UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
IXI QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
I I TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9742
HARBOURTON FINANCIAL SERVICES L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1573349
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2530 S. Parker Road, Suite 500, Aurora, CO
80014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 745-
3661
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Preferred Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
At May 14, 1997, registrant had 41,169,558 Preferred Units
outstanding.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31,
1996 3
Consolidated Statement of Net Assets in
Liquidation as of March 31, 1997 (unaudited) 4
Consolidated Statement of Operations for the
Three Months Ended March 31, 1996 (unaudited) 5
Consolidated Statement of Changes in Net Assets
in Liquidation For the Three Months Ended March
31, 1997 (unaudited) 6
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1996 (unaudited) 7
Notes to Consolidated Financial Statements
March 31, 1997 (unaudited) 8
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
PART II
SIGNATURES 23
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
Consolidated Balance Sheet
as of December 31, 1996
(After Corporate Reorganization -- Note 1)
(in thousands)
<S> <C>
ASSETS
Cash and cash equivalents $ 1,951
Mortgage loans held for sale, net 214,609
Mortgage loans held for investment, net of 3,178
reserves of $307
CMO bonds, residual interests, investment
securities and SMATs, net of accumulated 3,583
amortization of $577
Notes receivable - affiliates 587
Investment in loans repurchased from GNMA 40,127
pools, net of reserves of $1,120
Advances receivable, net of reserves of $3,984 5,709
Mortgage servicing rights, net of accumulated 41,773
amortization of $9,268
Deferred acquisition, transaction and borrowing
costs, net of accumulated amortization of $1,075 2,825
Property, equipment and leasehold improvements,
net of accumulated amortization of $4,567 5,773
Investment in affiliates 405
Due from affiliates --
Excess cost over identifiable tangible and
intangible assets acquired, net of accumulated 2,633
amortization of $577
Bulk and flow sales of servicing receivables 52,658
Other assets 8,309
Total Assets $384,120
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Installment purchase and sale obligations - $ 1,303
servicing
Foreclosure, repurchase and indemnification
reserves 6,403
Lines of credit & short-term borrowings 212,388
Servicing facility 54,400
Notes payable - affiliates 38,412
Due to affiliates 1,678
Accounts payable and other liabilities 10,604
Total Liabilities 325,188
Partners' Capital 58,932
Total Liabilities and Partners' Capital $384,120
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
(a partnership in liquidation)
Consolidated Statement of Net Assets in Liquidation
as of March 31, 1997
(in thousands)
<S> <C>
Assets, at estimated realizable values:
Cash and cash equivalents $ 7,147
Mortgage loans held for sale, net 17,556
Mortgage loans held for investment, net 2,327
Investment securities 678
Notes receivable - affiliates 464
Investment in loans repurchased from GNMA pools, net 3,117
Advances receivable 11,345
Mortgage servicing rights 41,318
Property, equipment and leasehold improvements 2,477
Bulk and flow sales of servicing receivables 29,197
Other assets 10,493
Total Assets $126,119
Less - Liabilities, at estimated settlement amounts:
Installment purchase and sale obligations -
servicing $ 800
Foreclosure, repurchase and indemnification
reserves 7,172
Lines of credit 47,270
Accounts payable and other liabilities 13,272
Total Liabilities 68,515
Net Assets in Liquidation $57,604
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
Consolidated Statement of Operations
Three Months Ended March 31, 1996
(unaudited) (in thousands)
<S> <C>
REVENUES
Loan servicing fees $6,288
Ancillary income 1,948
Gain on sale of defaulted loans to affiliates 664
Investment income net of interest expense on escrows 1,385
Total servicing revenue 10,285
Gain on sale of mortgage loans and related mortgage
servicing rights 4,929
Interest income, net of related warehouse interest expense 927
Other production income 3,429
Total production income - gross 9,285
Other investment and interest income 530
Total Revenue 20,100
EXPENSES
Servicing costs 2,255
Prepayment costs and interest curtailments 569
Provision for foreclosure losses 2,093
Amortization of mortgage servicing rights less net
impairment recovery 2,344
Total servicing expenses 7,261
Loan production and secondary marketing costs 7,950
General and administrative costs, including management fees 1,488
Interest expense - term loans 775
Other interest expense 475
Other interest expense-affiliates, net of interest
income-affiliates 345
Other amortization and depreciation 478
Total Expenses 18,772
Net Income $ 1,328
Net Income per Preferred Unit, based on 41,902 weighted
average Preferred Units outstanding $ .03
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
(a partnership in liquidation)
Consolidated Statement of Changes in Net Assets in Liquidation
For the Three Months Ended March 31, 1997
(in thousands)
<S> <C>
Net partners' equity at December 31, 1996 $58,932
Net loss during the three months ended March 31, 1997 (2,718)
Adjustment of carrying values of assets and
liabilities to estimated realizable values and
estimated settlement amounts, respectively, at
March 31, 1997, upon adoption of liquidation
basis of accounting:
Mortgage loans held for sale 1,393
Mortgage servicing rights 9,006
Property, equipment and leasehold
improvements (779)
Foreclosure, repurchase and indemnification
reserves (2,400)
Other liabilities related to liquidation (5,830)
Other (814)
Net assets in liquidation at March 31, 1997 $57,604
Preferred Units outstanding at March 31, 1997 41,170
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
<TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1996
(unaudited) (in thousands)
<S> <C>
Cash Flows From Operating Activities:
Net Income $ 1,328
Adjustments to reconcile net income to net cash from
operating activities:
Gain on sale of defaulted loans (664)
Gain on sale associated with retained servicing (6,357)
Mortgage servicing rights valuation recovery (946)
Amortization and depreciation 3,767
Provision for foreclosure losses 2,093
Changes in operating assets and liabilities:
Mortgage loans held for sale and investment, net (24,898)
Advances receivable (13,471)
Other assets (7,150)
Due to/from affiliates 5,687
Accounts payable and other liabilities (2,196)
Net Cash Flows From Operating Activities (42,807)
Net Cash Flows From Investing Activities:
Purchase of short-term investments (5,300)
Funding of deferred acquisition and transaction costs (147)
Amortization of CMO bonds, residual interests, and
investment securities 98
Proceeds from sale of SMAT 3,064
Purchases of property and equipment (1,004)
Net Cash Flows From Investing Activities (3,289)
Cash Flows from Financing Activities:
Principal payments on term loans (2,067)
Funding of deferred loan costs (20)
Term debt advances 3,444
Net borrowings on lines of credit and short-term
borrowings 15,569
Net borrowings from notes payable-affiliates 27,482
Net Cash Flows From Financing Activities 44,408
Decrease in cash and cash equivalents (1,688)
Cash and cash equivalents at beginning of period 2,273
Cash and cash equivalents at end of period $ 585
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
</TABLE>
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
(a partnership in liquidation)
Notes to Consolidated Financial Statements
December 31, 1996 and March 31, 1997
Note 1. Description of Business and Organization
Harbourton Financial Services L.P. ("HBT") was created pursuant
to a Certificate of Limited Partnership filed with the Secretary
of the State of Delaware on August 12, 1987 and a limited
partnership agreement (the "HBT Agreement") (as amended and
restated) dated as of August 12, 1987. Harbourton Mortgage
Corporation (the "General Partner") was incorporated in the
State of Delaware on August 12, 1987. The General Partner
manages the business and affairs of HBT and has exclusive
authority to act on behalf of HBT. HBT's termination date is
December 31, 2050 unless sooner dissolved or terminated pursuant
to the HBT Agreement. See Note 4, Liquidation of Partnership.
