiliate since the date set forth in the financial statements supplied
to the Lender.
9. This Agreement, the Custodial Agreement and the Secured Note have
been duly authorized, executed and delivered by the Borrower, all requisite
corporate action having been taken, and each is valid, binding and
enforceable against the Borrower in accordance with its terms except as
such enforcement may be affected by bankruptcy, by other insolvency laws,
or by general principles of equity.
B. With respect to every Mortgage Loan delivered to the Custodian,
the Borrower represents and warrants to the Lender that:
1. Such Mortgage Loan and all accompanying documents are
complete and authentic and all signatures thereon are genuine.
9
<PAGE>
2. Such Mortgage Loan arose from a bona fide loan, complying
with all applicable State and Federal laws and regulations, to persons
having legal capacity to contract and is not subject to any defense, set-
off or counterclaim.
3. All amounts represented to be payable on such Mortgage Loan
are, in fact, payable in accordance with the provisions of such Mortgage
Loan.
4. No default has occurred in any provisions of such Mortgage
Loan (other than a payment delinquency not exceeding 30 days).
5. Any property subject to any security interest given in
connection with such Mortgage Loan is not subject to any encumbrance other
than (i) a stated first mortgage, (ii) 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 or (iii) zoning
restrictions, utility easements, covenants or conditions and restrictions
of record which will neither defeat nor render invalid such security
interest or the priority thereof nor materially impair the marketability or
value of such property nor be violated by the existing improvements or the
intended use thereof.
6. The Borrower holds good and indefeasible title to, and is the
sole owner of, such Mortgage Loan subject to no liens, charges, mortgages,
participations, encumbrances or rights of others or other liens released
simultaneously with such pledge.
7. Each Mortgage Loan conforms to the description thereof as set
forth on the related Mortgage Loan Schedule delivered to the Custodian and
the Lender.
8. All disclosures required by the Real Estate Settlement
Procedures Act, by Regulation X promulgated thereunder and by Regulation Z
of the Board of Governors of the Federal Reserve System promulgated
pursuant to the statute commonly known as the Truth-in-Lending Act and the
Notice of the Right of Recision required by said statute and regulation
have been properly made and given.
9. The Mortgage Loans do not have characteristics which are
materially worse than those of other mortgage loans financed by the
Borrower during the twelve-month period preceding the initial Funding Date.
10. The representations and warranties set forth in Section 2.04
(other than any representation and warranty referencing either (x) the
specific mortgage loan schedule referred to in said Section 2.04 or (y)
specific statistical characteristics of any mortgage loan pool) of the
Pooling and Servicing Agreement to be executed in connection with the 96-1
Securitization
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(the "Designated Pooling and Servicing Agreement"), between The Chase
Manhattan Bank, N.A., as Trustee, American Business Credit, Inc., as Seller
and as Servicer, are true with respect to the Mortgage Loans, MUTATIS
MUTANDIS.
11. Each Mortgage Loan will be eligible for inclusion in a pool
to be securitized on substantially the same terms as the 96-1
Securitization or which is insured by a credit enhancer; the Lender may
refuse to lend against any Mortgage Loan(s) which the Lender reasonably
believes will not be eligible for inclusion in such a securitized, insured
pool either (x) due to the characteristics of such Mortgage Loan or (y) due
to the expected aggregate characteristics of the Mortgage Loans.
C. The Borrower covenants with the Lender that, during the term of
this facility:
1. Neither the Borrower nor any of its Affiliates shall create or
suffer to exist any Lien, other than Permitted Liens, on any of the
Borrower's or any of its Affiliate's assets; PROVIDED, HOWEVER, that (i)
the Lien on certain assets of American Business Credit, Inc. which Meridian
Bank has with respect to the warehouse line it has provided to the Borrower
may exist until the earlier to occur of (x) May 26, 1996 and (y) the first
Funding Date provided that the Borrower shall use the proceeds of such
first Advance to pay down the warehouse line with Meridian Bank and shall
simultaneously release the liens on the assets pledged thereunder and shall
repledge such assets which are mortgage loans as Pledged Mortgage Loans
hereunder and (ii) the Lien on certain assets of American Business Credit,
Inc. that CoreStates Bank, N.A. has with respect to the warehouse line it
has provided to the Borrower may exist until the earlier to occur of (x)
May 26, 1996 and (y) the closing of the 96-1 Securitization provided that
the Borrower shall use the proceeds of such Securitization to pay down the
warehouse line with CoreStates Bank, N.A. and shall simultaneously release
the liens on the assets pledged thereunder.
2. The Borrower shall deliver the executed UCC-3 and/or other
evidence of release of the Liens for which CoreStates Bank, N.A. and
Meridian Bank have filed UCC-1 statements (copies of such UCCs are attached
hereto as Exhibit F) on the day of the earlier to occur of (x) May 26, 1996
and (y) (i) with respect to the Meridian Bank UCC, the first Funding Date
and (ii) with respect to the CoreStates Bank, N.A. UCC, the closing of the
96-1 Securitization.
3. That Borrower shall not pledge, assign or grant to any other
party any security interest in any Pledged Mortgage Loan.
For purposes of this Agreement:
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LIEN means, with respect to any asset of the Borrower or any of its
Affiliates, any mortgage, lien, pledge, charge, security interest or other
similar encumbrance of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law (including, without
limitation, any conditional sale or other title retention agreement, and any
financing lease in the nature thereof, any agreement to sell, and any filing of,
or agreement to give, any financing statement (other than notice filings not
perfecting a security interest) under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
PERMITTED LIEN means (i) Liens for taxes, assessments or governmental
charges or claims that either (a) are not yet delinquent or (b) are being
contested in good faith by appropriate proceedings and as to which appropriate
reserves or other provisions have been made in accordance with GAAP; (ii)
statutory Liens of landlords and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business and with respect to amounts that either (a) are not
yet delinquent or (b) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves or other provisions have been
made in accordance with GAAP; (iii) Liens (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974, as amended) incurred or
deposits due in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, progress payments,
government contracts and other obligations of like nature (exclusive of
obligations for the payment of borrowed money), in each case incurred in the
ordinary course of business; (v) attachment or judgment Liens not giving rise to
an Event of Default; (vi) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering with the ordinary conduct of the
business of the Borrower or any of its Affiliates; (vii) leases or subleases
granted to others not interfering with the ordinary conduct of the business of
the Borrower or any of its Affiliates; (viii) the Lien granted to the Lender
pursuant hereto; (ix) the Liens listed on Schedule A attached hereto; and (x)
any other Lien to which Lender has given its prior written consent.
SECTION 5. MANDATORY PREPAYMENT OF LOAN.
A. Upon discovery by the Borrower or the Lender of any breach of any
of the representations and warranties listed in Section 4(B) preceding, the
party discovering such breach shall promptly give notice of such discovery to
the others.
The Lender has the right to require, in its unreviewable discretion,
the Borrower to repay the Loan in part in an amount equal to the amount of the
Advance relating to such Mortgage Loan with respect to any Mortgage Loan which
breaches one or more of the representations and warranties listed in Section
4(B) preceding or which is determined by the Lender to be unacceptable for
inclusion in such Securitization; PROVIDED, HOWEVER, that upon the Lender's
written consent, then in lieu of any prepayment required by this Section 5(A),
the Borrower may pledge additional Mortgage Loans complying with the terms of
this Agreement with an aggregate
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<PAGE>
outstanding principal balance equal to or greater than the amount of such
required prepayment.
B. If any Mortgage Loan, as indicated on any Supplemental Mortgage
Loan Schedule delivered pursuant to Section 9(A) hereof, becomes 31 or more days
delinquent on two or more occasions, the Lender may require the Borrower to
prepay the Loan in part in an amount equal to the amount of the Advance relating
to such Mortgage Loan with respect to such Mortgage Loan, or, with the Lender's
consent, deliver a qualifying substitute mortgage loan in its place.
C. If the Borrower awards a Securitization or any whole-loan trade
involving any Pledged Mortgage Loans to an investment banking house, agent or
underwriter other than PSI, or to a group of managers for which PSI is not the
lead manager, then (x) the Lender may demand that the Borrower prepay any
portion of the Loan evidenced hereby relating to the dollar amount of the
Mortgage Loans to be included in such Securitization or whole loan trade, in
which PSI has not been selected for participation, for payment within five
business days of the demand for prepayment, (y) the Lender may refuse to make
further Advances hereunder if such Advances would relate to Mortgage Loans to be
included in such Securitization or whole-loan trade in which PSI has not been
selected for participation and (z) the interest rate on the Loan shall increase
as set forth in Section 1(E)(2) hereof. The Borrower shall give immediate
notice, by facsimile transmission, to the attention of Norm Chaleff at the
Lender and to the attention of Len Blum at PSI (fax 212-778-7401) of any
decision to award the lead manager role or to name any group of managers for any
Securitization or whole-loan trade involving any Pledged Mortgage Loans.
D. If, on any date other than a Funding Date, the Lender determines
that a Collateral Deficiency Situation exists, the Lender shall so notify the
Borrower, and the Borrower, within one business day, shall either (i) pay to the
Lender the Restoration Amount or (ii) deliver to the Custodian on behalf of the
Lender additional Mortgage Loans having an aggregate Market Value at least equal
to the Restoration Amount. The provisions of Section 1(B) shall govern with
regard to a Collateral Deficiency Situation as of a Funding Date.
SECTION 6. RELEASE OF MORTGAGE FILES FOLLOWING PAYMENT OF LOAN. The
Lender agrees to cause to be released from the lien hereof the documents
described in Section 2 of the Custodial Agreement at the request of the Borrower
upon payment in full of the Loan, or, if a partial payment of the Loan occurs,
the documents relating to a PRO RATA portion of the Pledged Mortgage Loans.
SECTION 7. SERVICING. The Borrower shall service the Mortgage Loans
with the degree of skill and care consistent with that which the Borrower
customarily exercises with respect to similar contracts owned, managed, or
serviced by it and all applicable industry standards. The Borrower shall comply
with all applicable Federal and State laws and regulations; shall maintain all
State and Federal licenses and franchises necessary for it to perform its
servicing responsibilities hereunder and shall not impair the rights of the
Lender in any Mortgage Loans or for payment thereunder.
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<PAGE>
SECTION 8. NO ORAL MODIFICATIONS; SUCCESSORS AND ASSIGNS; ASSIGNMENT
OF COLLATERAL. No provisions of this Agreement shall be waived or modified
except by a writing duly signed by the authorized agents of the Lender and the
Borrower. This Agreement shall be binding upon the successors and assigns of
the parties hereto. The Borrower acknowledges and agrees that the Lender may
re-pledge, enter into repurchase transactions, and otherwise re-hypothecate
(including the granting of participation interests therein) the Collateral for
the Loan, PROVIDED that no such act shall in any way affect the Borrower's
rights to the Collateral.
SECTION 9. REPORTS. A. The Borrower shall provide the Lender with an
electronic disk or tape or hard copy (each, a "SUPPLEMENTAL MORTGAGE LOAN
SCHEDULE") (i) on the date any additional Mortgage Loans are delivered pursuant
to Section 5(D) and at the earliest of (A) two business days before each Funding
Date or (B) two weeks following the date that the last such schedule was
provided and (ii) within two business days following any request by the Lender
or any affiliate thereof for such a schedule. Such Supplemental Mortgage Loan
Schedule will contain information concerning (x) the Mortgage Loans then held in
the warehouse facility and (y) any Mortgage Loans proposed to be delivered to
the facility on the next Funding Date or in connection with Collateral
maintenance pursuant to Section 5(D) hereof, and shall be in the format as may
be agreed upon by the Borrower and the Lender from time to time.
A. The Borrower shall furnish to Lender (x) promptly, copies of any
material and adverse notices (including, without limitation, notices of
defaults, breaches, potential defaults or potential breaches) given to or
received from its other lenders, (y) immediately, notice of the occurrence of
any "Event of Default" hereunder or of any situation which the Borrower, with
the passage of time, reasonably expects to develop into an "Event of Default"
hereunder and (z) the following:
(i) consolidated audited financial statements of the Borrower
and its Affiliates, within 90 days of the Borrower's fiscal year end;
(ii) consolidated unaudited financial statements of the Borrower
and its Affiliates for each of the Borrower's first three quarters of
each fiscal year, within 45 days after quarter end;
(iii) unaudited financial statements of the Borrower within 45
days after quarter end;
(iv) quarterly and annual consolidated and/or consolidating
financial statements of the Borrower and its Affiliates reflecting
material intercompany adjustments within 5 business days of their
release; and
(v) copies of all SEC filings by the Borrower and its
Affiliates, within five business days of their filing with the SEC.
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<PAGE>
All required financial statements, information and reports shall be
prepared in accordance with U.S. GAAP, or, if applicable to SEC filings, SEC
accounting regulations.
SECTION 10. EVENTS OF DEFAULT. Each of the following shall
constitute an "Event of Default" hereunder:
A. Failure of the Borrower to (i) make any payment of interest or
principal or any other sum which has become due, whether by acceleration or
otherwise, under the terms of the Secured Note, this Agreement, any warehouse
and security agreement or any other document evidencing or securing indebtedness
of the Borrower to the Lender or to any affiliate of the Lender, or (ii) pay or
deliver any Restoration Amount.
B. Any "event of default" or any occurrence which with the passage
of time would become an "event of default" by the Borrower or Guarantor under
any agreement relating to any indebtedness of the Borrower or Guarantor to any
other lender.
C. Any default of any term, condition or agreement or any breach of
any representation or warranty of either Guarantor under the Guaranty.
D. Assignment or attempted assignment by the Borrower of this
Agreement or any rights hereunder, without first obtaining the specific written
consent of the Lender, or the granting by the Borrower of any security interest,
lien or other encumbrance on any Collateral to other than the Lender.
E. The filing by the Borrower or either Guarantor of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar laws of the United
States or any state or territory thereof or of any foreign jurisdiction; the
failure of the Borrower or either Guarantor to secure dismissal of any such
petition filed against it within thirty (30) days of such filing; the making of
any general assignment by the Borrower or either Guarantor for the benefit of
creditors; the appointment of a receiver or trustee for the Borrower or either
Guarantor, or for any part of the Borrower's or either Guarantor's assets; the
institution by the Borrower or either Guarantor of any other type of insolvency
proceeding (under the Bankruptcy Code or otherwise) or of any formal or informal
proceeding, for the dissolution or liquidation of, settlement of claims against,
or winding up of the affairs of, the Borrower or either Guarantor; the
institution of any such proceeding against the Borrower or either Guarantor if
such party shall fail to secure dismissal thereof within thirty (30) days
thereafter; the consent by the Borrower or either Guarantor to any type of
insolvency proceeding against the Borrower or either Guarantor (under the
Bankruptcy Code or otherwise); the occurrence of any event or existence of any
condition which could be the ground, basis or cause for any proceeding or
petition described in this Section 10.
F. Any materially adverse change in the financial condition of the
Borrower or any of its Affiliates or the existence of any other condition which,
in the
15
<PAGE>
Lender's sole determination, constitutes an impairment of the Borrower's ability
to perform its obligations under this Agreement or the Secured Note.
G. Failure by the Borrower to service the Mortgage Loans in
substantial compliance with the servicing requirements set forth in Section 7
hereof.
H. A breach by the Borrower of any representation, warranty or
covenant set forth in Section 4(A), 4(C) or Section 9 hereof or a use by the
Borrower of the proceeds of the Loan for a purpose other than as set forth in
Section 1(A) hereof.
SECTION 11. REMEDIES UPON DEFAULT. A. Upon the happening of one or
more Events of Default, the Lender may (x) refuse to make further Advances
hereunder and (y) immediately declare the principal of the Secured Note then
outstanding to be immediately due and payable, together with all interest
thereon and fees and expenses accruing under this Agreement; PROVIDED that, upon
the occurrence of the Event of Default referred to in Section 10(D), such
amounts shall immediately and automatically become due and payable without any
further action by any person or entity. Upon such declaration or such automatic
acceleration, the balance then outstanding on the Secured Note shall become
immediately due and payable without presentation, demand or further notice of
any kind to the Borrower.
A. Upon the happening of one or more Events of Default, the Lender
shall have the right to obtain physical possession, and to commence an action to
obtain physical possession, of all files of the Borrower relating to the
Collateral and all documents relating to the Collateral which are then or may
thereafter come in to the possession of the Borrower or any third party acting
for the Borrower. The Lender shall be entitled to specific performance of all
agreements of the Borrower contained in this Agreement. The Borrower and the
Lender hereby acknowledge that the Lender's right to obtain physical possession
of the Collateral is deemed for all purposes to be equivalent to the rights of
"seizure of property or maintenance or continuation of perfection of an interest
in property" as specified under Bankruptcy Code Sections 362(b) and 546(b)(2).
B. Upon the happening of one or more Events of Default, the Lender
shall have the right to direct all servicers then servicing any Pledged Mortgage
Loans to remit all collections on the Pledged Mortgage Loans to the Lender, and
if any such payments are received by the Borrower, the Borrower shall not
commingle the amounts received with other funds of the Borrower and shall
promptly pay them over to the Lender. In addition, the Lender shall have the
right to dispose of the Collateral as provided herein, or as provided in the
other documents executed in connection herewith, or in any commercially
reasonable manner, or as provided by law. Such disposition may be on either a
servicing-released or a servicing-retained basis. The Lender shall be entitled
to place the Mortgage Loans which it recovers after any default in a pool for
issuance of mortgage-backed securities at the then-prevailing price for such
securities and to sell such securities for such prevailing price in the open
market as a commercially reasonable disposition of Collateral, subject to the
applicable
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<PAGE>
requirements of the New York UCC. The Lender shall also be entitled to sell any
or all of such Mortgage Loans individually for the prevailing price as a
commercially reasonable disposition of Collateral subject to the applicable
requirements of the New York UCC. The specification in this Section of manners
of disposition of collateral as being commercially reasonable shall not preclude
the use of other commercially reasonable methods (as contemplated by the New
York UCC) at the option of the Lender.
C. Following the occurrence and during the continuance of an Event
of Default, interest shall accrue on the Loan at a default interest rate of
LIBOR plus 5.00%.
SECTION 12. INDEMNIFICATION. The Borrower agrees to hold the Lender
harmless from and indemnifies the Lender against all liabilities, losses,
damages, judgments, costs and expenses of any kind which may be imposed on,
incurred by, or asserted against the Lender relating to or arising out of this
Agreement, the Custodial Agreement, the Secured Note, the Guaranties or any
transaction contemplated hereby or thereby resulting from anything other than
the Lender's gross negligence or willful misconduct. The Borrower also agrees
to reimburse the Lender for all reasonable expenses in connection with the
enforcement of this Agreement, the Custodial Agreement, the Secured Note and the
Guaranties, including without limitation the reasonable fees and disbursements
of counsel. The Borrower's agreements in this Section shall survive the payment
in full of the Secured Note and the expiration or termination of this Agreement.
The Borrower hereby acknowledges that, notwithstanding the fact that the Secured
Note is secured by the Collateral, the obligations of the Borrower under the
Secured Note are recourse obligations of the Borrower.
SECTION 13. POWER OF ATTORNEY. The Borrower hereby authorizes the
Lender, at the Borrower's expense, to file such financing statement or
statements relating to the Collateral without the Borrower's signature thereon
as the Lender at its option may deem appropriate, and appoints the Lender as the
Borrower's attorney-in-fact to execute any such financing statement or
statements in the Borrower's name and to perform all other acts which the Lender
deems appropriate to perfect and continue the security interest granted hereby
and to protect, preserve and realize upon the Collateral, including, but not
limited to, the right to endorse notes, complete blanks in documents, transfer
servicing, and sign assignments on behalf of the Borrower as its attorney-in-
fact. This Power of Attorney is coupled with an interest and is irrevocable
without the Lender's consent. Notwithstanding the foregoing, the power of
attorney hereby granted may be exercised only during the occurrence and
continuance of any Event of Default hereunder.
SECTION 14. AGREEMENT CONSTITUTES SECURITY AGREEMENT. This Agreement
is intended by the parties hereto to be governed by New York Law, and to
constitute a security agreement within the meaning of the New York UCC.
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SECTION 15. LENDER MAY ACT THROUGH AFFILIATES. The Lender may, from
time to time, designate one or more affiliates for the purpose of performing any
action hereunder.
SECTION 16. NOTICES. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given if mailed, by registered or certified mail, return receipt requested,
or by overnight courier, or, if by other means, when received by the other party
or parties at the address shown below, or such other address as may hereafter be
furnished to the other party or parties by like notice. Any such demand, notice
or communication hereunder shall be deemed to have been received on the date
delivered to or received at the premises of the addressee (as evidenced, in the
case of registered or certified mail, by the date noted on the return receipt).
If to the Borrower:
Anthony J. Santilli
Chairman
HomeAmerican Credit, Inc.
111 Presidential Blvd.
Bala Cynwyd, PA 19004
Phone Number: (610) 668-2440
Fax Number: (610) 668-1468
with a copy to:
Lawrence F. Flick, II, Esq.
Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, Pennsylvania 19103-2599
Phone Number: 215-569-5500
Fax Number: 215-569-5555
If to the Lender:
Prudential Securities Realty Funding
Corporation
One Seaport Plaza, 27th Floor
Treasury Department
New York, New York 10292
Attention: Elizabeth Castagna
Phone Number: 212-214-7772
Fax Number: 212-214-7572
18
<PAGE>
With copies to:
Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Attention: Mr. Len Blum
Phone Number: 212-778-1397
Fax Number: 212-778-7401
SECTION 17. SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
SECTION 18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, and all such
counterparts shall together constitute one and the same instrument.
SECTION 19. CERTAIN DEFINITIONS. The following capitalized terms are
defined in the corresponding sections specified below:
"ADVANCE" - Section 1(A)(1).
"AFFILIATE" - Section 4(5).
"AGREEMENT" - Introductory Clause.
"BORROWER" - Introductory Clause.
"COLLATERAL" - Section 3.
"COLLATERAL DEFICIENCY SITUATION" - Section 1(B)(2).
"CONTINUING LOAN PURCHASE AGREEMENT" - Section 2(A).
"CORRESPONDENT" - Section 2(B)(ii).
"CUSTODIAN" - Section 3.
"CUSTODIAL AGREEMENT" - Section 3.
"CUSTODIAN'S CERTIFICATION" - Section 1(A)(2)(iii).
"CUT-OFF DATE" - Section 1(B)(2).
"EVENT OF DEFAULT" - Section 9.
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<PAGE>
"FUNDING DATE" - Section 1(A)(2).
"LIEN" - Section 4.
"LENDER" - Introductory Clause.
"LIBOR" - Section 1(A)(3).
"LOAN" - Section 1(A)(1).
"MARKET VALUE" - Section 1(B)(2).
"MATURITY DATE" - Section 1(B)(2).
"MORTGAGE LOANS" - Section 1(A)(1).
"MORTGAGE LOAN SCHEDULE" - Section 2(A).
"NY UCC" - Section 1(E)(1).
"96-1 SECURITIZATION" - Section 1(B) (within the definition of
"Maturity Date set forth following subsection (2) thereof.
"PERMITTED LIEN" - Section 4.
"PLEDGED MORTGAGE LOANS" - Section 1(B)(2).
"PROGRAM" - Section 2(B).
"PSI" - Recitals.
"PURCHASE AGREEMENTS" - Section 2(B)(i).
"RESTORATION AMOUNT" - Section 1(B)(2).
"SECURED NOTE" - Section 1(F).
"SECURED OBLIGATIONS" - Section 3.
"SECURITIZATION" - Recitals.
"SERVICING AGREEMENTS" - Section 2(B)(i).
"SUPPLEMENTAL MORTGAGE LOAN SCHEDULE" - Section 9(A).
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
HOMEAMERICAN CREDIT, INC.
d/b/a UPLAND MORTGAGE
/s/ Anthony J. Santilli, Jr.
_______________________________
Name: Anthony J. Santilli, Jr.
Title: Chief Executive Officer
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By:/s/ Elizabeth W. Castagna
_____________________________
Name: Elizabeth W. Castagna
Title: Treasurer
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SCHEDULE A
1. ContiMortgage warehouse line pursuant to the Loan and Security Agreement
dated as of December ___, 1993 between ContiMortgage Corporation and
HomeAmerican Credit, Inc. (copy of UCC filing attached to this Schedule A
as Attachment 1).