Harbourton Assignor Corporation ("Assignor Limited Partner") is
the sole limited partner of HBT. Pursuant to the HBT Agreement,
the Assignor Limited Partner holds for the benefit of the
holders of the Preferred Units all of the limited partnership
interests underlying such Preferred Units. Each Preferred Unit
is evidenced by a beneficial assignment certificate, which is
issued by the Assignor Limited Partner and HBT in fully
registered form. Each holder of a Preferred Unit is entitled to
all of the economic rights and interests in the underlying
limited partnership interest held by the Assignor Limited
Partner, and each holder of a Preferred Unit has the right to
direct the Assignor Limited Partner on voting and certain other
matters with respect to such underlying limited partnership
interests.
HBT's primary business activity is mortgage banking, which is
conducted through its wholly-owned subsidiary Harbourton
Mortgage Co., L.P. ("HMCLP"). Mortgage banking consists of (i)
mortgage loan servicing activities, including the acquisition
and sale of mortgage servicing rights, (ii) the origination and
purchase of mortgage loans, including the securitization and
sale of mortgage loans with the related servicing rights
retained or released, and (iii) investments in other mortgage-
related securities. HMCLP is an approved Government National
Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation
("Freddie Mac") licensee. HBT, HMCLP and its general partners
Harbourton Funding Corporation ("HFC"), and HMCLP's 50% equity
investment in HTP Financial, L.P. are hereinafter collectively
referred to as the "Partnership" unless otherwise noted.
In general, each quarter the Partnership allocates 99% and 1% of
profits and losses to the Preferred Unitholders and General
Partner, respectively, up to a maximum amount as defined in the
HBT Agreement ("Participating Amount"). This Participating
Amount generally does not exceed the product of the cash or fair
value of property contributed to the Partnership in
consideration for the issuance of Preferred Units and the
appropriate weighted average Treasury Index. Profits that
exceed this Participating Amount, up to an additional amount as
defined, are allocated 75%, 12.5% and 12.5% to the Preferred
Unitholders ("Preferred Amount"), General Partner and
Subordinated Unitholder, respectively. Preference amounts
("Second Preference") beyond these levels, up to an additional
amount as defined, are then allocated 62.5%, 18.75% and 18.75%
to the Preferred Unitholders, General Partner and Subordinated
Unitholder, respectively. Preference amounts in excess of the
Second Preference are then allocated 55%, 22.5%, and 22.5% to
the Preferred Unitholders, General Partner, and Subordinated
Unitholder, respectively. Cash distributions are allocated
approximately in the same manner as allocated taxable profits.
Losses are allocated up to the amount of the sum of the
undistributed Preferred Amount allocations, Second Preference
allocations and Participating Amount allocations to the
Preferred Unitholders, Subordinated Unitholders, and General
Partner in proportion to their respective interest in the sum of
such undistributed allocations.
After the allocation of profits or losses and the payment of or
provision for all debts, liabilities and obligations of the
Partnership, liquidating distributions are allocated to the
General Partner and Preferred and Subordinated Unitholders in
accordance with and in proportion to their respective capital
account balances as determined in accordance with the HBT
Agreement. At March 31, 1997, the Subordinated Unitholders
capital account balances totaled $0. Management believes that
there will be no liquidating distributions distributed to
Subordinated Unitholders.
Note 2. Summary of Significant Accounting Policies
(Consolidated Balance Sheet at December 31, 1996 and
Statement of Operations and Cash Flows for the Three
Months Ended March 31, 1996 - Going Concern Basis of
Accounting)
Basis of Presentation - The consolidated financial statements
primarily include the accounts of HBT, HMCLP, HFC, and a 50%
equity interest in HTP. All intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents - Cash and cash equivalents consist of
cash on hand and in banks and short-term instruments with
original maturities of three months or less.
Mortgage Loans Held for Sale - Mortgage loans held for sale are
stated at the lower of aggregate cost, net of deferred loan
production fees and costs, or market value.
Mortgage Loans Held for Investment - Mortgage loans held for
investment are stated at the amount of unpaid principal, reduced
by an allowance for loan losses, based upon management's
evaluation of the economic conditions of borrowers, loan loss
experience, collateral value and other relevant factors, which
approximates the lower of cost or market.
Investment in Loans Repurchased from GNMA Pools - The
Partnership has repurchased loans from GNMA pools which it
services.
Advances Receivable - Funds advanced for mortgagor escrow
deficits, foreclosures and other investor requirements are
recorded as advances receivable in the consolidated statements
of financial condition. Such receivables are generally
recoverable from the insurers or guarantors, which are generally
government agencies, or the mortgagors through increased monthly
payments, as applicable. A reserve for uncollectible items has
been established for those receivables which management
estimates are not recoverable.
Mortgage Servicing Rights - The Partnership capitalizes the cost
of mortgage servicing rights and amortizes such costs in
proportion to, and over the period of, estimated future
undiscounted net servicing income.
Collateralized Mortgage Obligation ("CMO") Bonds, Residual
Interests, Investment Securities, and Securitized Mortgage
Acceptance Trusts ("SMATs") - The Partnership classifies its CMO
bonds, residual interests, and SMATs portfolio as trading
securities since the securities are being held with the intent
of selling them in the near term. Accordingly, such assets are
stated at fair value and unrealized gains and losses are
recognized in earnings. The Partnership classifies its
investment securities as available for sale. Accordingly, such
assets are stated at fair value and unrealized gains and losses
are recognized as a component of partners' capital.
Deferred Acquisition, Transaction and Borrowing Costs - Deferred
borrowing costs are amortized over the life of the servicing
facility agreement using the straight-line method which
approximates the effective interest method. Deferred
acquisition and transaction costs are amortized over a period of
five to fifteen years using the straight-line method.
Property, Equipment and Leasehold Improvements - Property,
equipment and leasehold improvements are stated at cost less
accumulated depreciation. Depreciation is computed using the
straight-line method over the assets' useful lives, which are
estimated to be 30 years for depreciable real property and 2 to
15 years for furniture, fixtures and equipment. Leasehold
improvements are amortized using the straight-line method over
the lease life.
Investment in Affiliates - HMCLP recorded its 50% investment in
HTP based on the equity method of accounting for the year ended
December 31, 1996.
Excess Cost Over Identifiable Tangible and Intangible Assets
Acquired - Excess cost over identifiable tangible and intangible
assets acquired is amortized using the straight-line method over
15 years.
Loan Servicing Fees and Servicing Costs - Loan servicing fees
are based on a contractual percentage of the unpaid principal
balance of the related loans and are recognized in income as
earned. Servicing costs are charged to operations as incurred.
Investment Income Net of Interest Expense - Investment income
net of interest expense includes primarily the gain on sale of
reinstated loans, interest income on investment in loans
repurchased from GNMA pools, net of interest expense on related
borrowings to fund such investments and the earnings derived
from the servicing portfolio custodial balances.
Loan Production Fees and Costs - Certain direct loan production
fees and costs associated with mortgage loans held for sale are
deferred until the related loans are sold.
Foreclosure, Repurchase, and Indemnification Reserves -
Foreclosure reserves are maintained to provide for an estimate
of the losses associated with delinquent loans and loans in
foreclosure or bankruptcy ("Defaulted Loans"). The reserves are
established based on management's expectations and historical
loss experience and are adjusted periodically through charges to
current operations to reflect changes in the Defaulted Loans,
net of actual charge-offs. In addition, the Partnership
establishes foreclosure reserves related to Defaulted Loans for
each purchased servicing asset at the time of acquisition in
accordance with its existing reserve policy.
As part of its production operations, the Partnership is subject
to certain repurchase and indemnification provisions through its
contractual agreements with the investors to which it sells
mortgage loans. These provisions generally provide that the
Partnership repurchase from the investor, mortgage loans in
which an origination (i.e., underwriting) defect is discovered.
The investor, however, may require the Partnership to indemnify
them against losses that result from an origination defect
rather than repurchase the loan. The reserve is based on
management's expectations and historical loss experience. The
provisions for this reserve are charged against loan production
and secondary marketing costs.
Income Taxes - The Partnership is a limited partnership and is
not liable for federal income taxes, however, individual
unitholders have liability for income taxes. As a result of the
provisions currently in the tax law, the Partnership could be
taxed as a corporation for federal income tax purposes for its
tax year beginning on January 1, 1998.
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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Note 3. Summary of Significant Accounting Policies
(Consolidated Statement of Net Assets in Liquidation
as of March 31, 1997 and Consolidated Statement of
Changes in Net Assets in Liquidation For the Three
Months Ended March 31, 1997 - Liquidation Basis of
Accounting)
All statements contained herein, as well as statements made in
press releases and oral statements that may be made by the
Partnership, the General Partner or by officers, directors or
employees of the General Partner acting on the Partnership's
behalf, that are not statements of historical fact, constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the
liquidation or operations of the Partnership to be materially
different from historical results or from any future results
expressed or implied by such forward-looking statements. Among
the factors that could materially affect such forward-looking
statements are the following: market conditions in the mortgage
banking industry, prevailing interest rates, the realization of
contingent payments owing to the Partnership, the Partnership's
ability to dispose of its remaining assets at expected prices,
the settlement of and provision for contingent liabilities and
claims, the length of time required to complete the disposition
of the Partnerships assets and the Partnership's liquidation,
the actual costs incurred in the liquidation, general business
and economic conditions and other risk factors described from
time to time in the Company's reports filed with the Securities
and Exchange Commission ("SEC"). All cautionary statements made
herein should be read as being applicable to all forward-looking
statements by or on behalf of the Partnership wherever they
appear, including, but not limited to, all subsequent written
and oral forward-looking statements.
Basis of Presentation - The consolidated financial statements
primarily include the accounts of HBT, HMCLP, and HFC. All
intercompany accounts and transactions have been eliminated in
consolidation. As a result of the Partnership's determination to
liquidate during January 1997 (see Note 3), the Partnership has
changed its basis of accounting from a going concern basis to a
liquidation basis of accounting. Under the liquidation basis of
accounting, carrying values of assets are presented at estimated
net realizable values and liabilities are presented at estimated
settlement amounts. The basis for determining estimated net
realizable values and estimated settlement amounts are described
below. In addition, secured obligations have been offset
against the related assets as described below.
Mortgage Loans Held for Sale - Mortgage loans held for sale are
stated at their estimated realizable value, including the value
for the related servicing rights, which was determined based on
the mandatory and optional forward commitments matched against
applicable loans and servicing rights. Mortgage loans held for
sale have been offset by the Partnership's related secured
obligation totaling approximately $193.9 million.
Mortgage Loans Held for Investment - Mortgage loans held for
investment are stated at the amount of unpaid principal, reduced
by an allowance for loan losses, based upon management's
evaluation of the economic conditions of borrowers, loan loss
experience, collateral value and other relevant factors, which
approximates estimated net realizable value.
Investment Securities - Investment securities are stated at
their estimated realizable value which was determined based on a
third-party sale which occurred subsequent to March 31, 1997.
Investment in Loans Repurchased from GNMA Pools - The investment
in loans repurchased from GNMA pools consists of the amount of
unpaid principal, interest, and funds advanced for mortgagor
escrow deficits, foreclosures and other investor requirements. A
reserve for uncollectible items (based on loan types and loan
loss experience) has been established for those receivables
which management estimates are not recoverable. The investment
in loans repurchased from GNMA pools, which approximates
estimated net realizable value, has also been offset by the
Partnership's related secured obligation totaling approximately
$28.1 million.