2. Lien on equipment leased from Advanta Leasing Corp. (copy of UCC filing
attached to this Schedule A as Attachment 2).
<PAGE>
EXHIBIT A
SECURED NOTE
Dated as of April 25, 1996
FOR VALUE RECEIVED, the undersigned, HOMEAMERICAN CREDIT, INC. doing
business as UPLAND MORTGAGE, a corporation organized under the laws of the State
of Pennsylvania, whose address is 111 Presidential Blvd., Bala Cynwyd, PA 19004
(the "Borrower"), promises to pay to the order of PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION, a Delaware corporation, whose address is One New York
Plaza, New York, New York 10292 (the "Lender") on or before the Maturity Date
the amount then outstanding (including accrued interest) under that certain
Interim Warehouse and Security Agreement dated as of April 25, 1996 (the
"Agreement"). Initially, the maximum principal amount which may be outstanding
is $25,000,000 (as such amount may be amended from time to time by a Credit
Increase Confirmation and Note Amendment). Capitalized terms used herein and
not defined herein shall have their respective meanings as set forth in the
Agreement.
The holder of this Note is authorized to record the date and amount of
each Advance and the date and amount of each repayment of principal thereof on
the schedule to be maintained by the Lender (which schedule may be obtained upon
Borrower's request), and any such recordation shall constitute prima facie
evidence of the accuracy of the amount so recorded; provided that the failure of
the holder hereof to make such recordation (or any error in such recordation)
shall not affect the obligations of the Borrower hereunder or under the
Agreement.
MAXIMUM RATE OF INTEREST: It is intended that the rate of interest
herein shall never exceed the maximum rate, if any, which may be legally charged
on the Loan evidenced by this Note ("Maximum Rate"), and if the provisions for
interest contained in this Note would result in a rate higher than the Maximum
Rate, interest shall nevertheless be limited to the Maximum Rate and any amounts
which may be paid toward interest in excess of the Maximum Rate shall be applied
to the reduction of principal, or, at the option of the Lender, returned to the
Borrower.
DUE DATE: The Loan evidenced hereby not paid before the Maturity Date
shall be due and payable on the Maturity Date.
PLACE OF PAYMENT: All payments hereon shall be made, and all notices
to the Lender required or authorized hereby shall be given, at the office of the
Lender at the address designated in the heading of this Note, or to such other
place as the Lender may from time to time direct by written notice to the
Borrower.
PAYMENT AND EXPENSES OF COLLECTION: All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account
<PAGE>
number specified by the Lender, in lawful money of the United States. Payments
remitted by the Borrower via wire transfer initiated after 1:00 p.m. New York
City time shall be deemed to be received on the next business day. The Borrower
agrees to pay all costs of collection when incurred, including, without limiting
the generality of the foregoing, reasonable attorneys' fees through appellate
proceedings, and to perform and comply with each of the covenants, conditions,
provisions and agreements contained in every instrument now evidencing or
securing said indebtedness.
SECURITY: This Note is issued pursuant to the Agreement and is
secured by a pledge of the collateral described therein. Notwithstanding the
pledge of the collateral, the Borrower hereby acknowledges, admits and agrees
that the Borrower's obligations under this Note are recourse obligations of the
Borrower to which the Borrower pledges its full faith and credit.
DEFAULTS: Upon the happening of an Event of Default (as defined in
the Agreement), the Lender shall have all rights and remedies set forth in the
Agreement.
The failure to exercise any of the rights and remedies set forth in
the Agreement shall not constitute a waiver of the right to exercise the same or
any other option at any subsequent time in respect of the same event or any
other event. The acceptance by the Lender of any payment hereunder which is
less than payment in full of all amounts due and payable at the time of such
payment shall not constitute a waiver of the right to exercise any of the
foregoing rights and remedies at that time or at any subsequent time or nullify
any prior exercise of any such rights and remedies without the express consent
of Lender, except as and to the extent otherwise provided by law.
WAIVERS: The Borrower waives diligence, presentment, protest and
demand and also notice of protest, demand, dishonor and nonpayments of this
Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time, and consents to the acceptance of further
collateral, the release of any collateral for this Note, the release of any
party primarily or secondarily liable hereon, and that it will not be necessary
for the Lender, in order to enforce payment of this Note, to first institute or
exhaust Lender's remedies against the Borrower or any other party liable hereon
or against any collateral for this Note. None of the foregoing shall affect the
liability of the Borrower. No extension of time for the payment of this Note,
or an installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Note, shall affect the liability under
this Note of the Borrower, even if the Borrower is not a party to such
agreement; provided, however, that the Lender and the Borrower, by written
agreement between them, may affect the liability of the Borrower.
TERMINOLOGY: If more than one party joins in the execution of this
Note, the covenants and agreements herein contained shall be the joint and
several obligation of each and all of them and of their respective heirs,
executors, administrators, successors and assigns, and relative words herein
shall be read as if written in the plural when appropriate. Any reference
herein to the Lender shall be
A-2
<PAGE>
deemed to include and apply to every subsequent holder of this Note. Words of
masculine or neuter import shall be read as if written in the neuter or
masculine or feminine when appropriate.
AGREEMENT: Reference is made to the Agreement for provisions as to
Advances, rates of interest, mandatory principal repayments, collateral and
acceleration. If there is any conflict between the terms of this Note and the
terms of the Agreement, the terms of the Agreement shall control.
APPLICABLE LAW: This Note shall be governed by and construed under
the laws of the State of New York, the laws of which the Borrower hereby
expressly elects to apply to this Note. The Borrower agrees that any action or
proceeding brought to enforce or arising out of this Note may be commenced in
the Supreme Court of the State of New York, or in the District Court of the
United States for the Southern District of New York.
HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE,
/s/ Anthony J. Santilli, Jr.
_______________________________
Name: Anthony J. Santilli, Jr.
Title: Chairman
A-3
<PAGE>
EXHIBIT B-1
April 25, 1996
[Custodian]
[Address]
Prudential Securities Realty Funding Corporation
One New York Plaza
New York, NY 10292-2015
Re: INTERIM FUNDING ARRANGEMENT FOR MORTGAGE LOANS
Gentlemen:
I am the counsel to HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE, a
Pennsylvania corporation (the "Borrower"). I have represented the Borrower in
connection with the execution and delivery of the following documents:
B. Interim Warehouse and Security Agreement, dated as of April 25,
1996 (the "Interim Warehouse and Security Agreement"), between the Borrower
and Prudential Securities Realty Funding Corporation (the "Lender");
C. Secured Note executed as of April 25, 1996 by the Borrower in
favor of the Lender (the "Note"); and
D. Custodial Agreement, dated as of ______________, 199_ (the
"Custodial Agreement"), among the Borrower and The Chase Manhattan Bank
(the "Custodian").
Capitalized terms used herein, but not defined herein, shall have the
meanings assigned to them in the Interim Warehouse and Security Agreement.
I have examined executed copies of the Interim Warehouse and Security
Agreement, the Note, and the Custodial Agreement. I have also examined
originals or photostatic or certified copies of all such corporate records of
the Borrower and such certificates of public officials, certificates of
corporate officers, and other documents, and such questions of law, as I have
deemed appropriate and
<PAGE>
necessary as a basis for the opinions hereinafter expressed. In making my
examination and rendering the opinions herein expressed, I have made the
following assumptions: i) each party to each of the Interim Warehouse and
Security Agreement and the Custodial Agreement (other than the Borrower) has the
power to enter into and perform all of its obligations thereunder, (ii) the due
authorization, execution and delivery of each of the Interim Warehouse and
Security Agreement and the Custodial Agreement by all parties thereto (other
than the Borrower), and (iii) the validity and binding effect on all parties
thereto (other than the Borrower) of each of the Interim Warehouse and Security
Agreement and the Custodial Agreement.
The opinions expressed below with respect to enforceability are
subject to the following additional qualifications:
20 The effect of insolvency, reorganization, moratorium,
conservatorship, receivership, or other similar laws relating to or affecting
the rights of creditors of institutions having deposits insured by the Federal
Deposit Insurance Corporation in the event of insolvency, reorganization,
moratorium, conservatorship or receivership.
21 The application of general principles of equity, including, but
not limited to, the right of specific performance (regardless of whether
enforceability is considered in a proceeding in equity or at law).
22 The unenforceability of provisions to the effect that failure to
exercise or delay in exercising rights or remedies will not operate as a waiver
of any such rights or remedies, or to the effect that provisions therein may
only be waived in writing to the extent that an oral agreement has been entered
into modifying such provisions.
I am licensed to practice law in the State of __________, and, each
opinion hereinafter set forth is an opinion concerning only the law of the State
of ___________. All opinions expressed herein are based on laws, regulations
and policy guidelines currently enforced and may be affected by future changes
in law. Furthermore, no opinion is expressed herein regarding the applicable
state Blue Sky, legal investment or real estate syndication laws.
Based upon the foregoing, and subject to the last paragraph hereof, I
am of the opinion that:
1. The Interim Warehouse and Security Agreement, the Note and the
Custodial Agreement each constitutes the valid, legal and binding agreement
of the Borrower, and each is enforceable against the Borrower in accordance
with its terms.
2. The Borrower is licensed as a "Licensee" or is otherwise
qualified to do business in each state in which it transacts business.
B-1-2
<PAGE>
3. No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required
under federal laws or the laws of the State of _________ for the execution,
delivery and performance of the Interim Warehouse and Security Agreement,
the Note, or the Custodial Agreement as applicable, by the Borrower, except
such of which as have been obtained.
4. The execution, delivery and performance by the Borrower of the
Interim Warehouse and Security Agreement, the Note and the Custodial
Agreement, does not conflict with or result in a breach of, or constitute a
default under (a) the Borrower's articles of incorporation or bylaws or (b)
any law, rule or regulation of the federal government or of the State of
____________.
5. The execution, delivery and performance by the Borrower of the
Interim Warehouse and Security Agreement, the Note and the Custodial
Agreement will not result in a default under any mortgage, borrowing
agreement, or other instrument or agreement pertaining to indebtedness for
borrowed money to which the Borrower is a party.
6. Upon the execution of the Interim Warehouse and Security
Agreement, a valid security interest in the Mortgage Loans and the proceeds
thereof is granted to the Lender, which security interest would be a valid,
first-priority, perfected security interest with respect to such Mortgage
Loans and the proceeds thereof upon the filing of the appropriate financing
statements with the Office[s] of the Secretary of State of
_________________.
This Opinion is furnished by me as counsel to the Borrower and is
solely for the benefit of the addressees hereof; except that this Opinion may be
relied upon by any holder in due course of the Note.
Yours truly,
B-1-3
<PAGE>
EXHIBIT B-2
April 25, 1996
The Chase Manhattan Bank, N.A.
2 Chase Manhattan Plaza
New York, New York 10081
Prudential Securities Realty Funding Corporation
One New York Plaza
New York, NY 10292-2015
Re: INTERIM FUNDING ARRANGEMENT FOR MORTGAGE LOANS
Gentlemen:
I am the counsel to AMERICAN BUSINESS FINANCIAL SERVICES,
INC./AMERICAN BUSINESS CREDIT, INC., a Pennsylvania corporation (the
"Guarantor"). I have represented the Guarantor in connection with the execution
and delivery of the Guaranty Agreement in the favor of Prudential Securities
Realty Funding Corporation, dated as of April 25, 1996, in connection with the
Interim Warehouse and Security Agreement, dated as of April 25, 1996 (the
"Interim Warehouse and Security Agreement"), between the Borrower and Prudential
Securities Realty Funding Corporation (the "Lender").
Capitalized terms used herein, but not defined herein, shall have the
meanings assigned to them in the Interim Warehouse and Security Agreement.
I have examined executed copies of the Interim Warehouse and Security
Agreement, the Note, the Custodial Agreement and the Guaranty Agreement. I have
also examined originals or photostatic or certified copies of all such corporate
records of the Borrower and such certificates of public officials, certificates
of corporate officers, and other documents, and such questions of law, as I have
deemed appropriate and necessary as a basis for the opinions hereinafter
expressed. In making my examination and rendering the opinions herein
expressed, I have made the following assumptions: i) each party to each of the
Interim Warehouse and Security Agreement and the Custodial Agreement (other than
the Borrower) has the power to enter into and perform all of its obligations
thereunder, (ii) the due authorization,
<PAGE>
execution and delivery of each of the Interim Warehouse and Security Agreement
and the Custodial Agreement by all parties thereto (other than the Borrower),
and (iii) the validity and binding effect on all parties thereto (other than the
Borrower) of each of the Interim Warehouse and Security Agreement and the
Custodial Agreement.
The opinions expressed below with respect to enforceability are
subject to the following additional qualifications:
23 The effect of insolvency, reorganization, moratorium,
conservatorship, receivership, or other similar laws relating to or affecting
the rights of creditors of institutions having deposits insured by the Federal
Deposit Insurance Corporation in the event of insolvency, reorganization,
moratorium, conservatorship or receivership.
24 The application of general principles of equity, including, but
not limited to, the right of specific performance (regardless of whether
enforceability is considered in a proceeding in equity or at law).
25 The unenforceability of provisions to the effect that failure to
exercise or delay in exercising rights or remedies will not operate as a waiver
of any such rights or remedies, or to the effect that provisions therein may
only be waived in writing to the extent that an oral agreement has been entered
into modifying such provisions.
I am licensed to practice law in the State of __________, and, each
opinion hereinafter set forth is an opinion concerning only the law of the State
of ___________. All opinions expressed herein are based on laws, regulations
and policy guidelines currently enforced and may be affected by future changes
in law. Furthermore, no opinion is expressed herein regarding the applicable
state Blue Sky, legal investment or real estate syndication laws.
Based upon the foregoing, and subject to the last paragraph hereof, I
am of the opinion that:
1. The Guaranty Agreement constitutes the valid, legal and binding
agreement of the Guarantor, and each is enforceable against the Guarantor
in accordance with its terms.
2. No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required
under federal laws or the laws of the State of _________ for the execution,
delivery and performance of the Interim Warehouse and Security Agreement,
the Note, or the Custodial Agreement as applicable, by the Guarantor,
except such of which as have been obtained.
3. The execution, delivery and performance by the Guarantor of the
Guaranty Agreement does not conflict with or result in a breach of, or
constitute a default under (a) the Guarantor's articles of incorporation or
B-2-2
<PAGE>
bylaws or (b) any law, rule or regulation of the federal government or of
the State of ____________.
4. The execution, delivery and performance by the Guarantor of the
Guaranty Agreement will not result in a default under any mortgage,
borrowing agreement, or other instrument or agreement pertaining to
indebtedness for borrowed money to which the Guarantor is a party.
This Opinion is furnished by me as counsel to the Guarantor and is
solely for the benefit of the addressees hereof; except that this Opinion may be
relied upon by any holder in due course of the Note.
Yours truly,
B-2-3
<PAGE>
EXHIBIT C
CREDIT INCREASE CONFIRMATION AND
NOTE AMENDMENT
Dated ________________
Reference is made to (x) the Interim Warehouse and Security Agreement,
dated as of ______________, 199_ (the "Interim Warehouse Agreement") between
Prudential Securities Realty Funding Corporation (the "Lender") and HomeAmerican
Credit, Inc. d/b/a Upland Mortgage (the "Borrower") and (y) the Secured Note
dated as of ____________, 199_ (the "Note") from the Borrower to the Lender.
SECTION 1.
- The maximum amount of the Loan referenced in the Interim
Warehouse Agreement and in the Note shall be
___________________________.
- The "Maturity Date" referenced in the Interim Warehouse Agreement
and in the Note shall be ___________________________.
- [Any other changes.]
SECTION 2.
As amended by Section 1 hereof all provisions of the Interim Warehouse
Agreement and of the Note are reconfirmed as of the date hereof. The Borrower,
in addition, hereby reconfirms and remakes as of the date hereof each and every
of its representations, warranties and covenants set forth in the Interim
Warehouse Agreement.
<PAGE>
ATTEST: HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE
___________________________ By:
----------------------------------------------
Name:
Title:
ATTEST:
___________________________ PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION
By:
-----------------------------------------------
Name:
Title:
C-2
<PAGE>
APPROVAL AS TO LEGALITY
I, _____________, counsel to the Borrower hereby confirm that:
- I delivered, on _________, 199_, the opinion letter, a copy of
which is attached hereto (the "Opinion Letter") relating to the
Interim Warehouse Agreement and the Note.
- I have represented the Borrower in connection with its execution
and delivery of the Credit Increase Confirmation and Note
Amendment (the "Confirmation") to which this Approval as to
Legality is attached.
- I hereby extend, as of the date hereof, the opinions set forth in
the Opinion Letter to cover both the Confirmation itself as well
as the transactions described on the Confirmation and confirm, as
of the date hereof, and subject to any and all assumptions and
qualifications set forth therein, the opinions set forth in the
Opinion Letter.
Yours truly,
---------------------------------------------
[Name]
Dated: ____________, 199_
C-3
<PAGE>
EXHIBIT D
FUNDING NOTICE
______________, 199_
Prudential Securities Realty
Funding Corporation
One New York Plaza
New York, NY 10292
Re: Interim Warehouse and Security Agreement, dated as of
____________, 199_, between Prudential Securities Realty Funding
Corporation and HomeAmerican Credit, Inc.
D/B/A UPLAND MORTGAGE (THE "AGREEMENT")
Gentlemen:
Pursuant to Section 2(A) of the Agreement, this letter constitutes
notice that the undersigned desires to obtain an Advance in the principal amount
of $____________, constituting ___% of the aggregate outstanding principal
balance of the Mortgage Loans shown on the attached Mortgage Loan Schedule, as
of the Cut-Off Date shown thereon.
This letter will further certify that: (1) the undersigned has no
notice or knowledge of any Event of Default; (2) the representations and
warranties in the Agreement relating to the Mortgage Loans shown on the attached
Mortgage Loan Schedule are true and correct as of the date hereof; (3) each of
the conditions precedent to an Advance listed in Section 1(A)(2) of the
Agreement are true and correct as of the date hereof and shall be true and
correct on the date of the Advance requested herein, before and after giving
effect thereto.
Capitalized terms not otherwise defined herein shall have their
respective meanings set forth in the Agreement.
HOMEAMERICAN CREDIT, INC.
D/B/A UPLAND MORTGAGE
By:__________________________
Name:
Title:
D-1
<PAGE>
EXHIBIT E-1
FORM OF GUARANTY
THIS GUARANTY is given as of the 25th day of April, 1996 by AMERICAN
BUSINESS FINANCIAL SERVICES, INC. (the "Guarantor"), a corporation organized and
existing under the laws of the State of Pennsylvania and having its principal
office at 111 Presidential Blvd., Bala Cynwyd, PA 19004.
WHEREAS, Prudential Securities Realty Funding Corporation (the
"Lender") has entered into an Interim Warehouse and Security Agreement dated as
of April 25, 1996 (the "Warehouse Agreement") with HomeAmerican Credit, Inc.
d/b/a Upland Mortgage (the "Borrower") (capitalized terms not defined herein
shall have the meanings set forth in the Warehouse Agreement, unless otherwise
noted) providing for a loan by Lender to Borrower secured by certain Mortgage
Loans; and
WHEREAS, Lender and Borrower have entered into a Custodial Agreement
with The Chase Manhattan Bank, N.A. (the "Custodian") dated as of April 25, 1996
(the "Custodial Agreement") whereby the Custodian agrees to act as Custodian on
behalf of Borrower with respect to the Mortgage Loans; and
WHEREAS, the Guarantor represents that it indirectly owns all of the
stock of the Borrower and is financially interested in its affairs and expects
to derive advantage from the transactions contemplated by each of the Warehouse
Agreement and the Custodial Agreement;
NOW, THEREFORE, to induce the Lender to enter into the transactions
with the Borrower contemplated by the Warehouse Agreement and the Custodial
Agreement and for other good and valuable consideration receipt of which is
hereby acknowledged, the Guarantor hereby agrees as follows:
1. The Guarantor hereby unconditionally and irrevocably guaranties
to the Lender the full and complete payment when due and performance of each of
the Borrower's obligations under the Warehouse Agreement, every Advance
evidenced by the Secured Note issued pursuant to the Warehouse Agreement, and
the Custodial Agreement. In addition, the Guarantor agrees that in the event
that the Borrower defaults in the performance of or payment when due of any or
all obligations or sums hereby guaranteed, the Guarantor shall forthwith pay
such sums or perform such obligations. All amounts payable by the Guarantor to
the Lender hereunder shall be paid in immediately available funds in U.S.
Dollars and at the place and otherwise in the manner and on the terms required
by the Warehouse Agreement or, if so specified and applicable, the Custodial
Agreement. This is a Guaranty of payment and not of
E-1
<PAGE>
collection. This Guaranty shall be a continuing Guaranty and shall remain in
full force and effect until all the obligations of the Borrower hereby
guarantied are paid or performed in full. The Guarantor's obligations under
this Guaranty shall be reinstated and be continued in full force and effect if
at any time any payment received by the Lender under the Warehouse Agreement or
the Custodial Agreement is invalidated, declared to be fraudulent or
preferentially set aside and/or required to be repaid by the Lender.
2. The Guarantor hereby expressly waives all setoffs and
counterclaims and all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of this Guaranty, notices of sale, surrender or other handling or
disposition of assets subject to the Warehouse Agreement or the Custodial
Agreement, any requirement that the Lender exhaust any right, power or remedy or
take any action against the Borrower or against any assets subject to the
Warehouse Agreement or the Custodial Agreement, and other formalities of any
kind. The obligation of the Guarantor hereunder is absolute and unconditional
irrespective of the genuineness, legality, validity, regularity or
enforceability of the Warehouse Agreement, the Custodial Agreement, or any other
agreement, instrument or document contemplated therein or thereby and
irrespective of the obligation of any other party or person, and shall not in
any manner be affected by reason of any action taken or not taken by the Lender,
which action or inaction is herein consented and agreed to, or of any lack of
prior enforcement or retention of any rights against the Borrower, the Guarantor
or any other person or property. The Guarantor hereby waives, to the fullest
extent permitted by applicable law, all defenses of a surety to which it may be
entitled by statute or otherwise. The Lender may neglect or forbear to enforce
payment or performance hereunder, under the Warehouse Agreement, the Custodial
Agreement, or under any other agreement, instrument or document contemplated
therein or thereby, or waive, amend or otherwise alter the terms of the
Warehouse Agreement or the Custodial Agreement in any manner, or release or
cause the release of any assets subject to the Warehouse Agreement, in each case
without in any way affecting or impairing the liability of the Guarantor
hereunder.
3. The Guarantor hereby waives all rights of subrogation,
exoneration, reimbursement or contribution, whether arising by contract or
operation of law (including, without limitation, any such right arising under
the Federal Bankruptcy Code) or otherwise by reason of any payment by it
hereunder and further agrees with the Borrower for the benefit of its creditors
that any such payment by it shall constitute a contribution of capital by the
Guarantor to the Borrower.
4. Any indebtedness of the Borrower now or hereafter held by
Guarantor is hereby subordinated to any obligations of the Borrower to the
Lender under the Warehouse Agreement and the Custodial Agreement.
E-2
<PAGE>
5. If an Event of Termination under the Warehouse Agreement or an
Event of Default under the Custodial Agreement shall have occurred and be
continuing, the Guarantor agrees that, as between the Guarantor and the Lender,
the obligations of the Borrower guarantied hereunder may be declared to be due
for purposes of this Guaranty notwithstanding any stay, injunction or other
prohibition which may prevent, delay or vitiate any such declaration as against
the Borrower and that, in the event of any such declaration (or attempted
declaration), such obligations shall forthwith become due by the Guarantor for
purposes of this Guaranty.
6. All of the Lender's rights and remedies shall be cumulative and
any failure of the Lender 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.