Advances Receivable - Advances receivable, which approximates
estimated net realizable value, represents funds advanced for
mortgagor escrow deficits, foreclosures and other investor
requirements and are generally recoverable from the insurers or
guarantors, which are generally government agencies, or the
mortgagors through increased monthly payments, as applicable. A
reserve for uncollectible items (based on loan types and loan
loss experience) has been established for those receivables
which management estimates are not recoverable and is reflected
in foreclosure, repurchase and indemnification reserves in the
accompanying consolidated financial statements.
Mortgage Servicing Rights - Mortgage servicing rights are stated
at their net estimated realizable value which was determined
based on recently completed transactions and current third-party
negotiations.
Property, Equipment and Leasehold Improvements - Property,
equipment and leasehold improvements are stated at estimated
realizable value which was determined based on current third-
party negotiations and management's estimate of liquidation
value.
Foreclosure, Repurchase, and Indemnification Reserves -
Foreclosure reserves are maintained to provide for an estimate
of the losses associated with delinquent loans and loans in
foreclosure or bankruptcy ("Defaulted Loans"). The reserves are
established based on management's expectations and historical
loss experience.
As part of its production operations, the Partnership is subject
to certain repurchase and indemnification provisions through its
contractual agreements with the investors to which it sells
mortgage loans. These provisions generally provide that the
Partnership repurchase from the investor, mortgage loans in
which an origination (i.e., underwriting) defect is discovered.
The investor, however, may require the Partnership to indemnify
them against losses that result from an origination defect
rather than repurchase the loan. The reserve is based on
management's expectations and historical loss experience.
Lines of Credit - The Partnership's lines of credit consists of
working capital revolving lines of credit which are secured by
mortgage loans held for investment, mortgage servicing rights,
and advances receivable and substantially all other assets of
the Partnership not secured by other debt.
Other Assets and Liabilities - All other assets and liabilities
not described above are stated at book value which management
believes approximates estimated realizable values and estimated
settlement amounts. In addition, in accordance with liquidation
basis accounting, a liability has been established for
anticipated operating expenses in excess of operating revenues
during the liquidation period.
Note 4. Liquidation of Partnership
On January 31, 1997, pursuant to the HBT Agreement (as amended
and restated) the Board of Directors of the General Partner
determined that there was a substantial risk that an Adverse Tax
Consequence (as defined below) would occur within one year and
that it was in the best interests of the Partnership and the
holders of beneficial interests in the Partnership
(collectively, "Unitholders") to sell or otherwise dispose of
all of the assets of the Partnership and to liquidate the
Partnership as soon as reasonably practicable. Pursuant to
Section 8.10 of the HBT Agreement, in the event that the General
Partner reasonably believes that within one year there is a
substantial risk of the Partnership being treated for federal
income tax purposes as a corporation (an "Adverse Tax
Consequence") as a result of, among other things, a
reclassification of the Partnership as a corporation under the
Revenue Act of 1987 (the " 1987 Act") for its first taxable year
beginning after December 31, 1997, the General Partner may take
certain actions (described further below), including the
liquidation of the Partnership, upon not less than 30 days prior
written notice to the Partners and the Unitholders unless, prior
to the taking of such action, the Unitholders shall have voted
against such action by a vote of at least two-thirds of all
Limited Partnership Interests in the Partnership. Affiliates of
HBT and the General Partner are the owners of approximately 85%
of the issued and outstanding Preferred Units, and thus, no vote
will be taken.
Under existing tax law, the Partnership is treated as a
partnership and is not separately taxed on its earnings.
Rather, income (or loss) of the Partnership is allocated to the
Unitholders pursuant to the terms of the HBT Agreement (see Note
1) and is included by them in determining their individual
taxable incomes, subject to certain special rules applicable to
publicly traded partnerships. By contrast, a corporation is
subject to tax on its net income and any dividends or
liquidating distributions paid to stockholders are then subject
to a second tax at the stockholder level. Accordingly, under
current tax law, the Partnership enjoys a tax advantage over a
similarly situated entity which is taxed as a corporation.
The 1987 Act generally requires publicly traded partnerships to
be taxed as corporations. However, under the 1987 Act existing
partnerships, such as the Partnership, were allowed to continue
to be treated as partnerships for federal income tax purposes
for all taxable years commencing on or prior to December 31,
1997. Thereafter, the Partnership will be treated as a
corporation for federal income tax purposes unless contrary
legislation is enacted prior to December 31, 1997.
From time to time, legislation has been introduced in Congress
that would have the effect of extending the December 31, 1997
grandfather date or eliminating altogether the relevant
provisions of the 1987 Act. However, to date no such
legislation has passed both houses of Congress and, in the best
judgment of the General Partner, it was doubtful that any such
legislation would be enacted prior to December 31, 1997.
Accordingly, the General Partner believed that there was a
substantial risk that an Adverse Tax Consequence would occur for
the Partnership's first taxable year beginning after
December 31, 1997.
Pursuant to Section 8.10 of the HBT Agreement, the General
Partner has the right to take one of several actions in the
event that it believes there is a substantial risk that an
Adverse Tax Consequence will occur within one year. For
instance, the General Partner has the power to (a) modify,
restructure or reorganize the Partnership as a corporation, a
trust or other type of legal entity, (b) liquidate the
Partnership, (c) halt or limit trading in the Units or cause the
Units to be delisted from the NYSE, or (d) impose restrictions
on the transfer of Units. In addition, the General Partner can
continue the Partnership and allow it to be treated as a
corporation for federal income tax purposes.
The General Partner believes that the consolidation taking place
in the mortgage banking industry makes it difficult for the
Partnership to compete effectively with market participants that
are larger and more readily able to recognize substantial
economies of scale in their operations than the Partnership.
The General Partner believes that the loss of partnership tax
treatment would eliminate an offsetting competitive advantage
which the Partnership has. These factors weighed in favor of
liquidating the Partnership rather than attempting to continue
the Partnership's business in its present or some other form.
Although no assurances can be given, the General Partner
believes that substantially all of the Partnership's assets can
be disposed of and liabilities can be settled in an orderly
fashion by the end of 1997.
Disposition of Assets - See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidation of Assets"
Wind Down of Operations - Upon completion of the disposition of
the Partnership's assets and settlement of liabilities, the
Partnership will be required to wind down the operations of the
disposed units including, without limitation, the production,
servicing and related general administration functions including
financial reporting and accounting. Upon completion of the wind
down functions, the Partnership will be required to terminate
employees not hired by the purchasers of the Partnership's
business units. Towards this end, the Partnership has announced
and provided notice of termination (in accordance with the
Worker's Adjustment and Retraining Notification Act, WARN) to
all employees located in its corporate headquarters located in
Aurora, Colorado (approximately 140 employees). Accordingly, at
March 31, 1997, the Partnership has provided for anticipated
severance costs which include a component to induce certain
notified employees to remain until the liquidation is complete
in order to ensure the Partnership meets all its obligations to
its investors and creditors. Additional announcements and
additional severance costs may be needed based on the outcome of
the disposition of the Partnership's other business units (e.g.,
the servicing operation).