7. All notices, demands and other communications hereunder shall be
given in writing and delivered or telefaxed (i) to the Guarantor, at 111
Presidential Blvd., Bala Cynwyd, PA 19004, Attention: 1Anthony J. Santilli,
Facsimile: (610) 668-1468, and (ii) to the Lender at Prudential Securities
Realty Funding Corporation, One Seaport Plaza, 27th Floor, Treasury Department,
New York, New York, 10292, Attention: Elizabeth Castagna, Facsimile: (212) 214-
7572, and shall be effective upon actual receipt.
8. This Guaranty shall inure to the benefit of the Lender, its
successors, assigns and any person to whom the Lender may grant any interest in
any of the Secured Note or the Mortgage Loans, and shall be binding upon the
Guarantor, its successors, heirs, executors, administrators, legal
representatives and assigns.
9. The Guarantor covenants with the Lender that, during the term of
this Guaranty: (i) The Guarantor's stated net worth shall not be less than
$2,000,000; (ii) The Guarantor shall maintain a minimum of $11,000,000 of
outstanding subordinated debentures maturing in more than one year from the date
of the Warehouse Agreement; (iii) The Guarantor's leverage ratio shall not
exceed 5:1, such ratio being the ratio of (x) the Guarantor's total liabilities
to (y) the Guarantor's stated net worth less intangible assets minus the amount
of any receivable from any of its Affiliates; and (iv) the subordinated
debentures shall be subordinate to the Guarantor's obligations hereunder.
10. As long as this Guaranty is in effect, Guarantor shall (i)
promptly upon preparation, but in no event later than 45 days following the end
of its first three fiscal quarters, deliver to Lender its unaudited company-
prepared financial statements as of the end of such fiscal quarter, prepared in
accordance with GAAP, and (ii) promptly upon preparation, but in no event later
than 90 days following the end of its fourth fiscal quarter, deliver to Lender
its audited and certified financial statements, prepared in accordance with
GAAP, as of the end of and for the most recently ended
E-3
<PAGE>
fiscal year, which audits and certification shall be prepared by a nationally
recognized independent accounting firm or by a regionally recognized independent
accounting firm with the prior written consent of Lender, which consent shall
not be unreasonably withheld. In all cases, financial statements shall include,
without limitation, a balance sheet, a profit and loss statement and a statement
of cash flows.
11. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS
RULES THEREOF. This Guaranty may not be modified, altered or amended except by
a writing signed by both the Guarantor and the Lender.
12. THE GUARANTOR IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN
THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, IN ANY ACTION, SUIT OR PROCEEDING
BROUGHT AGAINST IT WHICH IS RELATED TO ANY MATTER CONTAINED IN THIS GUARANTY,
AND THE GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION,
DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, SUIT OR PROCEEDING, THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT PROVIDED THAT SERVICE
OF PROCESS IS MADE BY ANY LAWFUL MEANS, THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM OR THAT VENUE IN ANY SUCH COURT IS IMPROPER. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE GUARANTOR IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
GUARANTY OR ANY MATTER ARISING HEREUNDER.
E-4
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
day and year first above written.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
By____________________________
Name:
Title:
E-5
<PAGE>
EXHIBIT E-2
FORM OF GUARANTY
THIS GUARANTY is given as of the 25th day of April, 1996 by AMERICAN
BUSINESS CREDIT, INC. (the "Guarantor"), a corporation organized and existing
under the laws of the State of Pennsylvania and having its principal office at
111 Presidential Blvd., Bala Cynwyd, PA 19004.
WHEREAS, Prudential Securities Realty Funding Corporation (the
"Lender") has entered into an Interim Warehouse and Security Agreement dated as
of April 25, 1996 (the "Warehouse Agreement") with HomeAmerican Credit, Inc.
d/b/a Upland Mortgage (the "Borrower") (capitalized terms not defined herein
shall have the meanings set forth in the Warehouse Agreement, unless otherwise
noted) providing for a loan by Lender to Borrower secured by certain Mortgage
Loans; and
WHEREAS, Lender and Borrower have entered into a Custodial Agreement
with The Chase Manhattan Bank, N.A. (the "Custodian") dated as of April 25, 1996
(the "Custodial Agreement") whereby the Custodian agrees to act as Custodian on
behalf of Borrower with respect to the Mortgage Loans; and
WHEREAS, the Guarantor represents that it owns all of the stock of the
Borrower and is financially interested in its affairs and expects to derive
advantage from the transactions contemplated by each of the Warehouse Agreement
and the Custodial Agreement;
NOW, THEREFORE, to induce the Lender to enter into the transactions
with the Borrower contemplated by the Warehouse Agreement and the Custodial
Agreement and for other good and valuable consideration receipt of which is
hereby acknowledged, the Guarantor hereby agrees as follows:
1. The Guarantor hereby unconditionally and irrevocably guaranties
to the Lender the full and complete payment when due and performance of each of
the Borrower's obligations under the Warehouse Agreement, every Advance
evidenced by the Secured Note issued pursuant to the Warehouse Agreement, and
the Custodial Agreement. In addition, the Guarantor agrees that in the event
that the Borrower defaults in the performance of or payment when due of any or
all obligations or sums hereby guaranteed, the Guarantor shall forthwith pay
such sums or perform such obligations. All amounts payable by the Guarantor to
the Lender
E-2-1
<PAGE>
hereunder shall be paid in immediately available funds in U.S. Dollars and at
the place and otherwise in the manner and on the terms required by the Warehouse
Agreement or, if so specified and applicable, the Custodial Agreement. This is
a Guaranty of payment and not of collection. This Guaranty shall be a
continuing Guaranty and shall remain in full force and effect until all the
obligations of the Borrower hereby guarantied are paid or performed in full.
The Guarantor's obligations under this Guaranty shall be reinstated and be
continued in full force and effect if at any time any payment received by the
Lender under the Warehouse Agreement or the Custodial Agreement is invalidated,
declared to be fraudulent or preferentially set aside and/or required to be
repaid by the Lender.
2. The Guarantor hereby expressly waives all setoffs and
counterclaims and all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of this Guaranty, notices of sale, surrender or other handling or
disposition of assets subject to the Warehouse Agreement or the Custodial
Agreement, any requirement that the Lender exhaust any right, power or remedy or
take any action against the Borrower or against any assets subject to the
Warehouse Agreement or the Custodial Agreement, and other formalities of any
kind. The obligation of the Guarantor hereunder is absolute and unconditional
irrespective of the genuineness, legality, validity, regularity or
enforceability of the Warehouse Agreement, the Custodial Agreement, or any other
agreement, instrument or document contemplated therein or thereby and
irrespective of the obligation of any other party or person, and shall not in
any manner be affected by reason of any action taken or not taken by the Lender,
which action or inaction is herein consented and agreed to, or of any lack of
prior enforcement or retention of any rights against the Borrower, the Guarantor
or any other person or property. The Guarantor hereby waives, to the fullest
extent permitted by applicable law, all defenses of a surety to which it may be
entitled by statute or otherwise. The Lender may neglect or forbear to enforce
payment or performance hereunder, under the Warehouse Agreement, the Custodial
Agreement, or under any other agreement, instrument or document contemplated
therein or thereby, or waive, amend or otherwise alter the terms of the
Warehouse Agreement or the Custodial Agreement in any manner, or release or
cause the release of any assets subject to the Warehouse Agreement, in each case
without in any way affecting or impairing the liability of the Guarantor
hereunder.
3. The Guarantor hereby waives all rights of subrogation,
exoneration, reimbursement or contribution, whether arising by contract or
operation of law (including, without limitation, any such right arising under
the Federal Bankruptcy Code) or otherwise by reason of any payment by it
hereunder and further agrees with the Borrower for the benefit of its creditors
that any such payment by it shall constitute a contribution of capital by the
Guarantor to the Borrower.
E-2-2
<PAGE>
4. Any indebtedness of the Borrower now or hereafter held by
Guarantor is hereby subordinated to any obligations of the Borrower to the
Lender under the Warehouse Agreement and the Custodial Agreement.
5. If an Event of Termination under the Warehouse Agreement or an
Event of Default under the Custodial Agreement shall have occurred and be
continuing, the Guarantor agrees that, as between the Guarantor and the Lender,
the obligations of the Borrower guarantied hereunder may be declared to be due
for purposes of this Guaranty notwithstanding any stay, injunction or other
prohibition which may prevent, delay or vitiate any such declaration as against
the Borrower and that, in the event of any such declaration (or attempted
declaration), such obligations shall forthwith become due by the Guarantor for
purposes of this Guaranty.
6. All of the Lender's rights and remedies shall be cumulative and
any failure of the Lender 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.
7. All notices, demands and other communications hereunder shall be
given in writing and delivered or telefaxed (i) to the Guarantor, at 111
Presidential Blvd., Bala Cynwyd, PA 19004, Attention: Anthony J. Santilli,
Facsimile: (610) 668-1468, and (ii) to the Lender at Prudential Securities
Realty Funding Corporation, One Seaport Plaza, 27th Floor, Treasury Department,
New York, New York, 10292, Attention: Elizabeth Castagna, Facsimile: (212) 214-
7572, and shall be effective upon actual receipt.
8. This Guaranty shall inure to the benefit of the Lender, its
successors, assigns and any person to whom the Lender may grant any interest in
any of the Secured Note or the Mortgage Loans, and shall be binding upon the
Guarantor, its successors, heirs, executors, administrators, legal
representatives and assigns.
E-2-3
<PAGE>
9. The Guarantor covenants with the Lender that, during the term of
this Guaranty, the Guarantor shall not create or suffer to exist any Lien, other
than Permitted Liens, on any of the Borrower's or any of its Affiliate's assets;
PROVIDED, HOWEVER, that (i) the Lien on certain assets of American Business
Credit, Inc. which Meridian Bank has with respect to the warehouse line it has
provided to the Borrower may exist until the earlier to occur of (x) May 26,
1996 and (y) the first Funding Date provided that the Borrower shall use the
proceeds of such first Advance to pay down the warehouse line with Meridian Bank
and shall simultaneously release the liens on the assets pledged thereunder and
shall repledge such assets which are mortgage loans as Pledged Mortgage Loans
hereunder and (ii) the Lien on certain assets of American Business Credit, Inc.
that CoreStates Bank, N.A. has with respect to the warehouse line it has
provided to the Borrower may exist until the earlier to occur of (x) May 26,
1996 and (y) the closing of the 96-1 Securitization provided that the Borrower
shall use the proceeds of such Securitization to pay down the warehouse line
with CoreStates Bank, N.A. and shall simultaneously release the liens on the
assets pledged thereunder. For purposes of this Guaranty: "LIEN" means, with
respect to any asset of the Borrower or any of its Affiliates, any mortgage,
lien, pledge, charge, security interest or other similar encumbrance of any kind
in respect of such asset, whether or not filed, recorded or otherwise perfected
under applicable law (including, without limitation, any conditional sale or
other title retention agreement, and any financing lease in the nature thereof,
any agreement to sell, and any filing of, or agreement to give, any financing
statement (other than notice filings not perfecting a security interest) under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); and
"PERMITTED LIEN" means (i) Liens for taxes, assessments or governmental charges
or claims that either (a) are not yet delinquent or (b) are being contested in
good faith by appropriate proceedings and as to which appropriate reserves or
other provisions have been made in accordance with GAAP; (ii) statutory Liens of
landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business and
with respect to amounts that either (a) are not yet delinquent or (b) are being
contested in good faith by appropriate proceedings and as to which appropriate
reserves or other provisions have been made in accordance with GAAP; (iii) Liens
(other than any Lien imposed by the Employee Retirement Income Security Act of
1974, as amended) incurred or deposits due in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security; (iv) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory obligations, surety and appeal bonds,
progress payments, government contracts and other obligations of like nature
(exclusive of obligations for the payment of borrowed money), in each case
incurred in the ordinary course of business; (v) attachment or judgment Liens
not giving rise to an Event of Default; (vi) easements, rights-of-way,
restrictions and other similar charges or encumbrances not interfering with the
ordinary conduct of the business of the Borrower or any of its Affiliates; (vii)
leases or subleases granted to others not interfering with the ordinary conduct
of the business of the Borrower or any of its Affiliates; (viii) the Lien
granted to the Lender
E-2-4
<PAGE>
pursuant hereto; (ix) the Liens listed on Schedule A attached hereto; and (x)
any other Lien to which Lender has given its prior written consent.
10. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS
RULES THEREOF. This Guaranty may not be modified, altered or amended except by
a writing signed by both the Guarantor and the Lender.
11. THE GUARANTOR IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN
THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, IN ANY ACTION, SUIT OR PROCEEDING
BROUGHT AGAINST IT WHICH IS RELATED TO ANY MATTER CONTAINED IN THIS GUARANTY,
AND THE GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION,
DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, SUIT OR PROCEEDING, THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT PROVIDED THAT SERVICE
OF PROCESS IS MADE BY ANY LAWFUL MEANS, THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM OR THAT VENUE IN ANY SUCH COURT IS IMPROPER. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE GUARANTOR IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
GUARANTY OR ANY MATTER ARISING HEREUNDER.
E-2-5
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
day and year first above written.
AMERICAN BUSINESS CREDIT, INC.
By____________________________
Name:
Title:
E-2-6
<PAGE>
LOAN AND SECURITY AGREEMENT
dated May 23, 1996
between
BANKAMERICA BUSINESS CREDIT, INC.
and
HOMEAMERICAN CREDIT, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE - DEFINITIONS
1.1 TERMS DEFINED . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Tangible Assets. . . . . . . . . . . . . . . . . 1
Adjusted Tangible Net Worth . . . . . . . . . . . . . . . 1
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . 1
ABFS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Appraised Value". . . . . . . . . . . . . . . . . . . . . 2
Attorney Costs. . . . . . . . . . . . . . . . . . . . . . 2
Availability. . . . . . . . . . . . . . . . . . . . . . . 2
Bank of America . . . . . . . . . . . . . . . . . . . . . 3
Base Rate . . . . . . . . . . . . . . . . . . . . . . . . 3
Borrowing". . . . . . . . . . . . . . . . . . . . . . . . 3
Borrowing Base. . . . . . . . . . . . . . . . . . . . . . 3
Business Mortgage Loan. . . . . . . . . . . . . . . . . . 3
Business Day. . . . . . . . . . . . . . . . . . . . . . . 3
Capital Adequacy Regulation . . . . . . . . . . . . . . . 3
Closing Date. . . . . . . . . . . . . . . . . . . . . . . 3
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Collateral. . . . . . . . . . . . . . . . . . . . . . . . 3
Collection Account Agreement. . . . . . . . . . . . . . . 3
Consumer Mortgage Loan. . . . . . . . . . . . . . . . . . 3
Date of Origination . . . . . . . . . . . . . . . . . . . 4
Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Default . . . . . . . . . . . . . . . . . . . . . . . . . 4
Default Rate. . . . . . . . . . . . . . . . . . . . . . . 4
Delinquency Adjustment. . . . . . . . . . . . . . . . . . 4
Distribution. . . . . . . . . . . . . . . . . . . . . . . 5
Eligible Mortgage Loans . . . . . . . . . . . . . . . . . 5
Event of Default. . . . . . . . . . . . . . . . . . . . . 7
Excess Availability . . . . . . . . . . . . . . . . . . . 7
Federal Reserve Board . . . . . . . . . . . . . . . . . . 8
Financial Statements. . . . . . . . . . . . . . . . . . . 8
First Mortgage. . . . . . . . . . . . . . . . . . . . . . 8
First Payment Default . . . . . . . . . . . . . . . . . . 8
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 8
Funding Date. . . . . . . . . . . . . . . . . . . . . . . 8
GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General Intangibles . . . . . . . . . . . . . . . . . . . 8
Governmental Authority. . . . . . . . . . . . . . . . . . 8
Gross Mortgage Note Payments. . . . . . . . . . . . . . . 9
Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . 9
(1)
<PAGE>
Hazardous Material. . . . . . . . . . . . . . . . . . . . 9
Ineligible Mortgage Note Reserve. . . . . . . . . . . . . 9
Intercompany Accounts . . . . . . . . . . . . . . . . . . 9
Instruments . . . . . . . . . . . . . . . . . . . . . . . 9
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Loan Account. . . . . . . . . . . . . . . . . . . . . . . 10
Loan Documents. . . . . . . . . . . . . . . . . . . . . . 10
Long Term First Mortgage Eligible Mortgage Loan . . . . . 10
Margin. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Material Adverse Effect . . . . . . . . . . . . . . . . . 10
Modified Mortgage Note . . . . . . . . . . . . . . . . . 10
Mortgage. . . . . . . . . . . . . . . . . . . . . . . . . 11
Mortgage Debtor . . . . . . . . . . . . . . . . . . . . . 11
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . 11
Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . 11
Net Mortgage Note Payments. . . . . . . . . . . . . . . . 11
Notice of Borrowing . . . . . . . . . . . . . . . . . . . 11
Obligations . . . . . . . . . . . . . . . . . . . . . . . 11
Other Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
Person. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Property. . . . . . . . . . . . . . . . . . . . . . . . . 11
Recourse Transaction. . . . . . . . . . . . . . . . . . . 12
Requirement of Law. . . . . . . . . . . . . . . . . . . . 12
Responsible Officer . . . . . . . . . . . . . . . . . . . 12
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Security Documents. . . . . . . . . . . . . . . . . . . . 12
Second Mortgage . . . . . . . . . . . . . . . . . . . . . 12
Securitization Representations and Warranties . . . . . . 12
Senior Lien . . . . . . . . . . . . . . . . . . . . . . . 13
Short Term First/Second Mortgage Eligible Mortgage Loan . 13
Solvent . . . . . . . . . . . . . . . . . . . . . . . . . 13
Stated Termination Date . . . . . . . . . . . . . . . . . 13
Subordinated Debt . . . . . . . . . . . . . . . . . . . . 13
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . 13
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Termination Date. . . . . . . . . . . . . . . . . . . . . 13
Total Facility. . . . . . . . . . . . . . . . . . . . . . 14
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Unused Line Fee . . . . . . . . . . . . . . . . . . . . . 14
1.2 ACCOUNTING TERMS. . . . . . . . . . . . . . . . . . . . . 14
ARTICLE TWO - LOAN
2.1 REVOLVING LOANS . . . . . . . . . . . . . . . . . . . . . 14
(2)
<PAGE>
2.2 BORROWING PROCEDURE . . . . . . . . . . . . . . . . . . . 14
(3)
<PAGE>
ARTICLE THREE - INTEREST AND OTHER CHARGES
3.1 INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 MAXIMUM INTEREST RATE . . . . . . . . . . . . . . . . . . 16
3.3 UNUSED LINE FEE . . . . . . . . . . . . . . . . . . . . . 16
3.4 AUDIT FEES. . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE FOUR - PAYMENTS AND PREPAYMENTS
---------------------------------------
4.1 PAYMENT OF REVOLVING LOANS. . . . . . . . . . . . . . . . 17
4.2 TERMINATION OF FACILITY . . . . . . . . . . . . . . . . . 17
4.3 PAYMENTS BY THE BORROWER. . . . . . . . . . . . . . . . . 17
4.4 PAYMENTS AS REVOLVING LOANS . . . . . . . . . . . . . . . 18
4.5 APPORTIONMENT, APPLICATION AND REVERSAL OF PAYMENTS . . . 18
4.6 INDEMNITY FOR RETURNED PAYMENTS . . . . . . . . . . . . . 18
4.7 LENDER'S AND LENDERS' BOOKS AND RECORDS;
MONTHLY STATEMENTS. . . . . . . . . . . . . . . . . . . . 19
ARTICLE FIVE - YIELD PROTECTION
5.1 INCREASED COSTS AND REDUCTION OF RETURN . . . . . . . . . 19
5.2 CERTIFICATES OF LENDER. . . . . . . . . . . . . . . . . . 19
5.3 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE SIX - COLLATERAL
6.1 GRANT OF SECURITY INTEREST. . . . . . . . . . . . . . . . 20
6.2 PERFECTION AND PROTECTION OF SECURITY INTEREST. . . . . . 20
6.3 LOCATION OF COLLATERAL. . . . . . . . . . . . . . . . . . 21
6.4 TITLE TO, LIENS ON, AND SALE OF COLLATERAL. . . . . . . . 22
6.5 APPRAISALS. . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 ACCESS AND EXAMINATION. . . . . . . . . . . . . . . . . . 22
6.7 COLLATERAL REPORTING. . . . . . . . . . . . . . . . . . . 22
6.8 MORTGAGE LOANS. . . . . . . . . . . . . . . . . . . . . . 23
6.9 COLLECTION OF MORTGAGE LOANS; PAYMENTS. . . . . . . . . . 24
6.10 RIGHT TO CURE . . . . . . . . . . . . . . . . . . . . . . 24
6.11 POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . 25
6.12 LENDER' RIGHTS, DUTIES AND LIABILITIES. . . . . . . . . . 25
6.13 PROTECTION OF COLLATERAL. . . . . . . . . . . . . . . . . 26
6.14 SERVICING OF MORTGAGE LOANS . . . . . . . . . . . . . . . 26
6.15 BORROWER'S OFFICE . . . . . . . . . . . . . . . . . . . . 26
6.16 PERMITTED SALES OF MORTGAGE LOANS . . . . . . . . . . . . 26
ARTICLE SEVEN - BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
(4)
<PAGE>
7.1 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . 26
7.2 FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . 27
7.3 NOTICES TO THE LENDER . . . . . . . . . . . . . . . . . . 29
ARTICLE EIGHT - GENERAL WARRANTIES AND REPRESENTATIONS
8.1 AUTHORIZATION, VALIDITY, AND ENFORCEABILITY OF THIS
AGREEMENT AND THE LOAN DOCUMENTS. . . . . . . . . . . . . 30
8.2 VALIDITY AND PRIORITY OF SECURITY INTEREST. . . . . . . . 30
8.3 ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . . 30
8.4 CORPORATE NAME; PRIOR TRANSACTIONS. . . . . . . . . . . . 30
8.5 AFFILIATES. . . . . . . . . . . . . . . . . . . . . . . . 30
8.6 MORTGAGE LOAN FORMS.. . . . . . . . . . . . . . . . . . . 31
8.7 CREDIT GUIDELINES . . . . . . . . . . . . . . . . . . . . 31
8.8 FINANCIAL STATEMENTS AND PROJECTIONS. . . . . . . . . . . 31
8.9 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . 31
8.10 SOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . . 32
8.11 TITLE TO PROPERTY . . . . . . . . . . . . . . . . . . . . 32
8.12 TRADE NAMES AND TERMS OF SALE . . . . . . . . . . . . . . 32
8.13 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . 32
8.14 NO VIOLATION OF LAW . . . . . . . . . . . . . . . . . . . 32
8.15 NO DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 32
8.16 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.17 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . 32
8.17 NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . 32
8.19 FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . 32
8.20 GOVERNMENTAL AUTHORIZATION. . . . . . . . . . . . . . . . 33
ARTICLE NINE - AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 TAXES AND OTHER OBLIGATIONS . . . . . . . . . . . . . . . 33
9.2 CORPORATE EXISTENCE AND GOOD STANDING . . . . . . . . . . 33
9.3 COMPLIANCE WITH LAW AND AGREEMENTS;
MAINTENANCE OF LICENSES . . . . . . . . . . . . . . . . . 33
9.4 MERGERS, CONSOLIDATIONS OR SALES. . . . . . . . . . . . . 34
9.5 DISTRIBUTIONS; CAPITAL CHANGE; RESTRICTED INVESTMENTS . . 34
9.6 TRANSACTIONS AFFECTING COLLATERAL OR OBLIGATIONS. . . . . 34
9.7 GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . 34
9.8 PREPAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 34
9.9 TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . 34
9.10 INVESTMENT BANKING AND FINDER'S FEES. . . . . . . . . . . 34
9.11 BUSINESS CONDUCTED. . . . . . . . . . . . . . . . . . . . 34
9.12 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.13 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . 35
(5)
<PAGE>
9.14 ADJUSTED TANGIBLE NET WORTH . . . . . . . . . . . . . . . 35
9.15 UNSUBORDINATED DEBT TO BORROWING BASE . . . . . . . . . . 35
9.18 CHARGE-OFF POLICY . . . . . . . . . . . . . . . . . . . . 35
9.19 SUBORDINATED OBLIGATIONS. . . . . . . . . . . . . . . . . 35
9.20 ORIGINATION AND DISPOSITION OF BUSINESS MORTGAGE LOANS;
RESERVES. . . . . . . . . . . . . . . . . . . . . . . . . 35
9.21 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . 36
ARTICLE TEN - CONDITIONS TO BORROWINGS
10.1 CONDITIONS PRECEDENT TO MAKING OF REVOLVING LOANS
ON THE CLOSING DATE . . . . . . . . . . . . . . . . . . . 36
10.2 CONDITIONS PRECEDENT TO EACH REVOLVING LOAN . . . . . . . 37
ARTICLE ELEVEN - DEFAULT; REMEDIES
11.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 38
11.2 REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . 40
11.3 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL. . . 42
ARTICLE TWELVE - TERM AND TERMINATION
12.1 TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . 43
ARTICLE THIRTEEN - AMENDMENTS; WAIVER; PARTICIPATIONS; SUCCESSORS
13.1 NO WAIVERS CUMULATIVE REMEDIES . . . . . . . . . . . . . 43
13.2 AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . 43
ARTICLE FOURTEEN - MISCELLANEOUS
14.1 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . 43
14.2 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS;
JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . . . 43
14.3 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . 44
14.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . 45
14.5 OTHER SECURITY AND GUARANTIES . . . . . . . . . . . . . . 45
14.6 FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . 45
14.7 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.8 WAIVER OF NOTICES . . . . . . . . . . . . . . . . . . . . 47
14.9 BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . 47
14.10 INDEMNITY OF THE LENDER BY THE BORROWER . . . . . . . . . 47
14.11 FINAL AGREEMENT . . . . . . . . . . . . . . . . . . . . . 48
14.12 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . 48
14.13 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 48
14.14 RIGHT OF SETOFF . . . . . . . . . . . . . . . . . . . . . 48
(6)
<PAGE>
14.15 TIME OF THE ESSENCE.......................................... 49
(7)
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement ("Agreement") is made and entered into
as of May 23, 1996, between BankAmerica Business Credit, Inc., a Delaware
corporation (the "Lender"), having an address at 200 Lake Drive East, Suite 201,
Cherry Hill, New Jersey 08002, and HomeAmerican Credit, Inc. (the "Borrower"), a
Pennsylvania corporation, whose chief executive office is located at 111
Presidential Boulevard, Suite 215, Bala Cynwyd, Pennsylvania 19004.
In consideration of the mutual covenants contained herein, the parties
agree as follows.
ARTICLE ONE - DEFINITIONS
1.1 TERMS DEFINED. As used in this Agreement, the listed terms are
defined as follows:
"ADJUSTED TANGIBLE ASSETS" means all assets except: (a) deferred
assets, other than prepaid insurance and prepaid taxes, (b) trademarks, trade
names, franchises, goodwill, and other similar intangibles; (c) unamortized debt
discount and expense; (d) assets of the Borrower constituting Intercompany
Accounts; (e) assets located and notes and receivables due from obligors
domiciled outside the United States of America, Puerto Rico, or Canada; (f)
accounts, notes, and other receivables due from Affiliates; (g) fixed assets to
the extent of any write-up in the book value thereof resulting from a
revaluation effective after the first Closing Date; and (h) any servicing
assets, if any.
"ADJUSTED TANGIBLE NET WORTH" means, at any date, the remainder
of (a) net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves as determined in accordance
with GAAP) at which the Adjusted Tangible Assets of the Borrower would be shown
on a balance sheet of the Borrower at such date prepared in accordance with
GAAP, MINUS (b) the sum of the Delinquency Adjustment, the Contingent Fee Refund
Reserve, PLUS the amount at which its liabilities (other than capital stock,
surplus, and retained earnings) would be shown on such balance sheet, and
including as liabilities all reserves for other contingencies and other
potential liabilities which would be shown on such balance sheet or disclosed in
the footnotes thereto.
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract, or otherwise.
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"ABFS" means American Business Financial Services, Inc., a
Delaware corporation.
"APPRAISED VALUE" means the market value of the real property
which is the subject of the Mortgage securing repayment of the related Mortgage
Note, which appraisal has been made by an appraiser which meets the following
qualifications:
(a) the appraisal shall have been prepared by an
appraiser who is a member of the Society of Real Estate Appraisers or a member
of the Appraisal Institute or a member of some other generally recognized real
estate appraisal association acceptable to Lender; and
(b) in the event the real property is located in a
state which has adopted rules for licensing or certifying appraisers and
standards for appraisals, pursuant to FIRREA or otherwise, the appraiser and the
appraisal shall meet those rules and standards and/or the standards of the
Society of Real Estate Appraisers or the Appraisal Institute or of some other
generally recognized real estate appraisal association acceptable to Lender,
whichever standard or rule is more exacting.
"ATTORNEY COSTS" means and includes all fees, expenses and
disbursements of any law firm or other external counsel engaged by the Lender,
the allocated cost of internal legal services of the Lender and all expenses and
disbursements of internal counsel of the Lender.
"AVAILABILITY" means, as of any date of calculation, the (a) sum
of: (i) seventy percent (70%) MULTIPLIED BY the Net Mortgage Note Payments
payable under the Borrower's Eligible Mortgage Loans for which no more than one
hundred eighty (180) days have elapsed since their Date of Origination; PLUS
(ii) sixty percent (60%) MULTIPLIED BY the Net Mortgage Note Payments payable
under the Borrower's Short Term First/Second Mortgage Eligible Mortgage Loans as
to which more than one hundred eighty (180) days, but less than two hundred
seventy-one (271) days have elapsed since their Date of Origination; PLUS (iii)
fifty percent (50%) MULTIPLIED BY the Net Mortgage Note Payments payable under
the Borrower's Long Term First Mortgage Eligible Mortgage Loans as to which more
than one hundred eighty (180) days, but less than two hundred seventy-one (271)
days have elapsed since their Date of Origination; PLUS (iv) fifty percent
(50%) MULTIPLIED BY the Net Mortgage Note Payments payable under the Borrower's
Short Term First/Second Mortgage Mortgage Loans as to which more than two
hundred seventy (270) days, but less than three hundred sixty-six (366) days
have elapsed since their Date of Origination; PLUS (v) twenty-five percent
(25%) MULTIPLIED BY the Net Mortgage Note Payments payable under the Borrower's
Long Term First Mortgage Eligible Mortgage Loans as to which more than two
hundred seventy (270) days, but less than three hundred sixty-six (366) days
have elapsed since their Date of Origination; MINUS (b) the Ineligible Mortgage
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Note Reserve.
"BANK OF AMERICA" means Bank of America National Trust and
Savings Association, a national banking association, or any successor entity
thereto.
"BASE RATE" means, for any day, the rate of interest in effect
for such day as publicly announced from time to time by Bank of America, in San
Francisco, California, as its "reference rate" (the "reference rate" being a
rate set by Bank of America based upon various factors including Bank of
America's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate).
"BORROWING" means a borrowing hereunder consisting of Revolving
Loans made by the Lender to the Borrower.
"BORROWING BASE" means the sum of the Adjusted Tangible Net
Worth of the Borrower, PLUS all Subordinated Debt of the Borrower.
"BUSINESS MORTGAGE LOAN" means a Mortgage Loan the proceeds of
which are intended to be used primarily for any purpose other than the family,
household or personal purposes of the Mortgage Debtor.
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or
a day on which banks in San Francisco, California, are required or permitted to
be closed.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"CLOSING DATE" means the date of the execution of this
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute, and regulations promulgated thereunder.
"COLLATERAL" has the meaning specified in SECTION 6.1 hereof.
"COLLECTION ACCOUNT AGREEMENT" means that certain Collection
Account Agreement substantially in the form attached hereto as Exhibit A and
incorporated herein.
"CONSUMER MORTGAGE LOAN" means a Mortgage Loan the proceeds of
which are
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intended to be used primarily family, household or personal purposes of the
Mortgage Debtor.
"CONTINGENT FEE REFUND RESERVE" means, as of any date of
determination, the excess of the Borrower's contingent obligation to refund
Mortgage Loan origination fees and other similar fees, OVER $400,000.
"DATE OF ORIGINATION" means the date of the Mortgage Note,
appearing on the face thereof, or if there is no such date, then the date that
any of the proceeds of the related Mortgage Loan were first disbursed to or for
the benefit of the Contract Debtor. The Date of Origination itself shall be
included in calculating the number of days which have elapsed since the Date of
Origination of a Mortgage Note.
"DEBT" means all liabilities, obligations, and indebtedness of
the Borrower to any Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired, or
owing, whether primary, secondary, direct or indirect, contingent, fixed, or
otherwise, and including, without in any way limiting, the generality of the
foregoing: (i) the Borrower's liabilities and obligations to trade creditors;
(ii) all Obligations; (iii) all obligations and liabilities to any Person
secured by a Lien on the Borrower's Property, even though the Borrower shall not
have assumed or become liable for the payment thereof; PROVIDED, HOWEVER, that
all such obligations and liabilities which are limited in recourse to such
Property shall be included in Debt only to the extent of the book value of such
property as would be shown on a balance sheet of the Borrower prepared in
accordance with GAAP; (iv) all obligations and liabilities created or arising
under any lease or conditional sale or other title retention agreement with
respect to Property used or acquired by the Borrower, even if the rights and
remedies of the lessor, seller, or lender thereunder are limited to repossession
of such Property; PROVIDED, HOWEVER, that all such obligations and liabilities
which are limited in recourse to such Property shall be included in Debt only to
the extent of the book value of such property as would be shown a balance sheet
of the Borrower prepared in accordance with GAAP: (v) all accrued pension fund
and other employee benefit plan obligations and liabilities; (vi) all
obligations and liabilities under Guaranties; (vii) Subordinated Debt; and
(viii) deferred taxes.
"DEFAULT" means an event or circumstance which, with the giving
of notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DEFAULT RATE" means a fluctuating per annum interest rate at
all times equal to the sum of the otherwise applicable Base Rate PLUS the Margin
PLUS three percent (3.0%). The Default Rate shall be adjusted simultaneously
with any change in the Base Rate.
"DELINQUENCY ADJUSTMENT" means, as of any date of determination,
the aggregate
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unpaid principal amount of all of the Borrower's Mortgage Notes included in the
Collateral as to which any payment due thereunder is more than two hundred
seventy (270) days contractually past due.
"DISTRIBUTION" means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of Property in respect
to the capital stock (or any options or warrants for such stock) of such
corporation, other than distributions in capital stock (or any options or
warrants for such stock) of the same class; or (b) the redemption or other
acquisition of any capital stock (or options or warrants for such stock) of such
corporation.
"ELIGIBLE MORTGAGE LOANS" means only such Mortgage Loans which
the Lender, in its sole discretion deems eligible, and without limiting the
Lender's discretionary rights, satisfy at all times all of the following
requirements as determined by the Lender, in its reasonable discretion:
(a) the Mortgage Note and the related Mortgage
strictly comply with all of the Borrower's warranties and representations
contained herein;
(b) no payment due under the Mortgage Note is
thirty-one (31) or more days contractually past due;
(c) except as provided in clause (b) of this
Section, neither the Borrower nor the Mortgage Debtor is in default under the
terms of the Mortgage Note and related Mortgage (E.G., the Property subject
thereto is subject to foreclosure or has been sold and the proceeds thereof
applied to the Mortgage Note balance (the latter sometimes being referred to as
a "deficiency balance" Mortgage Note));
(d) the Borrower has not granted any extension of
time for the payment of any sum due under the Mortgage Note;
(e) the Mortgage Note is not subject to any defense,
counterclaim, offset, discount, or allowance;
(f) the Mortgage for such Mortgage Note has been
recorded in the appropriate public real estate records or has been submitted for
recordation in the appropriate public real estate records and creates a Lien on
a fee simple interest in real property which is a First Mortgage or a Second
Mortgage;
(g) the terms of the Mortgage Note and all related
documents and instruments comply in all respects with all Requirement of Law;
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(h) the Mortgage Debtor is not an Affiliate of the
Borrower;
(i) as of the Date of Origination of the Mortgage
Note the Mortgage Debtor's gross monthly debt payments, as a percentage of
his/her/its gross monthly income, does not exceed fifty percent (50%) and the
Mortgage Debtor's creditworthiness and the terms of the Mortgage Note and
related Mortgage shall conform to the Borrower's credit guidelines;
(j) the Mortgage Debtor is not subject to a
bankruptcy proceeding under federal law or any similar proceeding under state
law;
(k) the Mortgage Debtor thereunder is a resident of
the continental United States;
(l) under the terms of the Mortgage Note, the first
scheduled payment due thereunder is due within sixty (60) days following the
date the Mortgage Debtor first entered into the Mortgage Note and all other
payments are scheduled to be made on the same date of each month thereafter;
(m) the original term of a Mortgage Note secured by
a First Mortgage does not exceed thirty (30) years and the original term of a
Mortgage Note secured by a Second Mortgage does not exceed fifteen (15) years;
(n) with respect to a Mortgage Note as to which the
Mortgage Debtor is located in the state of New Jersey or any other state
requiring the filing of a Business Activity Report or similar document in order
to bring suit or otherwise enforce its remedies against such Mortgage Debtor in
the courts or through any judicial process of such state, unless the Borrower
has qualified to do business in New Jersey or such other states, or has filed a
Notice of Business Activities Report with the applicable division of taxation,
the department of revenue, or with such other state offices, as appropriate, for
the then-current year, or is exempt from such filing requirement;
(o) the terms of the Mortgage Note requires that the
unpaid principal balance thereof shall be payable in equal monthly payments
which will amortize the full principal amount thereof over its scheduled term;
(p) the Mortgage Loan is a Consumer Mortgage Loan;
(q) the Mortgage Note is secured by a Mortgage
encumbering real property which is located solely in the states of Delaware, New
Jersey, Pennsylvania, Maryland, Georgia, Florida, North Carolina, South
Carolina, Virginia, and Ohio and any other state to which the Lender has
previously agreed in writing;
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(r) the Lien of the Mortgage securing repayment of
the Mortgage Note is insured by a title insurance company, the identity and
creditworthiness are reasonably satisfactory to the Lender;
(s) the real property which is the subject of the
related Mortgage has a current Appraised Value;
(t) all rescission periods under all state and
Federal laws applicable to such Mortgage Loan have expired;
(u) the real property which is subject to the
Mortgage securing repayment of the Mortgage Note is improved only with a
completed, owner-occupied single family residence or owner-occupied residence
with no more than two (2) living units;
(v) no more than three hundred sixty-five (365) days
have elapsed since the Date of Origination of the Mortgage Note;
(w) the aggregate amount of the unpaid principal
balance of the Mortgage Note plus the unpaid principal balance of all Liens
superior to the Lien of the Mortgage securing repayment of the Mortgage Note,
does not exceed eighty percent (80%) of the Appraised Value of the subject real
property;
(x) the unpaid principal balance of the Mortgage
Note, including all related fees, points, and other charges, does not exceed (i)
$150,000 for Mortgage Notes secured by a First Mortgage, and (ii) $75,000 for
Mortgage Notes secured by a Second Mortgage;
(y) the Mortgage Note is the only Mortgage Note
owing by the Mortgage Debtor to the Borrower or to its Affiliates;
(z) the Mortgage Note has been originated by the
Borrower or has been underwritten and processed by Processing Service Center Inc
and purchased by the Borrower;
(aa) the Mortgage Note shall not be a First Payment
Default Mortgage Note which the Borrower has repurchased;
(bb) the entire unpaid principal balance of the
Mortgage Note has been advanced to or for the benefit of the Mortgage Debtor;
(cc) the Mortgage Note is not a Modified Mortgage
Loan; and
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(dd) the Borrower has delivered to the Lender all of
the documents specified in SECTION 6.2(b) hereof.
"EVENT OF DEFAULT" has the meaning specified in SECTION 11.1
hereof.
"EXCESS AVAILABILITY" means, as of the date of determination,
the remainder of Availability MINUS the aggregate amount of the Revolving Loans
then outstanding.
"FEDERAL RESERVE BOARD" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"FINANCIAL STATEMENTS" means, according to the context in which
it is used, the financial statements attached hereto, or any financial
statements required to be given to the Lender pursuant to this Agreement.
"FIRST MORTGAGE" means a Mortgage the lien of which constitutes
a first lien on the real property described therein, subject only to (a) liens
for taxes, assessments, or similar governmental charges not yet due and payable;
(b) zoning restrictions, mineral reservations, easements, covenants, conditions,
and restrictions of record which shall neither defeat nor render invalid such
lien nor materially impair the merchantability or value of such real property,
and (c) such other exceptions to title as have been approved in writing by the
Lender.
"FIRST PAYMENT DEFAULT MORTGAGE NOTE" means a Mortgage Note as
to which the first payment due thereunder was not paid within sixty (60) days
after its contractual due date.
"FISCAL YEAR" means the Borrower's fiscal year for accounting
purposes. The current fiscal year of the Borrower will end on June 30, 1996.
"FUNDING DATE" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of
[the date of determination.
"GENERAL INTANGIBLES" means all of the Borrower's now owned or
hereafter acquired general intangibles, choses in action and causes of action
and all other intangible personal property of the Borrower of every kind and
nature (other than Mortgage Notes)
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relating to the Mortgage Notes included in the Collateral, including, without
limitation, all contract rights, proprietary rights, corporate or other business
records, trade names, trade secrets, goodwill, customer lists, registrations,
licenses, franchises, and tax refund claims.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GROSS MORTGAGE NOTE PAYMENTS" means, as of the date of
determination, means the aggregate amount of all presently due and future,
unpaid, noncancelable installment payments to be made under a Mortgage Note,
regardless of the method of interest calculation (I.E., interest bearing or pre-
computed).
"GUARANTY" means, with respect to any Person, all obligations of
such Person which in any manner directly or indirectly guarantee or assure, or
in effect guarantee or assure, the payment or performance of any indebtedness,
dividend or other obligation of any other Person (the "guaranteed obligations"),
or assure or in effect assure the holder of the guaranteed obligations against
loss in respect thereof, including, without limitation, any such obligations
incurred through an agreement, contingent or otherwise: (a) to purchase the
guaranteed obligations or any property constituting security therefor; (b) to
advance or supply funds for the purchase or payment of the guaranteed
obligations or to maintain a working capital or other balance sheet condition;
or (c) to lease property or to purchase any debt or equity securities or other
property or services. The term "Guaranty" shall not include any Securitization
Representations and Warranties.
"HAZARDOUS MATERIAL" means any hazardous or toxic substances,
material, or waste which is regulated by any local governmental authority, any
state governmental authority of the state in which the property is located or
the United States government or any agency thereof. "Hazardous Material" shall
also specifically include asbestos or any asbestiform varieties thereof,
including, but not limited to, those as defined in 15 U.S. Code, Section 2642,
and any product, material, or substance containing asbestos, regardless of
whether now, or hereafter regulated by any such governmental agency.
"INELIGIBLE MORTGAGE NOTE RESERVE" means, as of any date of
calculation, an amount equal to fifty percent (50%) of the Gross Mortgage Note
Payments payable under all of the Borrower's Mortgage Loans included in the
Collateral which are not Eligible Mortgage Loans for which more than one hundred
eighty (180) days have elapsed since their Date of Origination.
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"INTERCOMPANY ACCOUNTS" means all assets and liabilities,
however arising, which are due to the Borrower from, which are due from the
Borrower to, or which otherwise arise from any transaction by the Borrower with,
any Affiliate. Intercompany Accounts shall not include a receivable owing to
the Borrower by a special purpose Affiliate arising from the sale by the
Borrower of its Mortgage Notes in connection with a securitization transaction
and no portion of the account has been owing for more than thirty (30) days.
After the expiration of such thirty (30) day period, the entire account shall be
deemed to be an Intercompany Account under any agreement with a Mortgage Note
purchaser.
"INSTRUMENTS" shall have the same meaning as given to that term
in the UCC, and shall include all negotiable instruments, notes secured by
mortgages or trust deeds, and any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease, and is of a
type which is, in the ordinary course of business, transferred by delivery with
any necessary endorsement or assignment.
"IRS" means the Internal Revenue Service and any other
Governmental Authority succeeding to any of its principal functions under the
Code.
"LIEN" means (a) any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes; and (b) to the extent
not included under clause (a), any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or other title
exception or encumbrance affecting Property.
"LOAN ACCOUNT" means the loan account of the Borrower, which
account shall be maintained by the Lender.
"LOAN DOCUMENTS" means this Agreement and all other agreements,
instruments, and documents heretofore, now or hereafter evidencing, securing,
guaranteeing or otherwise relating to the Obligations, the Collateral, the
Lender's Liens in the Collateral, or any other aspect of the transactions
contemplated by this Agreement.
"LONG TERM FIRST MORTGAGE ELIGIBLE MORTGAGE LOAN" means an
Eligible Mortgage Loans having an original term in excess of fifteen (15)
years, the repayment of which is secured by a First Mortgage.
"MARGIN" means one and one-quarter of one percent (1.25%).
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"MATERIAL ADVERSE EFFECT" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Borrower or the
Collateral; (b) a material impairment of the ability of the Borrower to perform
under any Loan Document and to avoid any Event of Default; or (c) a material
adverse effect upon the legality, validity, binding effect or enforceability
against the Borrower of any Loan Document.
"MODIFIED MORTGAGE NOTE " means a Mortgage Note which, at any
time, either (a) was in default for failure to pay for more than sixty (60) days
after its original contractual due date any payment due thereunder and such
payment default was cured by adjusting or amending the Mortgage Note terms, or
accepting a reduced payment or otherwise, or (b) is a refinance or renewal of a
prior Mortgage Note with the Mortgage Debtor to accomplish any of the
foregoing.
"MORTGAGE" means a mortgage or deed of trust, in form
satisfactory to Lender, that secures a Mortgage Note.
"MORTGAGE DEBTOR" means each Person who is obligated to the
Borrower to perform any duty under or to make any payment pursuant to the terms
of a Mortgage Note.
"MORTGAGE NOTE" means a note or other evidence of indebtedness
secured by a Mortgage, and all rights and obligations owing to the Borrower
thereunder and all rights under any, and all Security Documents related to the
Mortgage Note.
"MORTGAGE LOAN" means a loan evidenced by a Mortgage Note.
"NET MORTGAGE NOTE PAYMENTS" means, as of the date of
determination, the remainder of (a) the Gross Mortgage Note Payments, MINUS (b)
the aggregate amount of all unearned finance charges, unearned points, unearned
fees, and unearned insurance premiums applicable thereto or included therein, as
appropriate.
"NOTICE OF BORROWING" has the meaning specified in SECTION
2.2(b).
"OBLIGATIONS" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and debts owing by the Borrower to
the Lender, arising under or pursuant to this Agreement or any of the other Loan
Documents, whether or not evidenced by any note, or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct
or indirect (including, without limitation, those acquired by assignment from
others, and any participation by the Lender in the Borrower's debts owing to
others), absolute or contingent, due or to become due, primary or secondary, as
principal or guarantor, and including, without
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limitation, all principal, interest, charges, expenses, fees, attorneys' fees,
filing fees and any other sums chargeable to the Borrower hereunder or under any
of the other Loan Documents.
"OTHER TAXES" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
"PERSON" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
Governmental Authority, or any other entity.
"PROPERTY" means any interest in any kind of property or asset,
whether personal or real property, or mixed, or tangible or intangible.
"RECOURSE TRANSACTION" means a transaction whereby the Borrower
has sold a Mortgage Loan to any Person under an agreement whereby the Borrower
shares, directly or indirectly, the risk of credit loss thereunder, as
determined by the Lender in its reasonable discretion. Without limiting the
generality of the foregoing, such arrangements include, warranties of
collectability; holdbacks from the sale price; adjustments to the sale price;
guaranties of the Borrower; obligations of the Borrower to repurchase, or
substitute for, under-performing Mortgage Loans; payment to the Borrower of a
portion of the purchase price being conditioned on the purchaser's receipt of
collections on the Mortgage Loans; and "keep-well" arrangements (E.G., any
obligation by the Borrower to transfer, for no additional consideration,
Mortgage Loans to the purchaser based on the non-performance of the Mortgage
Loans sold). The term "Recourse Transaction" shall not include Securitization
Representations and Warranties or the Borrower's obligations to repurchase First
Payment Default Mortgage Notes.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory
or common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its Property or to which the Person or any of its Property is subject.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of the Borrower, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the Borrower, or any
other officer having substantially the same authority and responsibility.