Liquidating Distribution - Once the assets of the Partnership
have been sold and the Partnership's creditors have been paid in
full, or adequate provision for such payment has been made, the
General Partner will cause the Partnership to pay liquidating
distributions to Unitholders upon the surrender of their Units.
While the exact timing and nature of any liquidating
distributions cannot be precisely determined at this time, the
Partnership will not make any distributions prior to the fourth
quarter of 1997. However, because of the nature of the
Partnership's business, it is possible that Unitholders may
receive a portion of their distributions in the form of an
interest in another entity, such as a liquidating trust. Any
such interests would not, in all likelihood, be transferable by
a Unitholder.
During 1997, the Partnership may incur additional expense and
liabilities associated with its liquidation, including, without
limitation, expenses incurred in connection with the disposition
of its business operations and its winding down. In order for
distributions to be made to the Unitholders at the end of 1997,
the General Partner will have to make provision for the post-
1997 liabilities of the Partnership, by means of a liquidating
trust, an arrangement with another entity, or other procedure.
The post-1997 liabilities represent obligations of the
Partnership which will survive beyond December 31, 1997, such as
indemnification or repurchase obligations with respect to
mortgage loans and servicing rights sold or to be sold in prior
periods or in 1997 or indemnification obligations with respect
to business operations sold or to be sold in 1997. The actual
amount of such additional expenses to be incurred by the
Partnership in 1997 may be different from those estimated and is
dependent in part on factors beyond the Partnership's control,
such as the timing and difficulty of the disposition of the
Partnership's assets and the winding-down process. In
addition, the net amount ultimately available for distribution
from the liquidated Partnership depends on many unpredictable
factors, such as the amounts ultimately realized on the sale of
the remaining assets, carrying costs of the assets prior to
sale, collection of receivables, settlement of claims and
commitments, the amount of revenue and expenses of the
Partnership until completely liquidated and other uncertainties.
Federal Income Tax Consequences of Liquidation - Any taxable
gain or loss recognized by the Partnership on the sale of its
assets in connection with the liquidation will be allocated
among the Partners for income tax purposes in accordance with
the HBT Agreement. Assuming that a Partner's interest in the
Partnership is liquidated entirely for cash during 1997, then
the Partner will realize gain or loss to the extent that the
cash received is greater or less than the Partner's adjusted
income tax basis in his or her partnership interest, and the
Partner will be permitted to claim any losses from the
Partnership which were previously suspended under the rules
regarding losses from passive activities. Special rules would
apply, however, if a Partner did not receive a full distribution
in cash of his or her interest in the Partnership during the
year. After the payment of or provision for all debts, liabilities
and obligations and the allocation of income (loss), liquidating
distributions are allocated to the General Partner and Preferred
and Subordinated Unitholders in accordance with and in
proportion to their respective capital account balances as
determined in accordance with the HBT Agreement.
Note 5. Contingencies
On March 18, 1997, HMCLP and certain other affiliates were sued
in Federal Court in the Eastern District of Virginia by a
mortgage loan borrower alleging, on behalf of the borrower and
on behalf of an alleged class of similarly situated borrowers
from HMCLP since March 17, 1996, that certain payments made by
HMCLP to a mortgage broker in connection with the plaintiff's
loan, and loans to members of the purported class, violated
Section 8 of RESPA. This suit is in the early stages of
discovery. Management expects to defend the suit vigorously.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
All statements contained herein, as well as statements made in
press releases and oral statements that may be made by the
Partnership, the General Partner or by officers, directors or
employees of the General Partner acting on the Partnership's
behalf, that are not statements of historical fact, constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the
liquidation or operations of the Partnership to be materially
different from historical results or from any future results
expressed or implied by such forward-looking statements. Among
the factors that could materially affect such forward-looking
statements are the following: market conditions in the mortgage
banking industry, prevailing interest rates, the realization of
contingent payments owing to the Partnership, the Partnership's
ability to dispose of its remaining assets at expected prices,
the settlement of and provision for contingent liabilities and
claims, the length of time required to complete the disposition
of the Partnerships assets and the Partnership's liquidation,
the actual costs incurred in the liquidation, general business
and economic conditions and other risk factors described from
time to time in the Company's reports filed with the Securities
and Exchange Commission ("SEC"). All cautionary statements made
herein should be read as being applicable to all forward-looking
statements by or on behalf of the Partnership wherever they
appear, including, but not limited to, all subsequent written
and oral forward-looking statements.
The following is management's discussion and analysis of the
financial condition and results of operations of the
Partnership. The discussion and analysis should be read in
conjunction with the financial statements included herein.
Recent Developments
Liquidation of Partnership and Subsequent Events
On January 31, 1997, pursuant to the HBT Agreement (as amended
and restated) the Board of Directors of the General Partner
determined that there was a substantial risk that an Adverse Tax
Consequence (as defined below) would occur within one year and
that it was in the best interests of the Partnership and the
holders of beneficial interests in the Partnership
(collectively, "Unitholders") to sell or otherwise dispose of
all of the assets of the Partnership and to liquidate the
Partnership as soon as reasonably practicable. Pursuant to
Section 8.10 of the HBT Agreement, in the event that the General
Partner reasonably believes that within one year there is a
substantial risk of the Partnership being treated for federal
income tax purposes as a corporation (an "Adverse Tax
Consequence") as a result of, among other things, a
reclassification of the Partnership as a corporation under the
Revenue Act of 1987 (the " 1987 Act") for its first taxable year
beginning after December 31, 1997, the General Partner may take
certain actions (described further below), including the
liquidation of the Partnership, upon not less than 30 days prior
written notice to the Partners and the Unitholders unless, prior
to the taking of such action, the Unitholders shall have voted
against such action by a vote of at least two-thirds of all
Limited Partnership Interests in the Partnership. Affiliates of
HBT and the General Partner are the owners of approximately 85%
of the issued and outstanding Preferred Units, and thus, no vote
will be taken.
Liquidation of Assets
During the first quarter of 1997, the Partnership began the
process of liquidating its assets. The disposition of the
Partnership's significant assets can be summarized into the
following categories: i) wholesale production operations, ii)
retail production operations, iii) remaining servicing assets,
iv) servicing operation, and v) other assets.