"REVOLVING LOANS" means, collectively, all Borrowings provided
for under ARTICLE TWO hereof.
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"SECURITY DOCUMENTS" means all security agreements, chattel
mortgages, deeds of trust, Mortgages, or other security instruments, guaranties,
sureties, and agreements of every type and nature securing the obligations of a
Mortgage Debtor under a Mortgage Note and the Mortgage securing the Mortgage
Note.
"SECOND MORTGAGE" means a Mortgage the lien of which constitutes
a second Lien on the real property described therein, subject only to (a) a
Senior Lien; (b) Liens for taxes, assessments, or similar governmental charges
not yet due and payable; (c) zoning restrictions, mineral reservations,
easements, covenants, conditions, and restrictions of record which shall neither
defeat nor render invalid such Lien nor materially impair the merchantability or
value of such real property, and (d) such other exceptions to title as have been
approved in writing by the Lender.
"SECURITIZATION REPRESENTATIONS AND WARRANTIES" means those
representations and warranties customarily made (as determined by the Lender) by
a seller of Mortgage Notes originated by the seller in connection with a
securitization transaction for such Mortgage Notes. Such representations and
warranties concern such matters as the validity, enforceability and genuineness
of the Mortgage Notes, the completeness of the documents evidencing the Mortgage
Notes, and the seller's ownership of and title to the Mortgage Notes.
"SENIOR LIEN" means the Lien of a Mortgage that is senior in
priority to another Mortgage.
"SHORT TERM FIRST/SECOND MORTGAGE ELIGIBLE MORTGAGE LOAN " means
an Eligible Mortgage Loan which is either (a) a Mortgage Loan, the repayment of
which is secured by a Second Mortgage without regard to the original term
thereof, or (b) a Mortgage Loan having an original term of fifteen (15) years or
less, the repayment of which is secured by a First Mortgage.
"SOLVENT" means when used with respect to any Person that (a)
the fair value of all its assets is in excess of the total amount of its debts
(including contingent liabilities); (b) it is able to pay its debts as they
mature; (c) it does not have unreasonably small capital for the business in
which it is engaged or for any business or transaction in which it is about to
engage; and (d) it is not "insolvent" as such term is defined in Section 101(32)
of the Bankruptcy Code.
"STATED TERMINATION DATE" means the second anniversary of the
Closing Date.
"SUBORDINATED DEBT" means all debt of the Borrower which at all
times during the term of this Agreement is (a) subordinated to the Borrower's
Obligations hereunder pursuant to a written subordination agreement, the terms
of which are satisfactory to the Lender in its sole and absolute discretion; and
(b) has a then-remaining term to maturity in excess of twelve (12)
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months.
"SUBSIDIARY" means any corporation of which more than fifty
percent (50.0%) of the outstanding securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions), is at the time, directly or indirectly through one or more
intermediaries, owned by the Borrower and/or one or more of its Subsidiaries.
"TAXES" means any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding such taxes (including income taxes or franchise taxes) as are
imposed on or measured by the Lender's net income by the jurisdiction (or any
political subdivision thereof) under the laws of which such Lender is organized
or maintains a Lending Office.
"TERMINATION DATE" means the earliest to occur of (i) the Stated
Termination Date, (ii) the date the Total Facility is terminated either by the
Borrower pursuant to SECTION 4.2 or by the Lender pursuant to SECTION 11.2, and
(iii) the date this Agreement is otherwise terminated for any reason whatsoever.
"TOTAL FACILITY" means Seven Million Five Hundred Thousand
Dollars ($7,500,000).
"UCC" means the Uniform Commercial Code (or any successor
statute) of the state of New Jersey or of any other state the laws of which are
required by Section 12:A9-103 thereof to be applied in connection with the issue
of perfection of security interests.
"UNUSED LINE FEE" shall have the meaning given to that term in
SECTION 3.3.
1.2 ACCOUNTING TERMS. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
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ARTICLE TWO - LOAN
2.1 REVOLVING LOANS. Subject to satisfaction of the terms and
conditions of this Agreement, including the conditions precedent set forth in
ARTICLE TEN, the Lender agrees, upon the request of the Borrower, made from time
to time during the period of the Closing Date to the Termination Date, to make
revolving loans ("Revolving Loans") to the Borrower in an amount not to exceed
the lesser of the Total Facility or the Availability; PROVIDED, HOWEVER, no
Borrowings will be made to the Borrower if a Default or an Event of Default
exists. All such Borrowings shall be added to the Revolving Loans when made.
The Lender, in its sole and absolute discretion, may elect to make Borrowings in
excess of the Availability on one or more occasions, but if it does so, the
Lender shall not be deemed thereby to have changed the limits of the Total
Facility or the Availability. Immediately upon demand by the Lender for
repayment of such excess, the Borrower shall make such payment, without penalty
or fee. Such excess shall constitute part of the Revolving Loans hereunder and
shall be subject to all of the terms and conditions of this Agreement. If the
sum of the outstanding Revolving Loans exceeds the Availability, the Lender may
refuse to make or otherwise restrict the making of Revolving Loans as the Lender
determines until such excess has been eliminated.
2.2 BORROWING PROCEDURE. (a) Each Borrowing shall be made upon the
Borrower's irrevocable written notice delivered to the Lender in the form of a
Notice of Borrowing (which notice must be received by the Lender prior to 11:00
a.m. (Cherry Hill, New Jersey time) on the requested Funding Date, specifying
(i) the amount of the Borrowing and (ii) the requested Funding Date, which shall
be a Business Day. In lieu of delivering the above-described Notice of
Borrowing, the Borrower may give the Lender telephonic notice of such request by
the required time, with such telephonic notice to be confirmed in writing within
twenty-four (24) hours of the giving of such notice but the Lender shall be
entitled to rely on the telephonic notice in making such Revolving Loans.
(b) On or prior to the Closing Date and thereafter prior to
any change with respect to any of the information contained in the following
clauses (i) and (ii), the Borrower shall deliver to the Lender a writing setting
forth (i) the account of the Borrower to which the Lender is authorized to
transfer the proceeds of the Revolving Loans requested pursuant to this SECTION
2.2, and (ii) the names of the officers authorized to request Revolving Loans on
behalf of the Borrower, and shall provide the Lender with a specimen signature
of each such officer. The Lender shall be entitled to rely conclusively on such
officer's authority to request Revolving Loans on behalf of the Borrower, the
proceeds of which are to be transferred to any of the accounts specified by the
Borrower pursuant to the immediately preceding sentence, until the Lender
receives written notice to the contrary. The Lender shall have no duty to
verify the identity of any individual representing himself as one of the
officers authorized by the Borrower to make such requests on its behalf.
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(c) NO LIABILITY. The Lender shall not incur any liability
to the Borrower as a result of acting upon any notice referred to in SECTIONS
2.2(a) and (b), which notice the Lender believes in good faith to have been
given by an officer duly authorized by the Borrower to request Revolving Loans
on its behalf or for otherwise acting in good faith under this SECTION 2.2, and
the crediting of Revolving Loans to the Borrower's deposit account, or
transmittal to such Person as the Borrower shall direct, shall conclusively
establish the obligation of the Borrower to repay such Revolving Loans as
provided herein.
(d) NOTICE IRREVOCABLE. Any Notice of Borrowing (or
telephonic notice in lieu thereof) made pursuant to SECTION 2.2(a) shall be
irrevocable and the Borrower shall be bound to borrow the funds requested
therein in accordance therewith.
ARTICLE THREE - INTEREST AND OTHER CHARGES
3.1 INTEREST. (a) All outstanding Obligations shall bear interest
on the unpaid principal amount thereof (including, to the extent permitted by
law, on interest thereon not paid when due) from the date made until paid in
full in cash at a rate determined by reference to the Base Rate, but not to
exceed the Maximum Rate described in SECTION 3.2. Except as otherwise provided
herein, all Revolving Loans and other Obligations, shall bear interest at a
fluctuating per annum rate equal to the Base Rate plus the Margin. Each change
in the Base Rate shall be reflected in the interest rate described above as of
the effective date of such change. All interest charges shall be computed on
the basis of a year of three hundred sixty (360) days and actual days elapsed
(which results in more interest being paid than if computed on the basis of a
365-day year). Interest accrued on all Revolving Loans will be payable in
arrears on the fifteenth day of each month following the month with respect to
which such interest is payable.
(b) If any Default or Event of Default occurs and is continuing
and the Lender in its discretion so elects, then, while any such Default or
Event of Default is outstanding, all of the Obligations shall bear interest at
the Default Rate applicable thereto.
3.2 MAXIMUM INTEREST RATE. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"Maximum Rate"). If, in any month, any interest rate, absent such limitation,
would have exceeded the Maximum Rate, then the interest rate for that month
shall be the Maximum Rate, and, if in future months, that interest rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations under this Agreement, the total amount of interest paid or accrued
under the terms of this Agreement is less than the total amount of interest
which
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would, but for this SECTION 3.2, have been paid or accrued if the interest rates
otherwise set forth in this Agreement had at all times been in effect, then the
Borrower shall, to the extent permitted by applicable law, pay the Lender an
amount equal to the difference between (a) the lesser of (i) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect or (ii) the amount of interest which would have accrued had the
interest rates otherwise set forth in this Agreement, at all times, been in
effect and (b) the amount of interest actually paid or accrued under this
Agreement. In the event that a court determines that the Lender has received
interest and other charges hereunder in excess of the Maximum Rate, such excess
shall be deemed received on account of, and shall automatically be applied to
reduce, the Obligations other than interest, in the inverse order of maturity,
and if there are no Obligations outstanding, the Lender shall refund to the
Borrower such excess.
3.3 UNUSED LINE FEE. The Borrower agrees to pay, on the fifteenth
day of each month and on the Termination Date an unused line fee equal to five-
sixteenthsof one percent (0.3125%)per annum on the average daily amount by which
the Total Facility exceeded the sum of the average daily closing unpaid amount
of the Revolving Loans during the immediately preceding month or shorter period
if calculated on the Termination Date. The unused line fee shall be computed on
the basis of a three hundred sixty (360)-day year for the actual number of days
elapsed and shall commence to accrue on the thirty-first day following the
Closing Date.
3.4 AUDIT FEES. The Borrower agrees to pay monthly to the Lender an
audit fee to reimburse the Lender for the costs and fees incurred by the
Lender's internal auditors in connection with audits of the Borrower performed
by them during the term of this Agreement. Prior to the occurrence of an Event
of Default, the monthly audit fee shall be equal to one-twelfth of one-tenth of
one percent (.000083333%) of the aggregate amount of the Net Mortgage Note
Payments payable under all of the Borrower's Mortgage Notes included in the
Collateral, calculated as of the last day of the month immediately preceding the
monthly audit fee payment due date; PROVIDED, HOWEVER, in no event shall the
monthly audit fee be less than $416.67, nor more than $791.67. The monthly audit
fee shall be payable on the fifteenth day of each month, commencing with the
month immediately following the date appearing on page one of this Agreement.
Upon the occurrence of any Event of Default, the Borrower shall pay, on demand,
all of the Lender's costs incurred in connection with the verification, audit,
and inspection of the Collateral without regard to the foregoing limitations.
ARTICLE FOUR - PAYMENTS AND PREPAYMENTS
4.1 PAYMENT OF REVOLVING LOANS. The Borrower shall repay the
outstanding principal balance of the Revolving Loans, plus all accrued but
unpaid interest thereon, on the Termination Date. The Borrower may prepay
Revolving Loans at any time, and reborrow subject to the terms of this
Agreement. In addition, and without limiting the generality of the foregoing,
the
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Borrower shall pay to the Lender the amount, by which the sum of outstanding
Revolving Loans exceed Borrower's Availability and/or the Total Facility.
4.2 TERMINATION OF FACILITY. The Borrower may terminate this
Agreement upon at least ten (10) Business Days' notice to the Lender upon
(a) the payment in full of all outstanding Revolving Loans, together with
accrued interest thereon, (b) the payment of the early termination fee set forth
in the next sentence, and (c) the payment in full in cash and the performance,
as appropriate, of all other Obligations together with accrued interest thereon.
If this Agreement is terminated at any time prior to the Stated Termination Date
for any reason whatsoever, the Borrower shall pay to the Lender an early
termination fee determined in accordance with the following table:
Period During Which Early
Termination Occurs Early Termination Fees
------------------ ----------------------
On or prior to the first Two and one-half percent
anniversary of the Closing Date (2.5%) of the Total Facility
After the first anniversary of the
Closing Date, but prior to the second One-half of one percent
anniversary of the Closing Date (0.5%) of the Total Facility
Notwithstanding the foregoing, the early termination fee shall be equal
to zero, instead of the amount indicated above, if (A) the provisions of
SUBSECTION 5.1(b) apply or (B)(1) the Borrower, at any time, requests an
increase in the Total Facility by an amount which is not less than Five Million
Dollars ($5,000,000), but not more than Twelve Million Five Hundred Thousand
Dollars ($12,500,000), without any other changes to any of the other provisions
of this Agreement, (2) no Default or Event of Default has occurred within one
hundred eighty (180) days of the request which remains uncured or has not been
waived by the Lender, (3) the Lender does not, within ninety (90) days of such
request, agree to increase the Total Facility by the requested amount, and (4)
the average daily closing unpaid balance of the Revolving Loans for the sixty
(60) day period immediately preceding the expiration of such ninety (90) day
period is equal to or greater than seventy-five percent (75%) of the Total
Credit Facility.
4.3 PAYMENTS BY THE BORROWER. All payments to be made by the
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Lender at the Lender's address set forth in SECTION 14.7, and in
immediately available funds, no later than 1:00 p.m. (Cherry Hill, New Jersey
time) on the date specified herein. Any payment received by the Lender later
than 1:00 p.m. (Cherry Hill, New Jersey time) shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue until such
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following Business Day.
4.4 PAYMENTS AS REVOLVING LOANS. All payments of principal,
interest, fees, premiums and other sums payable hereunder, including all
reimbursement for expenses pursuant to SECTION 14.6, may, at the option of the
Lender, in its sole discretion, subject only to the terms of this SECTION 4.4,
be paid from the proceeds of Revolving Loans made hereunder, whether made
following a request by the Borrower pursuant to SECTION 2.2 or a deemed request
as provided in this SECTION 4.4. The Borrower hereby irrevocably authorizes the
Lender to charge the Loan Account for the purpose of paying principal, interest,
fees, premiums and other sums payable hereunder, including reimbursing expenses
pursuant to SECTION 14.6, and agrees that all such amounts charged shall
constitute Revolving Loans and that all such Revolving Loans so made shall be
deemed to have been requested by the Borrower pursuant to SECTION 2.1.
4.5 APPORTIONMENT, APPLICATION AND REVERSAL OF PAYMENTS. All
payments shall be remitted to the Lender and all such payments not relating to
principal or interest of specific Revolving Loans, or not constituting payment
of specific fees, and all proceeds of the Collateral received by the Lender,
shall be applied subject to the provisions of this Agreement, FIRST, to pay any
fees, or expense reimbursements then due to the Lender from the Borrower;
SECOND, to pay interest due in respect of all Revolving Loans; THIRD, to pay or
prepay principal of the Revolving Loans; and FOURTH, to the payment of any other
Obligation due to the Lender by the Borrower. The Lender shall have the
continuing and exclusive right to apply and reverse and reapply any and all such
proceeds and payments to any portion of the Obligations.
4.6 INDEMNITY FOR RETURNED PAYMENTS. If, after receipt of any
payment of, or proceeds applied to the payment of, all or any part of the
Obligations, the Lender is for any reason compelled to surrender such payment or
proceeds to any Person, because such payment or application of proceeds is
invalidated, declared fraudulent, set aside, determined to be void or voidable
as a preference, impermissible setoff, or a diversion of trust funds, or for any
other reason, then the Obligations or part thereof intended to be satisfied
shall be revived and continue and this Agreement shall continue in full force as
if such payment or proceeds had not been received by the Lender, and the
Borrower shall be liable to pay to the Lender, and hereby does indemnify the
Lender and hold the Lender harmless for, the amount of such payment or proceeds
surrendered. The provisions of this SECTION 4.6 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Lender in
reliance upon such payment or application of proceeds, and any such contrary
action so taken shall be without prejudice to the Lenders' rights under this
Agreement and shall be deemed to have been conditioned upon such payment or
application of proceeds having become final and irrevocable. The provisions of
this SECTION 4.6 shall survive the termination of this Agreement.
4.7 LENDER'S AND LENDERS' BOOKS AND RECORDS; MONTHLY STATEMENTS. The
Borrower agrees that the Lender's books and records showing the Obligations and
the transactions pursuant
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to this Agreement and the other Loan Documents shall be admissible in any action
or proceeding arising therefrom, and shall constitute rebuttably presumptive
proof thereof, irrespective of whether any Obligation is also evidenced by a
promissory note or other instrument. The Lender will provide to the Borrower a
monthly statement of the Revolving Loans, payments, and other transactions
pursuant to this Agreement. Such statement shall be deemed correct, accurate,
and binding on the Borrower and an account stated (except for reversals and
reapplications of payments made as provided in SECTION 4.5 and corrections of
errors discovered by the Lender), unless the Borrower notifies the Lender in
writing to the contrary within thirty (30) days after such statement is
rendered. In the event a timely written notice of objections is given by the
Borrower, only the items to which exception is expressly made will be considered
to be disputed by the Borrower.
ARTICLE FIVE - YIELD PROTECTION
5.1 INCREASED COSTS AND REDUCTION OF RETURN. (a) If the Lender
shall have determined that (i) the introduction of any Capital Adequacy
Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change
in the interpretation or administration of any Capital Adequacy Regulation by
any central bank or other Governmental Authority charged with the interpretation
or administration thereof, or (iv) compliance by the Lender or any corporation
controlling the Lender with any Capital Adequacy Regulation, affects or would
affect the amount of capital required or expected to be maintained by the Lender
or any corporation controlling the Lender and (taking into consideration the
Lender's or such corporation's policies with respect to capital adequacy and the
Lender's desired return on capital) determines that the amount of such capital
is increased as a consequence of the Total Facility, loans, credits or
obligations under this Agreement, then, upon demand of the Lender, the Borrower
shall pay to the Lender, from time to time as specified by the Lender,
additional amounts sufficient to compensate the Lender for such increase.
(b) In the event that the Lender gives the Borrower a notice
pursuant to this SECTION 5.1, the Borrower may terminate this Agreement in
accordance with SECTION 4.2 within six (6) months of the date of the Borrower's
receipt of the Lender's certificate described in SECTION 5.2 and shall not be
obligated to pay an early termination fee.
5.2 CERTIFICATES OF LENDER. The Lender claiming reimbursement or
compensation under this ARTICLE FIVE shall deliver to the Borrower a certificate
setting forth in reasonable detail the amount payable to the Lender hereunder
and such certificate shall be conclusive and binding on the Borrower in the
absence of manifest error.
5.3 SURVIVAL. The agreements and obligations of the Borrower in
this ARTICLE FIVE shall survive the payment of all other Obligations.
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ARTICLE SIX - COLLATERAL
6.1 GRANT OF SECURITY INTEREST. As security for all Obligations,
the Borrower hereby grants to the Lender a continuing security interest in, lien
on, and right of setoff against, all of the following Property of the Borrower,
whether now owned or existing or hereafter acquired or arising, regardless of
where located: (a) all Mortgage Notes and Mortgages delivered to or otherwise in
the possession of the Lender, and any returned or repossessed Property relating
thereto; (b) all General Intangibles; (c) all money, securities and other
Property of any kind of the Borrower in the possession or under the control of
the Lender, or a bailee of the Lender or the Lender's affiliates; (d) all
deposit accounts, credits and balances with and other claims against the Lender
or any of its Affiliates or any other financial institution in which the
Borrower maintains deposits to the extent they contain or arise from the
Proceeds of the property described in clauses (a), (b), and (c) of this section;
(e) all books, records and other Property related to or referring to any of the
foregoing, including, without limitation, books, records, account ledgers, data
processing records, computer software and other Property and General Intangibles
at any time evidencing or relating to any of the foregoing; (g) all accessions
to, substitutions for and replacements, products and proceeds of any of the
foregoing, including, but not limited to, proceeds of any insurance policies,
claims against third parties, and condemnation or requisition payments with
respect to all or any of the foregoing; and (h) proceeds of proceeds, Property,
Property rights, privileges and benefits arising out of, from the enforcement
of, or in connection with the Mortgage Notes and Mortgages delivered to the
Lender, the Property rights and the policies of insurance referred to above, and
all credit balances in favor of the Borrower on the Lender's books. All of the
foregoing and all other Property of the Borrower in which the Lender may at any
time be granted a Lien, is herein collectively referred to as the "Collateral."
All of the Obligations shall be secured by all of the Collateral.
6.2 PERFECTION AND PROTECTION OF SECURITY INTEREST. (a) The
Borrower shall, at its expense, perform all steps requested by the Lender at any
time to perfect, maintain, protect, and enforce the Lender's Liens in the
Collateral, including, without limitation: (i) executing and filing financing
or continuation statements, and amendments thereof, in form and substance
satisfactory to the Lender; (ii) delivering to the Lender the originals of all
Instruments, documents, and chattel paper, and all other Collateral of which the
Lender determines it should have physical possession in order to perfect and
protect the Lender's security interest therein, duly pledged, endorsed or
assigned to the Lender without restriction; (iii) placing notations on the
Borrower's books of account to disclose the Lender's security interest; and (iv)
taking such other steps as are deemed necessary or desirable by the Lender to
maintain and protect the Lender's Liens in the Collateral. To the extent
permitted by applicable law, the Lender may file, without the Borrower's
signature, one or more financing statements disclosing the Lender's Liens in the
Collateral. The Borrower agrees that a carbon, photographic, photostatic, or
other
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reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.
(b) promptly after acquiring or originating any Mortgage
Loan to be included in the Collateral and before such Mortgage Loan is included
in the Borrower's Availability, the Borrower shall deliver to the Lender:
(i) the Mortgage Note properly and effectively
endorsed in blank;
(ii) the original or a certified copy of the Mortgage
securing repayment of the Mortgage Note which reflects all recording information
(E.G., book/page or instrument number) or if the original or a certified copy of
the Mortgage (with recording data) is unavailable, then evidence satisfactory to
the Lender that the Mortgage is in the process of being recorded, together with
a copy of the original Mortgage being recorded (the original or certified copy
of the recorded Mortgage is to be delivered by the Borrower to the Lender
immediately upon receipt thereof); and
(iii) executed assignment (in recordable form) of the
Mortgage for such Mortgage Note (which assignment may be recorded by the Lender
at any time that the Borrower's Excess Availability is less than five percent
(5%) of the Revolving Loan balance, as determined by the Lender in its sole
discretion) or an Event of Default has occurred which is uncured or which has
not been waived by the Lender.
(c) If any Collateral is at any time in the possession or
control of any bailee or any of the Borrower's agents, then the Borrower shall
notify the Lender thereof and shall notify such Person of the Lender's security
interest in such Collateral and, upon the Lender's request, instruct such Person
to hold all such Collateral for the Lender's account subject to the Lender's
instructions.
(d) From time to time, the Borrower shall, upon the Lender's
request, execute and deliver confirmatory written instruments pledging to the
Lender the Collateral with respect to the Borrower, but the Borrower's failure
to do so shall not affect or limit the Lender's security interest or the
Lender's other rights in and to the Collateral with respect to the Borrower. So
long as this Agreement is in effect and until all Obligations have been fully
satisfied, the Lender's Liens in the Collateral shall continue in full force and
effect in all Collateral (whether or not deemed eligible for the purpose of
calculating the Availability or as the basis for any advance, loan, extension of
credit, or other financial accommodation).