Wholesale Production Operations
On March 31, 1997, the Partnership's subsidiary, HMCLP, sold its
wholesale loan production branch operations to CrossLand
Mortgage Corp. ("CrossLand"), a subsidiary of First Security
Corporation, for approximately $4 million in cash. In addition,
HMCLP will receive an earnout payment based on the aggregate
principal amount of loans generated, between $1.5 billion and
$4.0 billion, from the transferred facilities during the
thirteen months following the closing date of March 31, 1997.
If the aggregate principal amount of loans generated is less
than $1.5 billion, the Partnership will not receive an earnout
payment. If CrossLand maintains the same volume of wholesale
loan originations as HMCLP experienced in 1996 (approximately
$2.8 billion), this earnout payment would total approximately
$3.3 million. Management has established a receivable for 75%
of this estimated amount which was recorded as a component of
other assets in the accompanying March 31, 1997 consolidated
financial statements. The purchase did not include the
wholesale mortgage loan pipeline being processed by HMCLP at the
time of the sale. These excluded loans will be processed and
closed for HMCLP's account by CrossLand pursuant to an
administrative services agreement between the parties.
Management has recognized the inherent value of the pipeline and
related costs to process and close such loans through a
reduction in the net operating expenses in excess of operating
revenues.
Retail Production Operations
On March 19, 1997, HMCLP sold a majority of its retail loan
production branch operations to an unaffiliated third party for
an amount approximately equal to the net book value of the fixed
assets owned by the retail branches. The purchase did not
include the retail mortgage loan pipeline being processed by
HMCLP at the time of the sale. These excluded loans will be
processed and closed for HMCLP's account by the unaffiliated
third party pursuant to an administrative services agreement
between the parties. Management has recognized the inherent value
of the pipeline and related costs to process and close such loans
through a reduction in the net operating expenses in excess of
operating revenues.
Remaining Servicing Assets
As of March 31, 1997, the Partnership's servicing portfolio
totaled approximately $3.2 billion. Effective April 30, 1997,
the Partnership executed a purchase and sale agreement with an
unrelated third party for the sale of the Partnership's
servicing rights related to non-recourse FNMA and Freddie Mac
loans and GNMA loans with unpaid principal balances totaling
approximately $1.5 billion. The transfer of the servicing
responsibilities is expected to occur in June and July 1997. Net
proceeds from the sale are expected to be approximately $25.2
million and will be used to reduce the Partnership's servicing
facility.
The Partnership, with the assistance of Bayview Financial
Trading Group, Inc., is continuing to market the remaining
servicing portfolio. Based on preliminary discussions with
potential buyers for such servicing and signed letters of
intent, the Partnership estimates that it will receive net
proceeds of approximately $16.1 million. The net proceeds
received for the sale of the remaining servicing portfolio could
be impacted by changes in market conditions including, without
limitation, changes in prevailing interest rates.
Servicing Operation
The Partnership is currently in negotiations with an unrelated
third-party to sell its National Servicing Center located in
Scottsbluff, Nebraska. The Partnership's Servicing Center,
including the operations, facilities, fixed assets and
employees, is being marketed for sale along with the
Partnership's GNMA pool buyout and reinstatement unit, and its
streamline refinance capability. The carrying value of the
remaining facilities and fixed assets is reflected at estimated
net realizable value in the accompanying March 31, 1997
consolidated financial statements.
Mortgage Loans Held for Investment
During the first quarter of 1997, the Partnership sold a portion
of its mortgage loans held for investment portfolio totaling
approximately $3.0 million to an unrelated third party for
approximately $2.8 million. An unrealized loss of approximately
$0.2 million was provided for in the December 31, 1996
consolidated financial statements and realized during the first
quarter of 1997. It is anticipated that any additional mortgage
loans repurchased during 1997 and the remaining portfolio will
be marketed and sold in a similar fashion.
CMO Bonds, Residual Interests, Investment Securities and SMATs
During the first quarter of 1997, the Partnership sold its CMO
bond and residual interest portfolio, except for certain non-
economic residual interests (with a book value of $0), totaling
approximately $1.2 million to unrelated third parties for
approximately $3.1 million. An unrealized gain of approximately
$1.9 million was provided for, in accordance with SFAS No. 115,
in the December 31, 1996 consolidated financial statements. The
Partnership is continuing to market for sale its remaining
portfolio. The estimated realizable value of the remaining
portfolio was approximately $0.7 million at March 31, 1997 which
was based on actual sale amounts received in April 1997.
Investment in Loans Repurchased from GNMA Pools
The Partnership has negotiated a sales transaction with an
unrelated third party to acquire a
substantial portion of its investment in loans repurchased from
GNMA pools. The Partnership has sold these
assets for an amount that approximates its net book value at
March 31, 1997.
Other
The Partnership is currently in the process of marketing its
remaining assets (not discussed above) for sale. In addition,
the Partnership will market and dispose of its remaining
operating receivables and operating payables which are reflected
at their current estimated liquidation amounts and settlement
amounts, respectively, in the accompanying consolidated
statement of net assets in liquidation as of March 31, 1997.
Operating receivables (reflected as other assets in the
accompanying consolidated financial statements) consists
primarily of production operation receivables, mortgage loan
interest receivables, trade receivables, and prepaid assets
(e.g., insurance and maintenance contracts). Operating payables
(reflected as accounts payable and other liabilities in the
accompanying consolidated financial statements) consists
primarily of production operation payables, interest payables on
lines of credit and other debt, and trade payables and an
estimate of operating expenses in excess of operating revenues
expected to be incurred through liquidation. The actual amounts
realized from the sale of the Partnership's assets and the
actual settlement amounts of the Partnership's remaining
liabilities could differ materially from their current carrying
values.
Reduction in Borrowing Facilities
On May 1, 1997, the Partnership reduced its credit facilities to
a $30 million revolving servicing facility, a $37.5 million
working capital line of credit, and a $200 million revolving
committed warehouse facility.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 18, 1997, HMCLP and certain other affiliates were sued
in Federal Court in the Eastern District of Virginia by a
mortgage loan borrower alleging, on behalf of the borrower and
on behalf of an alleged class of similarly situated borrowers
from HMCLP since March 17, 1996, that certain payments made by
HMCLP to a mortgage broker in connection with the plaintiff's
loan, and loans to members of the purported class, violated
Section 8 of RESPA. This suit is in the early stages of
discovery. Management expects to defend the suit vigorously.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
1) Sale by Harbourton Mortgage Co., L.P. and
Harbourton Funding Corporation to CrossLand
Mortgage Corp.
b. Reports on Form 8-K:
1) Press Release, dated February 3, 1997 (announcing the
decision to liquidate the Partnership and the sale
of HBT's wholesale production operations to CrossLand
Mortgage Corp. (8-K filed February 4, 1997)
2) Notice to Unitholders, dated February 6, 1997 (8-K filed
February 13, 1997)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HARBOURTON MORTGAGE CO., L.P.