6.3 LOCATION OF COLLATERAL. The Borrower represents and warrants to
the Lender that: (a) SCHEDULE 6.3 is a correct and complete list of the
Borrower's chief executive office, the location of its books and records, the
locations of the Collateral with respect to the Borrower (except for Collateral
in the possession of the Lender), and the locations of all of its other places
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of business. The Borrower covenants and agrees that it will not (a) maintain
any Collateral with respect to the Borrower at any location other than those
locations listed for the Borrower on SCHEDULE 6.3, (b) otherwise change or add
to any of such locations, or (c) change the location of its chief executive
office from the location identified in SCHEDULE 6.3, unless it gives the Lender
at least thirty (30) days' prior written notice thereof and executes any and all
financing statements and other documents that the Lender requests in connection
therewith, or (d) store the Collateral at those locations other than in fire-
resistant, metal cabinets.
6.4 TITLE TO, LIENS ON, AND SALE OF COLLATERAL. The Borrower
represents and warrants to the Lender and agrees with the Lender that: (a) all
of the Collateral is and will continue to be owned solely by the Borrower free
and clear of all Liens whatsoever, except for Liens in favor of the Lender;
(b) the Lender's Liens in the Collateral will not be subject to any prior Lien;
(c) the Borrower will use, store, and maintain the Collateral with all
reasonable care; and (d) the Borrower will not, without the Lender's prior
written approval, sell, or dispose of or permit the sale or disposition of any
of the Collateral except in the ordinary course of the Borrower's business and
in accordance with the procedures specified in this Agreement. The inclusion of
proceeds in the Collateral shall not be deemed to constitute the Lender's
consent to any sale or other disposition of the Collateral except as expressly
permitted herein.
6.5 APPRAISALS. Whenever an Event of Default exists the Borrower
shall, at its expense and upon the Lender's request, provide the Lender with
appraisals or updates thereof of any or all of the Collateral from an appraiser,
and prepared on a basis, satisfactory to the Lender, such appraisals and updates
to include, without limitation, information required by applicable law and
regulation and by the internal policies of the Lender.
6.6 ACCESS AND EXAMINATION. The Lender may at all reasonable times
(and at any time when a Default or Event of Default exists) have access to,
examine, audit, make extracts from or copies of and inspect any or all of the
Borrower's records, files, and books of account and the Collateral, and discuss
the Borrower's affairs with the Borrower's officers and management and
independent public accountants (and by this provision the Borrower hereby
authorizes said accountants to discuss with the Lender the finances and affairs
of the Borrower and each of its subsidiaries). The Borrower will deliver to the
Lender any instrument necessary for the Lender to obtain records from any
service bureau maintaining records for the Borrower. The Lender may, at any
time and at the Borrower's expense, make copies of all of the Borrower's books
and records, or require the Borrower to deliver such copies to the Lender. The
Lender may, without expense to the Lender, use such of the Borrower's respective
personnel, supplies, and premises as may be reasonably necessary for maintaining
or enforcing the Lender's Liens in the Collateral. The Lender shall have the
right, at any time, in the Lender's name or in the name of a nominee of the
Lender, to verify the validity, amount or any other matter relating to the
Mortgage Loans, or other Collateral, by mail, telephone, or otherwise. In the
event of any litigation between the Borrower and the Lender, any right of civil
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discovery shall be in addition to, but not in lieu of, the Lender's rights under
this SECTION 6.6.
6.7 COLLATERAL REPORTING. The Borrower shall provide the Lender, by
the fifteenth day of each month, with the following documents at the following
times in form satisfactory to the Lender: (a) a collateral and loan status
report on forms provided by the Lender (or such other form approved by Lender),
(b) an ageing of the Borrower's Mortgage Loans included in the Collateral,
listing each Mortgage Note under which any payment due thereunder is thirty-one
(31) or more days past due, as determined on a contractual basis, together with
a reconciliation to the previous month's ageing of the Borrower's Mortgage Loans
included in the Collateral and to the Borrower's general ledger; and (c) such
other reports as to the Collateral of the Borrower as the Lender shall
reasonably request from time to time; and (d) with the delivery of each of the
foregoing, a certificate of an officer of the Borrower certifying as to the
accuracy and completeness of the foregoing. If any of the Borrower's records or
reports of the Collateral are prepared by an accounting service or other agent,
the Borrower hereby authorizes such service or agent to deliver such records,
reports, and related documents to the Lender.
6.8 MORTGAGE Loans. (a) The Borrower hereby represents and warrants
to the Lender respect to the Borrower's Mortgage Loans included in the
Collateral, that: (i) each existing Mortgage Note represents, and each future
Mortgage Note will represent, a BONA FIDE obligation of the Mortgage Debtor,
enforceable in accordance with its terms, and the Borrower does not know of any
fact which impairs or will impair the validity of any such Mortgage Note; (ii)
each existing Mortgage Note is, and each future Mortgage Note will be, for a
liquidated amount payable by the Mortgage Debtor thereon on the terms set forth
in the Mortgage Note therefor or in the schedule thereof delivered to the
Lender, without any offset, deduction, defense (including the defense of usury),
or counterclaim except those known to the Borrower and disclosed to the Lender
pursuant to this Agreement; (iii) there is only one original counterpart of the
Mortgage Note executed by the Mortgage Debtor (with the possible exception of
one duplicate original counterpart which, if in existence, is in the Mortgage
Debtor's sole possession); (iv) no payment will be received with respect to any
Mortgage Note, and no credit, discount, or extension, or agreement therefor will
be granted on any Mortgage Note, except expressly permitted under the terms of
this Agreement and as reported to the Lender in accordance with this Agreement;
(v) each Mortgage Note correctly sets forth the terms thereof between the
Borrower and the Mortgage Debtor, including the interest rate applicable thereto
and correctly describes the subject real property collateral; (vi) the
signatures of all Mortgage Debtors are genuine and, to the knowledge of the
Borrower, each Mortgage Debtor had the legal capacity to enter into and execute
such documents on the date thereof; (vii) any Requirement of Law, the
noncompliance with which may have an adverse impact on the value, enforceability
or collectability of the Mortgage Notes has been complied with by the Borrower;
and (viii) the Borrower has not used illegal, improper, fraudulent or deceptive
marketing techniques or unfair business practices with respect to the Mortgage
Notes.
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(b) The Borrower shall not accept any note or other
Instrument (except a check or other Instrument for the immediate payment of
money) with respect to any Mortgage Note included in the Collateral without the
Lender's written consent. If the Lender consents to the acceptance of any such
Instrument, it shall be considered as evidence of the Mortgage Note and not
payment thereof and the Borrower will promptly deliver such Instrument to the
Lender,
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endorsed by the Borrower to the Lender in a manner satisfactory in form and
substance to the Lender. Regardless of the form of presentment, demand, notice
of protest with respect thereto, the Mortgage Debtor shall remain liable
thereon until such instrument is paid in full.
(c) No discount, credit or allowance shall be granted to any
such Mortgage Debtor without the Lender's prior written consent, except for
discounts, credits and allowances made or given in the ordinary course of the
Borrower's business when no Event of Default exists hereunder. The Lender may,
at all times when an Event of Default exists hereunder, settle or adjust
disputes and claims directly with Mortgage Debtors for amounts and upon terms
which the Lender shall consider advisable and, in all cases, the Lender will
credit the Borrower's Loan Account with only the net amounts received by the
Lender in payment of any Mortgage Notes.
6.9 COLLECTION OF MORTGAGE LOANS; PAYMENTS. (a) Within ninety (90)
days of the Closing Date, the Borrower shall establish a Collection Account, in
accordance with the Collection Account Agreement, for collections of the
Collateral at a bank acceptable to the Lender. Subject to the Lender's rights
under SECTION 11.2 below so long as an Event of Default shall have occurred and
be continuing or the Borrower's Excess Availability is at any time less than
five percent (5%) of the Revolving Loan Balance, the Borrower shall immediately,
upon receipt thereof, deposit all cash proceeds of the Collateral (including,
for example, all regular monthly payments received in connection with the
Collateral) into the Collection Account and only the Lender shall have a right
to withdraw any funds from the Collection Account. The Lender shall permit the
Borrower to cease depositing funds into the Collection Account in the event (i)
the Borrower's Excess Availability is, at all times, equal to or greater than
five percent (5%) of the Revolving Loan balance during any ninety (90)
consecutive-day period following the date of termination of the Borrower's
Collection Account withdrawal rights and no Default or Event of Default occurs
during that period, where the Borrower's withdrawal rights were terminated
because of inadequate Excess Availability or (ii) the Lender, in its sole
discretion, waives or allows to be cured (if curable) the Event of Default which
resulted in the termination of the Borrower's withdrawal rights and no
additional grounds for terminating the Borrower's withdrawal rights (E.G., a new
Default or Event of Default) occurs during any ninety (90) consecutive-day
period following the date of termination of the Borrower's Collection Account
withdrawal rights, where the Borrower's withdrawal rights were terminated
because of the occurrence of an Event of Default.
(b) During the period that the Borrower's withdrawal rights
with respect to the Collection Account have been terminated, all payments,
including immediately available funds received by the Lender at a bank
designated in the Collection Agreement on account of the Collateral or as
proceeds of other Collateral will be the Lender's sole Property for the benefit
of the Lender and will be credited to the Borrower's Loan Account (conditional
upon final collection).
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6.10 RIGHT TO CURE. The Lender may, in its discretion, pay any
amount or do any act required of the Borrower hereunder or under any other Loan
Document in order to preserve, protect, maintain or enforce the Obligations, the
Collateral or the Lender's Liens therein, and which the Borrower fails to pay or
do, including, without limitation, payment of any judgment against the Borrower,
any insurance premium, any landlord's claim, and any other Lien upon or with
respect to the Collateral. All payments that the Lender makes under this
SECTION 6.10 and all out-of-pocket costs and expenses that the Lender pays or
incurs in connection with any action taken by it hereunder shall be charged to
the Borrower's Loan Account as a Revolving Loan. Any payment made or other
action taken by the Lender under this SECTION 6.10 shall be without prejudice to
any right to assert an Event of Default hereunder and to proceed thereafter as
herein provided.
6.11 POWER OF ATTORNEY. The Borrower hereby appoints the Lender and
the Lender's designee as the Borrower's attorney, with power to do all of the
following when an Event of Default has occurred and is continuing: (a) to
endorse the Borrower's name on any checks, notes, acceptances, money orders, or
other forms of payment or security that come into the Lender's possession; (b)
to sign the Borrower's name on any Mortgage Note, Mortgage, Mortgage release
document, or other document relating to any of the Collateral, on drafts against
customers, on assignments of Mortgage Notes, on notices of assignment, financing
statements and other public records; (c) to notify the post office authorities,
when an Event of Default exists, to change the address for delivery of the
Borrower's mail to an address designated by the Lender and to receive, open and
dispose of all mail addressed to the Borrower; (d) to send requests for
verification of Mortgage Notes to Mortgage Debtors; and (e) to do all things
necessary to carry out this Agreement. The Borrower ratifies and approves all
acts of such attorney. Neither the Lender nor its attorneys will be liable for
any acts or omissions or for any error of judgment or mistake of fact or law.
This power, being coupled with an interest, is irrevocable until this Agreement
has been terminated and the Obligations have been fully satisfied.
6.12 LENDER' RIGHTS, DUTIES AND LIABILITIES. The Borrower assumes
all responsibility and liability arising from or relating to the use, sale or
other disposition of the Collateral. The Lender shall use the same standard of
care in storing and maintaining the Collateral in its possession as it
exercises for like documents and Property which it holds for its own account.
Except as provided in the foregoing sentence, neither the Lender, nor any of its
respective officers, directors, employees or agents shall be liable or
responsible in any way for the safekeeping of any of the Collateral, or for any
loss or damage thereto, or for any diminution in the value thereof, or for any
act of default of any warehouseman, carrier, forwarding agency or other person
whomsoever, all of which shall be at the Borrower's sole risk. The Obligations
shall not be affected by any failure of the Lender to take any steps to perfect
the Lender's Liens in the Collateral or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release the Borrower
from any of the Obligations. The Lender may (but shall not be
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required to) following an Event of Default and acceleration the Obligations,
without notice to or consent from the Borrower, sue upon or otherwise collect,
extend the time for payment of, modify or amend the terms of, compromise or
settle for cash, credit, or otherwise upon any terms, grant other indulgences,
extensions, renewals, compositions, or releases, and take or omit to take any
other action with respect to the Collateral, any security therefor, any
agreement relating thereto, any insurance applicable thereto, or any Person
liable directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of the Borrower for the
Obligations or under this Agreement or any other agreement now or hereafter
existing between the Lender and the Borrower.
6.13 PROTECTION OF COLLATERAL. The Borrower shall pay all expenses
of protecting, storing, insuring, handling, maintaining, and shipping the
Collateral and any and all excise, property, sales, and use taxes levied by any
state, federal or local authority on any of the Collateral or in respect of the
sale thereof.
6.14 SERVICING OF MORTGAGE LOANS. The Borrower shall collect all
payments and other proceeds of the Collateral and deposit the proceeds into the
Collection Account and perform customary insurance follow-up with respect to
each policy of insurance covering the Property which is the subject of the
Mortgage Loans included in the Collateral.
6.15 BORROWER'S OFFICE. The Borrower's chief executive office is
located at the address stated on page one of this Agreement, and the Borrower
covenants and agrees that it will not, without prior written notification to the
Lender, relocate said chief executive office.
6.16 PERMITTED SALES OF MORTGAGE LOANS. The Borrower shall not sell
any of the Mortgage Loans included in the Collateral to any Person without
prior notice to and the consent of the Lender. The Lender may withhold its
consent to any such sale if the Lender determines that such sale, after giving
effect thereto, would result in a Default or Event of Default. The proceeds of
all such sales shall be paid directly to the Lender by the purchaser and shall
be applied to the Borrower's outstanding Obligations in accordance with the
terms of this Agreement.
ARTICLE SEVEN - BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
7.1 BOOKS AND RECORDS. The Borrower shall maintain, at all times,
correct and complete books, records and accounts in which complete, correct and
timely entries are made of its transactions in accordance with GAAP applied
consistently with the audited Financial Statements required to be delivered
pursuant to SECTION 7.2(a). The Borrower shall, by means of appropriate
entries, reflect in such accounts and in all Financial Statements proper
liabilities and reserves for all taxes and proper provision for depreciation and
amortization of property and bad
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debts, all in accordance with GAAP. The Borrower shall maintain at all times
books and records pertaining to the Collateral in such detail, form and scope as
the Lender shall reasonably require, including, but not limited to, records of
(a) all payments received and all credits and extensions granted with respect to
the Mortgage Loans included in the Collateral; and (b) all other dealings
affecting the Collateral. The Borrower shall maintain a system, satisfactory to
the Lender, for duplicating and storing, at a secure location, a back-up set of
books and records concerning the Collateral. In addition, the Borrower shall
maintain a credit file for each Mortgage Debtor, containing financial
information reflecting the creditworthiness of each Mortgage Debtor.
7.2 FINANCIAL INFORMATION. The Borrower shall promptly furnish to
the Lender, all such financial information as the Lender shall reasonably
request, and notify its auditors and accountants that the Lender is authorized
to obtain such information directly from them. Without limiting the foregoing,
the Borrower will furnish to the Lender, in such detail as the Lender shall
request, the following:
(a) As soon as available, but in any event not later than
one hundred twenty (120) days after the close of each Fiscal Year, consolidated
audited balance sheets, and statements of income and expense, cash flow and of
stockholders' equity for the Borrower and ABFS for such Fiscal Year, and the
accompanying notes thereto, setting forth in each case in comparative form
figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of the Borrower
as at the date thereof and for the Fiscal Year then ended, and prepared in
accordance with GAAP. Such statements shall be examined in accordance with
generally accepted auditing standards by and, in the case of such statements
performed on a consolidated basis, accompanied by a report thereon unqualified
as to scope of independent certified public accountants selected by the Borrower
and reasonably satisfactory to the Lender. The Borrower, simultaneously with
retaining such independent public accountants to conduct such annual audit,
shall send a letter to such accountants, with a copy to the Lender, notifying
such accountants that one of the primary purposes for retaining such
accountants' services and having audited financial statements prepared by them
is for use by the Lender.
(b) As soon as available, but in any event not later than
fifty (50) days after the end of each quarter in each Fiscal Year, consolidated
unaudited balance sheet of the ABFS as at the end of such quarter, and
consolidated and unaudited statements of income and expense for the period from
the beginning of the Fiscal Year to the end of such quarter, all in reasonable
detail, fairly presenting the financial position and results of operations of
ABFS as at the date thereof and for such periods, and prepared in accordance
with GAAP applied consistently with the audited Financial Statements required to
be delivered pursuant to SECTION 7.2(a).
(c) As soon as available, but in any event not later than
forty-five (45) days after the end of each month, consolidated and consolidating
unaudited balance sheets of the
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Borrower as at the end of such month, and consolidated and unaudited statement
of income and expense for the Borrower for such month and for the period from
the beginning of the Fiscal Year to the end of such month, all in reasonable
detail, fairly presenting the financial position and results of operations of
the Borrower as at the date thereof and for such periods, and prepared in
accordance with GAAP applied consistently with the audited Financial Statements
required to be delivered pursuant to SECTION 7.2(a). The Borrower shall certify
by a certificate signed by its the chief financial officer that all such
statements have been prepared in accordance with GAAP and present fairly,
subject to normal year-end adjustments, the Borrower's financial position as at
the dates thereof and its results of operations for the periods then ended.
(d) With each of the audited Financial Statements delivered
pursuant to SECTION 7.2(a), a certificate of the independent certified public
accountants that examined such statement to the effect that they have reviewed
and are familiar with this Agreement and that, in examining such Financial
Statements, they did not become aware of any fact or condition which then
constituted a Default or Event of Default, except for those, if any, described
in reasonable detail in such certificate.
(e) With each of the annual audited Financial Statements
delivered pursuant to SECTION 7.2(a), a certificate of the chief financial
officer of the Borrower (i) setting forth in reasonable detail the calculations
required to establish that the Borrower was in compliance with the covenants set
forth in SECTIONS 9.14, 9.15, 9.16 AND 9.17 during the period covered in such
Financial Statements and as at the end thereof, and (ii) stating that, except as
explained in reasonable detail in such certificate, (1) all of the
representations and warranties of the Borrower contained in this Agreement and
the other Loan Documents are correct and complete in all material respects as at
the date of such certificate as if made at such time, (2) the Borrower is, at
the date of such certificate, in compliance in all material respects with all of
their respective covenants and agreements in this Agreement and the other Loan
Documents, (3) no Default or Event of Default then exists or existed during the
period covered by such Financial Statements, (4) describing and analyzing in
reasonable detail all material trends, changes, and developments for ABFS in
each and all Financial Statements; and (5) explaining the variances of the
figures in the corresponding budgets and prior Fiscal Year financial statements
for ABFS. If such certificate discloses that a representation or warranty is
not correct or complete, or that a covenant has not been complied with, or that
a Default or Event of Default existed or exists, such certificate shall set
forth what action the Borrower has taken or proposes to take with respect
thereto.
(f) Upon the request of the Lender, annual forecasts (to
include forecasted consolidated balance sheets, statements of income and
expenses and statements of cash flow) for the Borrower as at the end of and for
each month of such Fiscal Year.
(g) As soon as available, but in any event not later than
fifteen (15) days after the Borrower's receipt thereof, a copy of all management
reports and management letters
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prepared for the Borrower by BDO Seidman or any other independent certified
public accountants of the Borrower.
(h) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which the Borrower makes
available to its stockholders.
(i) Upon the Lender's request, a copy of each tax return
filed by ABFS with the IRS.
(j) Such additional information as the Lender may from time
to time reasonably request regarding the financial and business affairs of the
Borrower.
7.3 NOTICES TO THE LENDER. The Borrower and its Affiliates shall
notify the Lender, in writing of the following matters at the following times:
(a) Immediately after becoming aware of any Default or Event
of Default.
(b) Immediately after becoming aware of the assertion by the
holder of any capital stock of the Borrower or of any Debt in an outstanding
principal amount in excess of $50,000 that a default exists with respect thereto
or that the Borrower is not in compliance with the terms thereof, or the threat
or commencement by such holder of any enforcement action because of such
asserted default or non-compliance.
(c) Immediately after becoming aware of any Material Adverse
Effect.
(d) Immediately after becoming aware of any pending action,
suit, proceeding, or counterclaim by any Person, or any pending or threatened
investigation by a Governmental Authority, which action, suit, proceeding,
counterclaim or investigation seeks damages in excess of $50,000 (which amount
shall not be fully covered by insurance), or which may otherwise have a Material
Adverse Effect.
(e) Immediately after becoming aware of any pending strike,
work stoppage, unfair labor practice claim, or other labor dispute affecting the
Borrower or any of its Subsidiaries in a manner which could reasonably be
expected to have a Material Adverse Effect.
(f) Immediately after becoming aware of any violation of any
law, statute, regulation, or ordinance of a Governmental Authority affecting the
Borrower which could reasonably be expected to have a Material Adverse Effect.
(g) Any change in the Borrower's name, state of
incorporation, or form of organization, trade names or styles under which the
Borrower will create or acquire Mortgage
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Loans, or to which instruments in payment of Mortgage Loans may be made payable,
in each case at least thirty (30) days prior thereto.
Each notice given under this Section shall describe the subject matter
thereof in reasonable detail, and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
ARTICLE EIGHT - GENERAL WARRANTIES AND REPRESENTATIONS
The Borrower warrants and represents to the Lender that except as
hereafter disclosed to and accepted by the Lender in writing:
8.1 AUTHORIZATION, VALIDITY, AND ENFORCEABILITY OF THIS AGREEMENT
AND THE LOAN DOCUMENTS. The Borrower has the corporate power and authority to
execute, deliver and perform this Agreement and the other Loan Documents, to
incur the Obligations, and to grant to the Lender Liens upon and security
interests in the Collateral. The Borrower has taken all necessary corporate
action (including without limitation, obtaining approval of its stockholders if
necessary) to authorize its execution, delivery, and performance of this
Agreement and the other Loan Documents. No consent, approval, or authorization
of, or declaration or filing with, any Governmental Authority, and no consent of
any other Person, is required in connection with the Borrower's execution,
delivery and performance of this Agreement and the other Loan Documents, except
for those already duly obtained. This Agreement and the other Loan Documents
have been duly executed and delivered by the Borrower, and constitute the legal,
valid and binding obligation of the Borrower, enforceable against it in
accordance with its terms without defense, setoff or counterclaim. Borrower's
execution, delivery, and performance of this Agreement and the other Loan
Documents do not and will not conflict with, or constitute a violation or breach
of, or constitute a default under, or result in the creation or imposition of
any Lien upon the Property of the Borrower by reason of the terms of (a) any
contract, mortgage, Lien, lease, agreement, indenture, or instrument to which
the Borrower is a party or which is binding upon it, (b) any Requirement of Law
applicable to the Borrower, or (c) the certificate or articles of incorporation
or bylaws of the Borrower.
8.2 VALIDITY AND PRIORITY OF SECURITY INTEREST. The provisions of
this Agreement and the other Loan Documents create legal and valid Liens on all
the Collateral in favor of the Lender and such Liens constitute perfected and
continuing Liens on all the Collateral, having priority over all other Liens on
the Collateral securing all the Obligations, and enforceable against the
Borrower and all third parties.
8.3 ORGANIZATION AND QUALIFICATION. The Borrower (a) is duly
incorporated and organized and validly existing in good standing under the laws
of the state of its incorporation, (b) is qualified to do business as a foreign
corporation and is in good standing in the jurisdictions
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set forth on SCHEDULE 8.3 which are the only jurisdictions in which
qualification is necessary in order for it to own or lease its Property and
conduct its business and (c) has all requisite power and authority to conduct
its business and to own its Property.
8.4 CORPORATE NAME; PRIOR TRANSACTIONS. The Borrower has not,
during the past five (5) years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or
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acquired all or substantially all of the assets of any Person, or acquired any
of its Property outside of the ordinary course of business.