By: Harbourton Mortgage Corporation, its
General Partner
Signatures Title Date
s/ Jack W. Schakett Chief Executive Officer and May 15, 1997
Director of
Jack W. Schakett the General Partner
(Principal Executive
Officer)
s/ Paul A. Szymanski Chief Financial Officer and May 15, 1997
Secretary
Paul A. Szymanski
s/ Brent F. Dupes Executive Vice President May 15, 1997
Brent F. Dupes
s/ Bill L. Reid III Chief Accounting Officer May 15, 1997
Bill L. Reid III
EXHIBIT EXHIBIT EXHIBIT EXHIBIT EXHIBIT EXHIBIT
Asset Purchase Agreement
Relating to the Acquisition
of Certain Assets of
Harbourton Mortgage Co., L.P.
and Harbourton Funding Corporation
by
CrossLand Mortgage Corp.
February 28, 1997
Asset Purchase Agreement
This Asset Purchase Agreement (this AAgreement@), is
entered into as of the 28th day of February, 1997, by and among
Harbourton Mortgage Co., L.P., a Delaware limited partnership
(AHarbourton@), Harbourton Financial Services L.P., a Delaware
limited partnership (AHFS@), Harbourton Funding Corporation, a
Delaware corporation (AHarFunding@) (Harbourton, HFS and
HarFunding collectively, the ASeller@),, Harbourton Holdings,
L.P., a Delaware limited partnership (AHarbourton Holdings@),
and CrossLand Mortgage Corp., a Utah corporation (ACrossLand@).
Recitals
A. Harbourton operates a wholesale and retail
mortgage banking business.
B. HFS owns 99% of the partnership units of
Harbourton. HarFunding owns the remaining 1% of the partnership
units of Harbourton, and is a wholly owned subsidiary of HFS.
C. Harbourton Holdings owns approximately an 85%
beneficial interest in HFS.
D. The Seller is willing to sell, and CrossLand is
willing to purchase, certain of the Seller's assets related to
its wholesale residential (one to four family) loan production
(newly originated) branch operations (the ABusiness@), as more
specifically identified below, upon the terms and subject to the
conditions set forth in this Agreement.
Agreement
In consideration of the foregoing recitals and of the
mutual covenants and promises contained herein, and for other
good and valuable consideration, the receipt and adequacy of
which the parties hereby acknowledge, the parties hereto agree
as follows:
1. Purchase and Sale of Assets and Certain Related
Transactions.
1.1 Purchase and Sale. Subject to the terms and
conditions of this Agreement, and for the consideration set
forth herein, Seller shall at the Closing (as defined in Section
0, below) sell, convey, assign, transfer and deliver to
CrossLand, and CrossLand shall purchase and acquire from Seller,
all of Seller's right, title and interest in and to (together,
the APurchased Assets@):
(a) certain branch offices of Harbourton,
as listed in Schedule 1.1(a) hereto (the AHarbourton
Branches@);
(b) all furniture, fixtures and equipment
located or used on the premises of the Harbourton
Branches at the Closing Date including without
limitation those items listed on Schedule 1.1(b)-1
hereto (the AFixed Assets@), except those specific
items identified on Schedule 1.1(b)-2 hereto (the
AExcluded Assets@);
(c) the name AWestern Sunrise Mortgage@ and
all variations thereof (the AService Mark@), pursuant
to a Service Mark Assignment substantially in the form
attached hereto as Exhibit A (the AService Mark
Assignment@);
(d) all advertising and promotional
materials and similar materials relating to the
Harbourton Branches, the Fixed Assets and the Service
Mark; and
(e) all contracts and leases listed on
Schedule 1.1(e) hereto (the AAssigned Contracts@);
(f) all prepaid obligations of the Seller
related to the Fixed Assets, the Harbourton Branches
and the Assigned Contracts, including without
limitation those listed on Schedule 1.1(f) (the
APrepaid Assets@).
1.2 Exclusion of Pipeline Loans. Except as
specifically provided herein, and subject to the provisions of
the Administrative Services Agreement described in Section 1.6,
excluded from the Purchased Assets are all Harbourton loans
which, as of the Closing Date, (i) have a rate lock (regardless
of the closing status of the loan) and such rate lock has not
expired (ARate-Locked Loans@), or (ii) if not rate locked,
either have been registered with Harbourton and have an active
Harbourton loan number, or have been submitted to Harbourton for
approval (ANonrate-Locked Loans;@ collectively, with the Rate-
Locked Loans, the APipeline Loans@). The parties agree to
identify the Pipeline Loans, and prepare and attach a Schedule
1.2 to this Agreement listing such loans, as soon as possible
after the Closing Date, but in any event within five (5)
business days after the Closing Date.
1.3 Limited Assumption of Liabilities. Subject
to the terms and conditions of this Agreement, from and after
the Closing Date, CrossLand shall assume, pursuant to an
Assignment, Assumption and Bill of Sale substantially in the
form attached hereto as Exhibit B (the AAssignment and
Assumption Agreement@), the following specific liabilities and
no others (the AAssumed Liabilities@):
(a) Liabilities and obligations identified on
Schedule 1.3 to this Agreement; and
(b) Liabilities and obligations pursuant to the
Assigned Contracts as listed on Schedule 1.1(e)
(excluding any liability or obligation relating to or
arising out of such Assigned Contracts as a result of
(A) any breach of such Assigned Contracts occurring
prior to the Closing Date, (B) any violation of law,
breach of warranty, tort or infringement occurring
prior to the Closing Date, or (C) with respect to the
foregoing items (A) and (B), any related charge,
complaint, action, suit, proceeding, hearing,
investigation, claim or demand).
1.4 Seller's Other Debts, Liabilities and
Obligations. The parties hereby acknowledge and agree that all
debts, claims, contracts, obligations and liabilities whatsoever
of Seller, other than under the Assumed Liabilities, shall be
the sole responsibility of Seller, and that CrossLand is not
assuming, and shall not be obligated or deemed to assume, any
other debt, claim, contract, obligation or liability of Seller.