8.5 AFFILIATES. SCHEDULE 8.5 is a correct and complete list of the
name and relationship to the Borrower of each and all of the Borrower's
Affiliates. Each Affiliate which is a corporation is (a) duly incorporated and
organized and validly existing in good standing under the laws of its state of
incorporation set forth on SCHEDULE 8.5, and (b) qualified to do business as a
foreign corporation and in good standing in each jurisdiction in which the
failure to so qualify or be in good standing could reasonably be expected to
have a Material Adverse Effect on any such Affiliate and (c) has all requisite
power and authority to conduct its business and own its Property.
8.6 MORTGAGE LOAN FORMS. The Borrower covenants that only Mortgage
Notes and Mortgages on a printed form(s) previously approved in writing by the
Lender shall be used by the Borrower for all Mortgage Notes and Mortgages which
may now exist and which may exist in the future. The Borrower shall not change
or vary the printed terms of such Mortgage Notes and Mortgages without the
Lender's prior written consent, unless such change or variation is expressly
required by any Requirement of Law. The Lender may reasonably withhold its
consent until the Lender receives a satisfactory opinion of the Borrower's
counsel regarding compliance of the revised form of Mortgage Notes and Mortgages
with any Requirement of Law.
8.7 CREDIT GUIDELINES. The Borrower represents and warrants that it
shall not make any changes in its credit guidelines (a copy of which has been
previously furnished by the Borrower to the Lender) without the Lender's prior
written consent which the Lender may withhold in its reasonable discretion. The
Borrower's credit guidelines shall state in detail the credit criteria used by
the Borrower in determining the creditworthiness of Mortgage Debtors with regard
to the Mortgage Loans originated by the Borrower and/or originated by third
parties and acquired by the Borrower.
8.8 FINANCIAL STATEMENTS AND PROJECTIONS. (a) The Borrower has
delivered to the Lender the audited balance sheet and related statements of
income, retained earnings, changes in financial position, and changes in
stockholders equity for the Borrower as of Fiscal Year ending June 30, 1995,
accompanied by the report thereon of the Borrower's independent certified public
accountants. The Borrower has also delivered to the Lender the unaudited
balance sheet and related statements of income and changes in financial position
for the Borrower as of December 31, 1995. Such financial statements are
attached hereto as EXHIBIT 8.8. All such financial statements have been
prepared in accordance with GAAP and present accurately and fairly the financial
position of the Borrower as at the dates thereof and their results of operations
for the periods then ended.
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(b) The latest projections when submitted to the Lender as
required herein represent the Borrower's best estimate of the future financial
performance of the Borrower for the periods set forth therein. The latest
projections have been prepared on the basis of the assumptions set forth
therein, which the Borrower believes are fair and reasonable in light of current
and reasonably foreseeable business conditions at the time submitted to the
Lender.
8.9 CAPITALIZATION. The Borrower's authorized capital stock
consists of one thousand (1,000) shares of common stock, par value $1.00 per
share, of which one thousand (1,000) shares are validly issued and outstanding,
fully paid and non-assessable and are owned beneficially and of record by
American Business Credit, Inc., Pennsylvania corporation.
8.10 SOLVENCY. The Borrower is Solvent prior to and after giving
effect to the making of the Revolving Loans to be made on the Closing Date and
shall remain Solvent during the term of this Agreement.
8.11 TITLE TO PROPERTY. The Borrower has good, indefeasible, and
merchantable title to all of its Property (including, without limitation, the
assets reflected on the December 31, 1995 Financial Statements delivered to the
Lender, except as disposed of in the ordinary course of business since the date
thereof), free of all Liens except for those disclosed in such Financial
Statements and except for Liens in favor of the Lender.
8.12 TRADE NAMES AND TERMS OF SALE. All trade names or styles under
which the Borrower creates or acquires Mortgage Loans, or to which instruments
in payment of Mortgage Loans may be made payable, are listed on SCHEDULE 8.12..
8.13 LITIGATION. Except as set forth on SCHEDULE 8.13, there is no
pending or (to the best of the Borrower's knowledge) threatened, action, suit,
proceeding, or counterclaim by any Person, or investigation by any Governmental
Authority, or any basis for any of the foregoing, which could reasonably be
expected to cause a Material Adverse Effect.
8.14 NO VIOLATION OF LAW. The Borrower is not in violation of any
Requirement of Law, judgment, order, or decree applicable to it which violation
could reasonably be expected to have a Material Adverse Effect.
8.15 NO DEFAULT. The Borrower is not in default with respect to any
note, indenture, loan agreement, mortgage, lease, deed, or other agreement to
which the Borrower or such Subsidiary is a party or by which it is bound, which
default could reasonably be expected to have a Material Adverse Effect.
8.16 TAXES. The Borrower has filed all Federal and other tax returns
and reports required to be filed , and have paid all Federal and other taxes,
assessments, fees and other
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governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable.
8.17 USE OF PROCEEDS. The proceeds of the Revolving Loans are to be
used solely for working capital purposes.
8.17 NO MATERIAL ADVERSE CHANGE. No Material Adverse Effect has
occurred since the date of the Financial Statements delivered to the Lender.
8.19 FULL DISCLOSURE. None of the representations or warranties made
by the Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of the
Borrower in connection with the Loan Documents (including the offering and
disclosure materials delivered by or on behalf of the Borrower to the Lender
prior to the Closing Date), contains any untrue statement of a material fact or
omits any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
8.20 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Borrower of
the Agreement or any other Loan Document.
ARTICLE NINE - AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants to the Lender that, so long as any of the
Obligations remain outstanding or this Agreement is in effect:
9.1 TAXES AND OTHER OBLIGATIONS. The Borrower shall (a) file when
due all tax returns and other reports which it is required to file; (b) pay, or
provide for the payment, when due, of all taxes, fees, assessments and other
governmental charges against it or upon its Property, income and franchises,
make all required withholding and other tax deposits, and establish adequate
reserves for the payment of all such items, and provide to the Lender, upon
request, satisfactory evidence of its timely compliance with the foregoing; and
(c) pay when due all Debt owed by it and all claims of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons, and all other
indebtedness owed by it and perform and discharge in a timely manner all other
obligations undertaken by it; PROVIDED, HOWEVER, so long as Borrower has
notified the Lender in writing, the Borrower need not pay any tax, fee,
assessment, or governmental charge, that (i) it is contesting in good faith by
appropriate proceedings diligently pursued, (ii) the Borrower has established
proper reserves for as provided in GAAP, and (iii) no
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Lien on the Collateral results from such non-payment.
9.2 CORPORATE EXISTENCE AND GOOD STANDING. The Borrower shall
maintain its corporate existence and its qualification and good standing in all
jurisdictions in which the failure to maintain such qualification or good
standing could reasonably be expected to have a material adverse effect on the
Borrower's Property, business, operations, prospects, or condition (financial or
otherwise).
9.3 COMPLIANCE WITH LAW AND AGREEMENTS; MAINTENANCE OF LICENSES.
The Borrower shall comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Departments of Banking of the states of Pennsylvania, Maryland,
New Jersey, and Delaware). The Borrower shall obtain and maintain all licenses,
permits, franchises, and governmental authorizations necessary to own its
Property and to conduct its business as conducted on the Closing Date.
9.4 MERGERS, CONSOLIDATIONS OR SALES. Except as otherwise permitted
under SECTION 6.16, the Borrower shall not enter into any transaction of merger,
reorganization, or consolidation, or transfer, sell, assign, lease, or otherwise
dispose of all or any part of or any interest in the Collateral, or wind up,
liquidate or dissolve, or agree to do any of the foregoing.
9.5 DISTRIBUTIONS; CAPITAL CHANGE; RESTRICTED INVESTMENTS. The
Borrower shall not (a) directly or indirectly declare or make, or incur any
liability to make, any Distribution, or (b) make any change in its capital
structure which could have a Material Adverse Effect.
9.6 TRANSACTIONS AFFECTING COLLATERAL OR OBLIGATIONS. The Borrower
shall not enter into any transaction which could have a Material Adverse Effect.
9.7 GUARANTIES. The Borrower shall not make, issue, or become
liable on any Guaranty, except Guaranties in favor of the Lender without the
Lenders prior written consent which shall not be unreasonably withheld
9.8 PREPAYMENT. The Borrower shall not voluntarily prepay any Debt,
except the Obligations and any Subordinated Debt in accordance with the terms of
this Agreement. Ordinary payments made by the Borrower on any revolving credit
facility owing to another Lender shall not be deemed to be a Debt prepayment.
9.9 TRANSACTIONS WITH AFFILIATES. Except as set forth below, the
Borrower shall not sell, transfer, distribute, or pay any money or Property,
including, but not limited to, any fees or expenses of any nature (including,
but not limited to, any fees or expenses for management services), to any
Affiliate, or lend or advance money or Property to any Affiliate, or invest in
(by capital contribution or otherwise) or purchase or repurchase any stock or
indebtedness, or
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any Property, of any Affiliate, or become liable on any Guaranty of the
indebtedness, dividends, or other obligations of any Affiliate. Notwithstanding
the foregoing, the Borrower may engage in transactions with Affiliates in the
ordinary course of business, in amounts and upon terms fully disclosed to the
Lender, and no less favorable to the Borrower than would be obtained in a
comparable arm's-length transaction with a third party who is not an Affiliate
and may pay such administrative and overhead expenses (including taxes) as are,
from time to time, reasonably allocated to the Borrower by American Business
Credit, Inc. or ABFS.
9.10 INVESTMENT BANKING AND FINDER'S FEES. The Borrower shall not
pay or agree to pay, or reimburse any other party with respect to, any
investment banking or similar or related fee, underwriter's fee, finder's fee,
or broker's fee to any Person in connection with this Agreement. The Borrower
shall defend and indemnify the Lender against and hold them harmless from all
claims of any Person for any such fees, and all costs and expenses (including
without limitation, attorneys' fees) incurred by the Lender in connection
therewith.
9.11 BUSINESS CONDUCTED. The Borrower shall not engage directly or
indirectly, in any line of business other than the businesses in which the
Borrower is engaged on the Closing Date.
9.12 LIENS. The Borrower shall not create, incur, assume, or permit
to exist any Lien on any Collateral, except for the Lien in favor of the Lender.
9.13 FISCAL YEAR. The Borrower shall not change its Fiscal Year.
9.14 ADJUSTED TANGIBLE NET WORTH. The Borrower shall maintain an
Adjusted Tangible Net Worth, determined as of the last day of each month, of not
less than: (a) $900,000 prior to June 29, 1996, and (b) $1,000,000 thereafter.
9.15 UNSUBORDINATED DEBT TO BORROWING BASE. The Borrower shall not
permit the ratio, calculated as of the last day of each month, of (a) the
remainder of all Debt MINUS all Subordinated Debt, to (b) Borrowing Base, to be
more than 3 to 1.
9.16 PROHIBITION ON RECOURSE TRANSACTIONS. The Borrower shall not
engage in any Recourse Transactions.
9.17 LIMIT ON REPURCHASE OBLIGATIONS. The aggregate principal amount
of First Payment Default Mortgage Notes which the Borrower is obligated to
repurchase shall not, at any time, exceed twenty percent (20%) of the Borrower's
then-current Adjusted Tangible Net Worth.
9.18 CHARGE-OFF POLICY. The Borrower shall establish and implement,
in a manner satisfactory to the Lender, a policy for charging off the unpaid
balance of its delinquent Mortgage Notes. Without limiting the generality of
the foregoing, the Borrower's policy shall
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provide that as of the last day of each month the Borrower shall either (a)
charge off the unpaid balance of all Mortgage Notes with respect to which any
payment due thereunder is three hundred sixty-five (365) or more days past due,
as determined on a contractual basis, or (b) sell or transfer such Mortgage
Notes by means of a transaction which is not a Recourse Transaction.
9.19 SUBORDINATED OBLIGATIONS. Except as expressly permitted by the
terms of the applicable subordination agreement, the Borrower shall not directly
or indirectly permit (a) any payment to be made in respect of any Subordinated
Debt; (b) the amendment, rescission, or other modification of the provisions of
any of the Borrower's Subordinated Debt in such a manner as to affect adversely
the Lender's Liens in the Collateral or the prior position of such Liens; or (c)
the prepayment or redemption of all or any part of any Subordinated Debt of the
Borrower.
9.20 ORIGINATION AND DISPOSITION OF BUSINESS MORTGAGE LOANS;
RESERVES. The Borrower shall obtain the Lender's prior consent to the
Borrower's origination or acquisition of a Business Mortgage Loan. The Borrower
shall dispose of all Business Mortgage Loans within four (4) Business Days
following the Date of Origination or acquisition of such Mortgage Loans. The
Borrower shall maintain a reserve, in an amount acceptable to the Lender, for
its Business Mortgage Loans. As long as no Event of Default has occurred and is
continuing, the Borrower shall have a grace period of four (4) Business Days
following origination or acquisition of a Business Mortgage Loan to deliver to
the Lender the original documentation evidencing a Business Mortgage Loan as
required under the terms of this Agreement.
9.21 FURTHER ASSURANCES. The Borrower shall execute and deliver, or
cause to be executed and delivered, to the Lender such documents and agreements,
and shall take or cause to be taken such actions, as the Lender may, from time
to time, request to carry out the terms and conditions of this Agreement and the
other Loan Documents.
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ARTICLE TEN - CONDITIONS TO BORROWINGS
10.1 CONDITIONS PRECEDENT TO MAKING OF REVOLVING LOANS ON THE CLOSING
DATE. The obligation of the Lender to make the initial Revolving Loans are
subject to the following conditions precedent having been satisfied in a manner
satisfactory to the Lender:
(a) This Agreement, the documents listed in SCHEDULE 10.1,
and the other Loan Documents are in form and substance satisfactory to the
Lender and its counsel, and have been executed and delivered by each party
thereto and the Borrower shall have performed and complied with all covenants,
agreements and conditions contained herein and the other Loan Documents which
are required to be performed or complied with by the Borrower before or on such
Closing Date.
(b) After making the initial Revolving Loans (including such
Revolving Loans made pursuant to SECTION 4.7 as reimbursement for fees, costs
and expenses then payable under this Agreement) and with all its obligations
current, the Borrower would have an Excess Availability greater than five
percent (5%) of the Revolving Loans.
(c) All representations and warranties made hereunder and in
the other Loan Documents shall be true and correct as of the Closing Date as if
made on such date.
(d) No Default or Event of Default shall exist or would
exist after giving effect to the Revolving Loans to be made on such date.
(e) The Lender shall have received such opinions of counsel
for the Borrower as the Lender shall request, each such opinion to be in a form,
scope, and substance satisfactory to the Lender.
(f) The Lender shall have received: (i) acknowledgment
copies of proper financing statements, duly filed on or before the Closing Date
under the UCC of all jurisdictions that the Lender may deem necessary or
desirable in order to perfect the Lender's Lien; and (ii) duly executed such
UCC-3 Termination Statements and other instruments, in form and substance
satisfactory to the Lender, as shall be necessary to terminate and satisfy all
Liens on the Collateral.
(g) The Borrower shall have paid all fees and expenses of
the Lender and the Attorney Costs incurred in connection with any of the Loan
Documents and the transactions contemplated thereby (which Attorney Costs shall
not exceed $7,000 and any audit costs shall not exceed $2,000).
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(h) The Lender shall have had an opportunity, if they so
choose, to examine the books of account and other records and files of the
Borrower and to make copies thereof, and to conduct a pre-closing audit which
shall include, without limitation, verification of Mortgage Loans and
Availability, and the results of such examination and audit shall have been
satisfactory to the Lender in all respects.
(i) No portion of the initial Borrowing shall be used to
repay Subordinated Debt.
(j) All proceedings taken in connection with the execution
of this Agreement, all other Loan Documents and all documents and papers
relating thereto shall be satisfactory in form, scope, and substance to the
Lender.
The acceptance by the Borrower of any Revolving Loans shall be deemed to
be a representation and warranty made by the Borrower to the effect that all of
the conditions precedent to the making of such Revolving Loans have been
satisfied, with the same effect as delivery to the Lender of a certificate
signed by the a Responsible Officer of the Borrower.
10.2 CONDITIONS PRECEDENT TO EACH REVOLVING LOAN. The obligation of
the Lender to make each Revolving Loan, including the initial Revolving Loans on
the Closing Date, shall be subject to the further conditions precedent that on
and as of the date of any such extension of credit:
(a) the following statements shall be true, and the
acceptance by the Borrower of any extension of credit shall be deemed to be a
statement to the effect set forth in clauses (i) and (ii), with the same effect
as the delivery to the Lender of a certificate signed by a Responsible Officer,
dated the date of such extension of credit, stating that:
(i) the representations and warranties contained in
this Agreement and the other Loan Documents are correct in all material respects
on and as of the date of such extension of credit as though made on and as of
such date, except to the extent the Lender has been notified by the Borrower
that any representation or warranty is not correct and the Lender have
explicitly waived in writing compliance with such representation or warranty;
and
(ii) no event has occurred and is continuing, or
would result from such extension of credit, which constitutes a Default or an
Event of Default; and
(b) without limiting SECTION 10.1(b), the amount of the
Availability shall be sufficient to make such Revolving Loan without exceeding
the Borrower's Availability or the Total Facility.
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ARTICLE ELEVEN - DEFAULT; REMEDIES
11.1 EVENTS OF DEFAULT. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) any failure to pay the principal of or interest or
premium on any of the Obligations when due, whether upon demand or otherwise;
(b) any representation or warranty made by the Borrower in this
Agreement or by the Borrower in any of the other Loan Documents, any Financial
Statement, or any certificate furnished by the Borrower at any time to the
Lender shall prove to be untrue in any material respect as of the date on which
made or furnished;
(c) any failure by the Borrower to comply with the covenants
contained in Sections 9.14, 9.15, and 9.17of this Agreement;
(d) any default shall occur in the observance or performance
of any of the other covenants contained in Article Eight of this Agreement and
the covenants and agreements contained in other Articles of this Agreement, any
other Loan Documents, or any other agreement entered into at any time to which
the Borrower and the Lender are party and such default continues after thirty
(30) days have elapsed since the earlier of (i) notice of such default by the
Lender to the Borrower and (ii) the date that the Borrower discovers such
default; PROVIDED, HOWEVER, that no such grace period shall apply, and an Event
of Default shall exist promptly upon such default if such default may not, in
the Lender's reasonable determination, be cured by the Borrower during such
grace period; or if any such agreement or document shall terminate (other than
in accordance with its terms or the terms hereof or with the written consent of
the Lender) or become void or unenforceable, without the written consent of the
Lender;
(e) default shall occur with respect to any Debt for
borrowed money (other than the Obligations) in an outstanding principal amount
which exceeds, in the aggregate for all such Debt with respect to which default
shall have occurred, $50,000, or under any agreement or instrument under or
pursuant to which any such Debt or indebtedness may have been issued, created,
assumed, or guaranteed by the Borrower and such default shall continue for more
than the period of grace, if any, therein specified, if the effect thereof (with
or without the giving of notice or further lapse of time or both) is to
accelerate, or to permit the holders of any such Debt or indebtedness to
accelerate, the maturity of any such Debt; or any such Debt or indebtedness
shall be declared due and payable or be required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof;
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(f) the Borrower shall (i) file a voluntary petition in
bankruptcy or file a voluntary petition or an answer or otherwise commence any
action or proceeding seeking reorganization, arrangement or readjustment of its
debts or for any other relief under the federal Bankruptcy Code, as amended, or
under any other bankruptcy or insolvency act or law, state or federal, now or
hereafter existing, or consent to, approve of, or acquiesce in, any such
petition, action or proceeding; (ii) apply for or acquiesce in the appointment
of a receiver, assignee, liquidator, sequestrator, custodian, trustee or similar
officer for it or for all or any part of its Property; (iii) make an assignment
for the benefit of creditors; or (iv) be unable generally to pay its Debts as
they become due;
(g) an involuntary petition shall be filed or an action or
proceeding otherwise commenced against the Borrower seeking reorganization,
arrangement or readjustment of the debts of the Borrower or for any other relief
under the federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing and either
(i) such petition, action or proceeding shall not have been dismissed within a
period of one hundred twenty (120) days after its commencement or (ii) an order
for relief against the Borrower shall have been entered in such proceeding;
(h) a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for the Borrower or for all or any part of
its Property shall be appointed or a warrant of attachment, execution or similar
process shall be issued against any part of the Property of the Borrower;
(i) the Borrower shall file a certificate of dissolution
under applicable state law or shall be liquidated, dissolved or wound-up or
shall commence or have commenced against it any action or proceeding for
dissolution, winding-up or liquidation, or shall take any corporate action in
furtherance thereof;
(j) all or any material part of the Property of the Borrower
shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or of the Borrower shall be
assumed by any Governmental Authority or any court of competent jurisdiction at
the instance of any Governmental Authority, except where contested in good faith
by proper proceedings diligently pursued where a stay of enforcement is in
effect;
(k) any guaranty of the Obligations shall be terminated,
revoked or declared void or invalid, except as permitted by the express terms
thereof;
(l) one or more final, non-appealable judgments or orders
for the payment of money aggregating in excess of $100,000, which amount shall
not be fully covered by insurance, shall be rendered against the Borrower;
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(m) any loss, theft, damage or destruction of any item or
items of Collateral or other Property of the Borrower occurs which
(i) materially and adversely affects the Property, business, operation,
prospects, or condition of the Borrower; or (ii) is material in amount and is
not adequately covered by insurance;
(n) there occurs a Material Adverse Effect;
(o) there is filed against the Borrower any civil or
criminal action, suit or proceeding under any federal or state racketeering
statute (including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred twenty (120) days, and (2) could result in the confiscation
or forfeiture of any material portion of the Collateral;
(p) for any reason other than the failure of the Lender to
take any action available to it to maintain perfection of the Lender's Liens in
the Collateral, pursuant to the Loan Documents, any Loan Document ceases to be
in full force and effect or any Lien with respect to any material portion of the
Collateral intended to be secured thereby ceases to be, or is not, valid,
perfected and prior to all other Liens or is terminated, revoked or declared
void;
(q) default shall occur with respect to any debt for
borrowed money owing by ABFS or any of its Subsidiaries or Affiliates (other
than the Borrower) in an outstanding principal amount which exceeds, in the
aggregate for all such debt with respect to which default shall have occurred,
$500,000, or under any agreement or instrument under or pursuant to which any
such debt or indebtedness may have been issued, created, assumed, or guaranteed
by ABFS or any of its Subsidiaries or Affiliates (other than the Borrower) and
such default shall continue for more than the period of grace, if any, therein
specified, if the effect thereof (with or without the giving of notice or
further lapse of time or both) is to accelerate, or to permit the holders of any
such debt or indebtedness to accelerate, the maturity of any such debt; or any
such debt or indebtedness shall be declared due and payable or be required to be
prepaid (other than by a regularly scheduled required prepayment) prior to the
stated maturity thereof; or
(r) American Business Credit, Inc. shall cease to own one
hundred percent (100%) of the legal and beneficial interest in all of the issued
and outstanding capital stock of the Borrower or American Business Credit, Inc.
shall grant to any Person, other than the Lender, a Lien on any of such capital
stock.
11.2 REMEDIES. (a) If a Default or an Event of Default exists, the
Lender may, in its discretion, do one or more of the following at any time or
times and in any order, without notice to or demand on the Borrower: (i) reduce
the amount of the Total Facility, or the advance rates against Eligible Mortgage
Loans used in computing the Availability, or reduce one or more of the other
elements used in computing the Availability; and (ii) restrict the amount of or
refuse to
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make Revolving Loans. If an Event of Default exists, the Lender may do one or
more of the following, in addition to the actions described in the preceding
sentence, at any time or times and in any order, without notice to or demand on
the Borrower: (i) terminate any obligation to make any further Revolving Loans
under this Agreement; and (ii) declare any or all Obligations to be immediately
due and payable; PROVIDED, HOWEVER, that upon the occurrence of any Event of
Default described in SECTIONS 11.1(e), 11.1(g), or 11.1(h), the Total Facility
shall automatically and immediately expire and all Obligations shall
automatically become immediately due and payable without notice or demand of any
kind; and (iii) pursue its other rights and remedies under the Loan Documents
and applicable law.
(b) If an Event of Default exists, all rights of the
Borrower to collect any payments due under the Collateral and all rights of the
Borrower to exercise the consensual rights which it would otherwise be entitled
to exercise with respect thereto, shall, at the option of the Lender and upon
written notice from the Lender to the Borrower, immediately terminate. The
Borrower acknowledges and agrees that following an Event of Default the Lender
shall be entitled to receive ALL of the Collateral payments, without deduction,
even though this may render the Borrower insolvent and leave the Borrower
without any funds to pay its operating expenses. The Borrower, at the Lender's
request, shall immediately provide the Lender with a current list of the names,
addresses, and Mortgage Loan numbers for all Mortgage Debtors and shall, at the
Lender's request following an Event of Default, immediately direct all Mortgage
Debtors (pursuant to a form of notice prepared by the Lender) to make all
payments due under the Collateral directly to the Lender or to a bank account
designated by the Lender, and the Borrower shall otherwise cooperate with the
Lender in that regard.
(c) If an Event of Default exists: (i) the Lender shall have,
in addition to all other rights, the rights and remedies of a secured party
under the UCC; (ii) the Lender may, at any time, take possession of the
Collateral and keep it on the Borrower's premises, at no cost to the Lender or
remove any part of it to such other place or places as the Lender may desire, or
the Borrower shall, upon the Lender's demand, at the Borrower's cost, assemble
the Collateral and make it available to the Lender at a place reasonably
convenient to the Lender; (iii) the Lender may exchange, waive, or release any
of the Collateral, apply Collateral and direct the order or manner of sale
thereof as the Lender may determine, and settle, compromise, collect, or
otherwise liquidate any Collateral in any manner, all without affecting the
Obligations or the Lender's right to take any action with respect to any other
Collateral; and (iv) the Lender may sell and deliver any Collateral at public or
private sales, for cash, upon credit or otherwise, at such prices and upon such
terms as the Lender deems advisable, in its sole discretion, and may, if the
Lender deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Without in any way requiring notice
to be given in the following manner, the Borrower agrees that any notice by the
Lender of sale, disposition or other intended action hereunder or in connection
herewith, whether required by the UCC or otherwise, shall constitute
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reasonable notice to the Borrower if such notice is mailed by registered or
certified mail, return receipt requested, postage prepaid, or is delivered
personally against receipt, at least five (5) Business Days prior to such action
to the Borrower's address specified in or pursuant to SECTION 14.7. If any
Collateral is sold on terms other than payment in full at the time of sale, no
credit shall be given against the Obligations until the Lender receives payment,
and if the buyer defaults in payment, the Lender may resell the Collateral
without further notice to the Borrower. In the event the Lender seeks to take
possession of all or any portion of the Collateral by judicial process, the
Borrower irrevocably waives: (a) the posting of any bond, surety or security
with respect thereto which might otherwise be required; (b) any demand for
possession prior to the commencement of any suit or action to recover the
Collateral; and (c) any requirement that the Lender retain possession and not
dispose of any Collateral until after trial or final judgment. The Borrower
agrees that the Lender has no obligation to preserve rights to the Collateral or
marshal any Collateral for the benefit of any Person. The Lender is hereby
granted a license or other right to use, without charge, the Borrower's labels,
patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar Property, in advertising or selling any
Collateral, and the Borrower's rights under all licenses and all franchise
agreements shall inure to the Lender's benefit. The proceeds of sale shall be
applied first to all expenses of sale, including attorneys' fees, and then to
the Obligations in whatever order the Lender elects. The Lender will return any
excess to the Borrower and the Borrower shall remain liable for any deficiency.
(d) If an Event of Default occurs, the Borrower hereby waives
all rights to notice and hearing prior to the exercise by the Lender of the
Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing.
(e) If the Lender terminates this Agreement upon an Event of
Default, the Borrower shall pay the Lender, immediately upon termination, an
early termination fee equal to the early termination fee that would have been
payable under ARTICLE FOUR if this Agreement had been terminated on that date
pursuant to the Borrower's election.
11.3 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative. The Lender may,
without limitation, proceed directly against the Borrower to collect the
Obligations without any prior recourse to the Collateral. No failure to
exercise and no delay in exercising, on the part of the Lender, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right,
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remedy, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.
ARTICLE TWELVE - TERM AND TERMINATION
12.1 TERM AND TERMINATION. The term of this Agreement shall end on
the Stated Termination Date. The Lender may terminate this Agreement without
notice upon the occurrence of an Event of Default. Upon the effective date of
termination of this Agreement for any reason whatsoever, all Obligations
(including, without limitation, all unpaid principal of, accrued interest on and
prepayment penalties, if any) shall become immediately due and payable.
Notwithstanding the termination of this Agreement, until all Obligations are
indefeasibly paid and performed in full in cash, the Borrower shall remain bound
by the terms of this Agreement and shall not be relieved of any of its
Obligations hereunder, and the Lender shall retain all of its rights and
remedies hereunder (including, without limitation, the security interest of the
Lender in and all rights and remedies with respect to all then existing and
after-arising Collateral).
ARTICLE THIRTEEN - AMENDMENTS; WAIVER; PARTICIPATIONS; SUCCESSORS
13.1 NO WAIVERS CUMULATIVE REMEDIES. No failure by the Lender to
exercise any right, remedy, or option under this Agreement or any present or
future supplement thereto, or in any other agreement between or among the
Borrower and the Lender, or delay by the Lender in exercising the same, will
operate as a waiver thereof. No waiver by the Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
the Lender on any occasion shall affect or diminish the Lender's rights
thereafter to require strict performance by the Borrower of any provision of
this Agreement. The Lender's rights under this Agreement will be cumulative and
not exclusive of any other right or remedy which the Lender may have.
13.2 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Lender and the Borrower and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
ARTICLE FOURTEEN - MISCELLANEOUS
14.1 SEVERABILITY. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
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14.2 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL
WAIVER. (a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES
OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION ISSUES WITH
RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT
OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW JERSEY;
PROVIDED THAT THE LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW JERSEY OR OF THE UNITED STATES FOR NEW JERSEY, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE BORROWER AND THE LENDER CONSENT, FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.
EACH OF THE BORROWER AND THE LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. NOTWITHSTANDING THE FOREGOING: (1) THE LENDER SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION THE LENDER DEEM NECESSARY OR APPROPRIATE IN
ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (2)
EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS
DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE THOSE JURISDICTIONS.
(c) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO The BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 14.7 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE
LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
14.3 WAIVER OF JURY TRIAL. (a) THE BORROWER AND THE LENDER EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
48
<PAGE>
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY, RELATED PERSON, PARTICIPANT, OR ASSIGNEE, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE
LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
(b) THE BORROWER AGREES THAT IT WILL NOT ASSERT AGAINST THE
LENDER ANY CLAIM FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
14.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
14.5 OTHER SECURITY AND GUARANTIES. The Lender, may, without notice
or demand and without affecting the Borrower's obligations hereunder, from time
to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations, or any other Person in any way obligated to pay all or
any part of the Obligations.
14.6 FEES AND EXPENSES. The Borrower agrees to pay to the Lender,
within two (2) Business Days after demand, all costs and expenses that the
Lender pays or incurs in connection with the negotiation, preparation,
consummation, administration (including all wire transfer charges), enforcement,
and termination of this Agreement, including, without limitation: (a)
49
<PAGE>
Attorney Costs; (b) costs and expenses (including attorneys' and paralegals'
fees and disbursements which shall include the allocated costs of the Lender's
in-house counsel fees and disbursements) for any amendment, supplement, waiver,
consent, or subsequent closing in connection with the Loan Documents and the
transactions contemplated thereby; (c) costs and expenses of lien and title
searches and title insurance; (d) taxes, fees and other charges for filing
financing statements and continuations, and other actions to perfect, protect,
and continue the Lender's Liens in the Collateral (including costs and expenses
paid or incurred by the Lender in connection with the consummation of
Agreement); (e) sums paid or incurred to pay any amount or take any action
required of the Borrower under the Loan Documents that the Borrower fails to pay
or take; (f) costs of appraisals, inspections, and verifications of the
Collateral, including, without limitation, travel, lodging, and meals for
inspections of the Collateral and the Borrower's operations by the Lender's
personnel, plus the Lender's then customary charge for field examinations and
audits and the preparation of reports thereof, as more particularly described in
SECTION 3.4; (g) costs and expenses of forwarding loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the
Collection Account; (h) costs and expenses of preserving and protecting the
Collateral; and (i) costs and expenses (including attorneys' and paralegals'
fees and disbursements which shall include the allocated cost of the Lender's
in-house counsel fees and disbursements) paid or incurred to obtain payment of
the Obligations, enforce the Lender's Liens in the Collateral, sell or otherwise
realize upon the Collateral, and otherwise enforce the provisions of the Loan
Documents, or to defend any claims made or threatened against the Lender arising
out of the transactions contemplated hereby (including without limitation,
preparations for and consultations concerning any such matters). The foregoing
shall not be construed to limit any other provisions of the Loan Documents
regarding costs and expenses to be paid by the Borrower. All of the foregoing
costs and expenses may be charged by the Lender to the Borrower's Loan Account
as Revolving Loans as described in SECTION 4.4.
14.7 NOTICES. Except as otherwise provided herein, all notices,
demands and requests that any party is required or elects to give to any other
shall be in writing, or by a telecommunications device capable of creating a
written record, and any such notice shall become effective (a) upon personal
delivery thereof, including, but not limited to, delivery by overnight mail and
courier service, (b) four (4) days after it shall have been mailed by United
States mail, first class, certified or registered, with postage prepaid, or
(c) in the case of notice by such a telecommunications device, when properly
transmitted, in each case addressed to the party to be notified as follows:
If to the Lender or to BABC: BankAmerica Business Credit, Inc.
200 Lake Drive East, Suite 201
Cherry Hill, NJ 08002
Attention: Mr. Todd Azar
Facsimile: (609) 321-2288
50
<PAGE>
with copies to: Bank of America NT&SA
10124 Old Grove Road
San Diego, CA 92131
Attention: Legal Department
Facsimile: (619) 549-7518
51
<PAGE>
If to the Borrower: HomeAmerican Credit, Inc.
111 Presidential Boulevard. Suite 215
Bala Cynwyd, PA 19004
Attention: Anthony J. Santilli, Jr.
Facsimile: (610) 668-1468
or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
14.8 WAIVER OF NOTICES. Unless otherwise expressly provided herein,
the Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, notice of intent to accelerate the Obligations and
notice of acceleration of the Obligations, as well as any and all other notices
to which it might otherwise be entitled. No notice to or demand on the Borrower
which the Lender may elect to give shall entitle the Borrower to any or further
notice or demand in the same, similar or other circumstances.
14.9 BINDING EFFECT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective representatives,
successors, and assigns of the parties hereto; PROVIDED, HOWEVER, that no
interest herein may be assigned by the Borrower without prior written consent of
the Lender. The rights and benefits of the Lender hereunder shall, if such
Persons so agree, inure to any successor or assignee.
14.10 INDEMNITY OF THE LENDER BY THE BORROWER. The Borrower agrees to
indemnify and hold the Lender and its respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses and disbursements
(including Attorney Costs) of any kind or nature whatsoever which may at any
time (including at any time following repayment of the Revolving Loans) be
imposed on, incurred by or asserted against any such Person in any way relating
to or arising out of this Agreement or any document contemplated by or referred
to herein, or the transactions contemplated hereby, or any action taken or
omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any insolvency proceeding or appellate proceeding) related to or arising out of
this Agreement or the Revolving Loans or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, that the Borrower shall
have no obligation
52
<PAGE>
hereunder to any Indemnified Person with respect to Indemnified Liabilities
resulting solely from the willful misconduct of such Indemnified Person. The
agreements in this Section shall survive payment of all other Obligations.
14.11 FINAL AGREEMENT. This Agreement and the other Loan Documents
are intended by the Borrower and the Lender to be the final, complete, and
exclusive expression of the agreement between them. This Agreement supersedes
any and all prior oral or written agreements relating to the subject matter
hereof. No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any other Loan Document shall be made, except by
a written agreement signed by the Borrower and a duly authorized officer of the
Lender.
14.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrower in separate counterparts, each
of which shall be an original, but all of which shall together constitute one
and the same agreement.
14.13 CAPTIONS. The captions contained in this Agreement are for
convenience of reference only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.
14.14 RIGHT OF SETOFF. In addition to any rights and remedies of the
Lender provided by law, if an Event of Default exists, the Lender is authorized
at any time and from time to time, without prior notice to the Borrower, any
such notice being waived by the Borrower to the fullest extent permitted by law,
to set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing by, such Lender to or for the credit or the account of the Borrower
against any and all Obligations owing to the Lender, now or hereafter existing,
irrespective of whether or not the Lender shall have made demand under this
Agreement or any Loan Document and although such Obligations may be contingent
or unmatured. The Lender agrees promptly to notify the
Borrower and the Lender after any such set-off and application made by
the Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not
affect the validity of such set-off and application.
///
///
///
///
///
///
///
///
53
<PAGE>
14.15 TIME OF THE ESSENCE. the Borrower acknowledges and agrees that
time is of the essence with respect to all of its obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
"LENDER" "BORROWER"
BankAmerica Business Credit, Inc., HomeAmerican Credit, Inc.,
a Delaware corporation a Pennsylvania corporation
/s/ Joseph F. Pignotti /s/ David R. Kenney
______________________________________ ________________________________
Joseph F. Pignotti, David R. Keeney, President
Executive Vice President
/s/ Beverly Santilli
________________________________
Beverly Santilli, Secretary
54
<PAGE>
EXHIBIT "A" TO
LOAN AND SECURITY AGREEMENT
COLLECTION ACCOUNT AGREEMENT
This Collection Account Agreement ("Agreement") is made as of _________,
1996, by and between BankAmerica Business Credit, Inc. ("the Lender"), a
Delaware corporation, located at 200 Lake Drive East, Suite 201, Cherry Hill,
New Jersey 08002; ________________________________________________ ("Bank")
located at ___________________________________________________; and HomeAmerican
Credit, Inc. ("Company"), located at 111 Presidential Boulevard, Suite 215, Bala
Cynwyd, Pennsylvania 19004.
WITNESSETH
Whereas, Company authorizes and/or has established with Bank, at its
office specified above Special Depository Account No. _________________________
with the title ___________________________________ ("Collection Account"); and
Whereas, Company has, pursuant to a financing agreement, pledged,
assigned, and granted to the Lender a continuing security interest in certain
property described therein, including, without limitation, all present and
future accounts, contract rights, instruments, documents, chattel paper and
general intangibles of Company, and all proceeds thereof, which may from time to
time be deposited in the Collection Account.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound, the parties agree as follows.
AGREEMENT
1. DEPOSITS INTO COLLECTION ACCOUNT. Company agrees that all
payments, whether in cash, by check or other instrument, or otherwise, received
by Company from its customers as proceed of the Collateral shall be deposited by
Company in the Collection Account. Company shall furnish to the Lender each day
a collection report setting forth, in such reasonable detail as the Lender may
request, the deposits made during each day in the Collection Account, together
with a copy of each deposit slip issued in connection with such deposits.
2. COLLECTION ACCOUNT DRAWING RIGHTS. Company authorizes and
directs that the sole signatories authorized to withdraw amounts from, to draw
upon, or to otherwise exercise any powers with respect to, the Collection
Account and the funds deposited therein, are and shall
1
<PAGE>
be the officers or agents of the Lender identified on Exhibit "B" attached
hereto and made a part hereof or such other persons as the Lender may from time
to time designate in writing to Bank. Funds deposited into the Collection
Account shall, subject to the Bank's funds availability schedule applied to
corporate (wholesale or non-retail) accounts, at any time or from time to time,
be forwarded by wire transfer to BA Business Credit, Inc., account
number 910-2-693307 ("Concentration Account"), at Chase Manhattan Bank, New
York, New York, ABA No. 021000021, or such other bank as the Lender may from
time to time designate in writing and, on a daily basis, Bank will initiate an
automated clearing house transfer to move collected funds from Bank to the
Concentration Account and the Lender shall have sole control over the Collection
Account and the sole right to exercise and enforce all rights and remedies with
respect thereof. All funds deposited in the Collection Account shall be held by
Bank for the Lender, shall be the property of the Lender, and may be withdrawn
from time to time only by the Lender, and Company shall have no authority to
withdraw any amount from, to draw upon, or to otherwise exercise any powers as a
depositor or owner with respect to the Collection Account and the funds
deposited therein. Company shall not give, and Bank shall not honor, any
instructions to change the authorized signatories on the Collection Account
unless such instructions are given in writing by the Lender.
3. SECURITY INTEREST IN ITEMS TO BE DEPOSITED. The Lender and the
Company agree that all checks, money orders, and other evidences of payment
deposited in the Collection Account, which checks will be made payable to the
Company without the Company's endorsement, from time to time shall be held by
the Bank for the Company or the Lender, as appropriate, and subject to the
security interest of the Lender.
4. CHARGES TO COLLECTION ACCOUNT. The Bank will not charge or
debit, or exercise any right of offset or banker's Lien against, the Collection
Account except as provided below. The Bank may charge the Collection Account
for any items deposited in the Collection Account which are returned for any
reason or otherwise not collected and may charge the Collection Account for all
service charges, commissions, expenses, and other items ordinarily chargeable to
the Collection Account. If there are not sufficient funds in the Collection
Account to pay such amounts, then the Company agrees to pay the Bank within ten
business days of written demand all such amounts, regardless of any other
collection efforts the Bank may have expended. If the Company does not pay the
Bank such amounts within ten business days, then the Lender agrees to pay the
Bank within ten business days of written demand (i) all service charges,
commissions, and expenses ordinarily chargeable to the Collection Account, and
(ii) items deposited in the Collection Account which are returned for any reason
or not collected otherwise. The Company and the Lender acknowledge the Company
is obligated to pay all customary and reasonable Bank charges resulting from the
Collection Account. The Company agrees to reimburse the Lender for any monies
that the Lender forwards to the Bank in settlement of any charges as detailed
above. In the absence of willful misconduct on the part of the Bank, the
Company agrees to bear all risk of loss associated with the Collection Account.
The Bank hereby agrees to accept cash
2
<PAGE>
payment in lieu of balances as compensation for service charges incurred on, or
normally charged to, the Collection Account.
5. COLLECTION ACCOUNT RECORDS. The Company hereby instructs the
Bank and the Bank agrees to furnish to the Lender, with a copy to the Company,
bank statements with respect to the Collection Account which are customarily
provided to customers of the Bank at the times such statements are normally
provided to customers of the Bank, through the normal method of transmission,
U.S. Mail. Additionally, the Company hereby instructs the Bank and the Bank
agrees to make available to the Lender and the Company, upon request, copies of
all daily debit and credit advices of the Collection Account.
6. TERMINATION. Upon receipt of the Lender's prior written
consent, this Agreement may be terminated by Bank or Company at any time by
giving thirty (30) days' prior written notice to the other party.
7. MODIFICATION OF AGREEMENT. This Agreement cannot be changed,
modified or terminated without the written consent of the Lender.
8. NOTICES. All notices or demands by any party on the other
relating to this Agreement shall, except as otherwise provided herein, be in
writing. Notices shall be deemed received within five business days after being
deposited in a United States post office box, postage prepaid, properly
addressed to Company, the Lender, or to Bank at the addresses stated below.
Notices may also effectively be given by transmittal over electronic
transmitting devices such a facsimile machine, if the party to whom the notice
is being sent has such a device in its office, provided a complete copy of any
notice so transmitted shall also be mailed in the same manner as required for a
mailed notice. Notices given by electronic transmitting devices shall be deemed
effective on the day of transmission. All notices, including telephone notices,
daily debit and credit advices, monthly statements of account, photocopies,
returned items and general correspondence shall be sent to the following
addresses and, where applicable given at the following telephone numbers or to
such other person or address as any party shall designate to the others from
time to time in writing:
A. BankAmerica Business Credit, Inc.
200 Lake Drive East, Suite 201
Cherry Hill, NJ 08002
Attention: Cindy Contini
Telephone: 609-321-2211
Facsimile: 609-321-2299
B. HomeAmerican Credit, Inc.
111 Presidential Boulevard, Suite 215
3
<PAGE>
Bala Cynwyd, Pennsylvania 19004
Attention: Anthony J. Santilli, Jr.
Telephone: 610-668-2440
Facsimile: 610-668-1468
C. ___________________
___________________
Attention: ______________
Telephone: ______________
Facsimile: ______________
9. NOTICE OF LEGAL PROCESS. If Bank receives any notice of legal
process of any kind relating to Company, Bank shall use its best efforts to give
reasonable oral notice to the Lender of such legal process.
10. INDEMNIFICATION. Company hereby agrees to indemnify and hold
Bank harmless from and against any and all liabilities, losses, costs, and
expenses incurred directly or indirectly by Bank as a consequence of Bank
executing this Agreement and performing its obligations hereunder, including
reasonable attorney's fees. Under no circumstances will Bank be liable for any
consequential or special damages to Company, the Lender or any third party, as a
result of this Agreement.
11. SUCCESSORS AND ASSIGNS; GOVERNING LAW. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
parties and shall be governed by and construed in accordance with the laws of
the state of New Jersey.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by the parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed an original but all such
counterparts together shall constitute one and the same instrument.
13. AGREEMENT DULY AUTHORIZED. All parties hereto represent and
warrant that they have taken all actions and obtained all authorizations,
consents and approvals as are conditions precedent to their authority to execute
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date shown above.
"LENDER"
BankAmerica Business Credit, Inc.,
1
<PAGE>
a Delaware corporation
By______________________________________
Joseph F. Pignotti,
Executive Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
2
<PAGE>
"COMPANY"
HomeAmerican Credit, Inc.
a Pennsylvania corporation
By______________________________________
David R. Keeney, President
"BANK"
________________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
Accepted this __ day of _________, 1996.
3
<PAGE>
EXHIBIT "A"
TO
COLLECTION ACCOUNT AGREEMENT
AUTHORIZED PERSONS - COMPANY
NAME SIGNATURE EXEMPLAR
1. ________________________ ________________________
2. ________________________ ________________________
3. ________________________ ________________________
1
<PAGE>
EXHIBIT "B"
TO
COLLECTION ACCOUNT AGREEMENT
AUTHORIZED PERSONS - THE LENDER
NAME SIGNATURE EXEMPLAR
1. ________________________ ________________________
2. ________________________ ________________________
3. ________________________ ________________________
1
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
PARENT SUBSIDIARY JURISDICTION
OF INCORPORATION
American Business Financial American Business Pennsylvania
Services, Inc. (ABFS) Credit, Inc. ("ABC")
ABFS ABFS 1995-1, Inc. Delaware
ABFS ABFS Securities, Inc. Delaware
ABC Processing Service Center, Inc. Pennsylvania
ABC HomeAmerican Credit, Inc.(1) Pennsylvania
ABC HomeAmerican Consumer Pennsylvania
Discount, Inc.
ABC American Business Leasing, Inc. Pennsylvania
ABC ABC Holdings Corporation Pennsylvania
ABC American Business Finance Delaware
Corporation
ABFS ABFS 1995-2, Inc. Delaware
ABFS ABFS 1996-1, Inc. Delaware
(1) HomeAmerican Credit, Inc. is doing business as Upland Mortgage.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRATION'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,345,269
<SECURITIES> 0
<RECEIVABLES> 18,866,927
<ALLOWANCES> 707,424
<INVENTORY> 0
<CURRENT-ASSETS> 25,053,896
<PP&E> 2,271,756
<DEPRECIATION> 818,861
<TOTAL-ASSETS> 46,894,163
<CURRENT-LIABILITIES> 24,338,954
<BONDS> 0
0
0
<COMMON> 2,353
<OTHER-SE> 4,389,162
<TOTAL-LIABILITY-AND-EQUITY> 46,894,163
<SALES> 0
<TOTAL-REVENUES> 12,378,733
<CGS> 0
<TOTAL-COSTS> 8,576,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 681,228
<INTEREST-EXPENSE> 2,667,858
<INCOME-PRETAX> 3,120,663
<INCOME-TAX> 801,967
<INCOME-CONTINUING> 2,318,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,318,696
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