1.5 Sample Employment Agreement. Subject to the
terms and conditions of this Agreement and conditioned upon the
closing of this transaction, CrossLand shall at the Closing
enter into an employment agreement with Cindy Sample (ASample@)
in substantially the form attached to this Agreement as Exhibit
C (the ASample Employment Agreement@), pursuant to which
CrossLand will employ Sample for a term of two (2) years from
the Closing Date.
1.6 Administrative Services Agreement. Subject
to the terms and conditions of this Agreement and conditioned
upon the closing of this transaction, Harbourton and CrossLand
shall at the Closing enter into an Administrative Services
Agreement, in substantially the form set forth in Exhibit D
attached hereto, pursuant to which CrossLand shall perform those
functions reasonably necessary to close the Pipeline Loans on
behalf of Harbourton on the terms and subject to the conditions
set forth therein.
1.7 Retail Administrative Services Agreement.
In the event Harbourton has not closed a sale or other
disposition of the retail origination branches not acquired by
CrossLand hereunder, as identified in Schedule 1.7 hereto (the
ARetail Branches@) on or prior to the Closing Date, the parties
shall enter into a Retail Administrative Services Agreement, in
substantially the form set forth in Exhibit E attached hereto,
pursuant to which, for a period of ninety (90) days from and
after the Closing Date, CrossLand will provide management
oversight services to Harbourton for such Retail Branches
(excluding daily operating functions). CrossLand will use its
reasonable best efforts to have Kevin Ryan, Ed Muckerman and the
retail underwriting management provide such services. On or
before the Closing Date, Harbourton shall identify the Retail
Branches that will be subject to the Retail Administrative
Services Agreement and prepare a supplement to Schedule 1.7
listing such Retail Branches.
1.8 Goodwill. The parties acknowledge and agree
that along with the sale of the Purchased Assets, at the
Closing, the Seller is transferring to the Purchaser Seller's
goodwill associated with the Business.
2. Purchase Price.
2.1 Purchase Price. Subject to the terms and
conditions of this Agreement, CrossLand shall pay to Seller for
the purchase of the Purchased Assets, an amount equal to (a) Two
Million Three Hundred Fifty Thousand Dollars ($2,350,000), plus
(b) an Incentive Earnout, as defined below (together, the
AFranchise Value Purchase Price@), plus (c) the net book value
of the Fixed Assets as reflected on Harbourton's financial
statements as of the Closing Date calculated in accordance with
generally accepted accounting principles as historically applied
by Harbourton (the AFixed Asset Purchase Price@), plus (d) an
amount equal to the amount of Prepaid Assets as of the Closing
Date (the APrepaid Assets Purchase Price;@ the Franchise Value
Purchase Price, the Fixed Asset Purchase Price and the Prepaid
Assets Purchase Price being together called the APurchase
Price@).
2.2 Incentive Earnout.
(a) Calculation. The Incentive Earnout
shall be an amount equal to (i) Twenty-five basis
points (.25%) multiplied by (ii) the Eligible
Production Volume, as defined herein. AEligible
Production Volume@ shall mean such of the cumulated
Production Volume, as defined below, closed by all the
Harbourton Branches during the Incentive Period, as
defined below, in excess of $1.5 billion and less than
$4 billion. In no event shall the Incentive Earnout
exceed an aggregate total of $6.25 million.
(b) Definition of AProduction Volume.@
AProduction Volume@ for each Harbourton Branch shall
mean the principal dollar amount of those loans closed
by such branch, excluding any Pipeline Loans except as
specifically provided for herein.
(c) Definition of AIncentive Period.@
AIncentive Period@ shall mean that period commencing
on the Closing Date and ending on the same numerical
day as the Closing Date in the thirteenth (13)
calendar month after the month in which the Closing
Date falls. For example, if the Closing Date is
January 13, 1997, the Incentive Period shall extend
from January 13, 1997 to February 13, 1998.
(d) Consolidation of Branches. In the
event CrossLand consolidates any of the Harbourton
Branches with any CrossLand branch office, for
purposes of the Incentive Earnout, the Production
Volume for such consolidated branch shall be equal to
(i) the Production Volume of such consolidated branch
multiplied by (ii) the Volume Percentage (as defined
below). The AVolume Percentage@ shall be calculated
as (w) the Production Volume of the consolidating
Harbourton Branch for the twelve (12) full calendar
months just prior to the Closing Date, divided by (x)
the sum of the Production Volume of both the
consolidating Harbourton Branch and the consolidating
CrossLand branch for the twelve (12) full calendar
months just prior to the Closing Date. In the event
that either the consolidating Harbourton Branch or
CrossLand Branch has been in existence less than
twelve (12) full calendar months prior to the Closing
Date, the AVolume Percentage@ shall be calculated as
(y) the Production Volume of the consolidating Har
bourton Branch for the three (3) full calendar months
just prior to the Closing Date, divided by (z) the sum
of the Production Volume of both the consolidating
Harbourton Branch and the consolidating CrossLand
branch for the three (3) full calendar months just
prior to the Closing Date.
2.3 Payment of the Purchase Price. CrossLand
shall pay the Purchase Price to Seller as follows:
(a) Closing Cash Payment. CrossLand shall
pay to Seller at the Closing in cash or other
immediately available funds (the AClosing Cash Pay
ment@) at such place and to such party as Harbourton
may direct, an amount equal to (i) Two Million Three
Hundred Fifty Thousand Dollars ($2,350,000), plus
(ii) the net book value of the Fixed Assets as
reflected on Harbourton's financial statements dated
as of December 31, 1996, attached hereto as Schedule
2.3(a), less an amount equal to the estimated
depreciation on the Fixed Assets for the period from
December 31, 1996 up to the Closing Date (the ADecem
ber 31 Net Value@).
(b) Post-Closing Calculation of the Fixed
Asset Purchase Price and Payment Adjustment. Within
thirty (30) days following the Closing Date, the
parties shall calculate the Fixed Asset Purchase Price
and shall prepare and attach a Schedule 2.3(b)
reflecting such Fixed Asset Purchase Price.
(1) In the event that the Fixed
Asset Purchase Price is greater than the Decem
ber 31 Net Value, CrossLand shall pay to Seller
in cash or other immediately available funds the
difference between the Fixed Asset Purchase Price
and the December 31 Net Value within thirty (30)
days after the determination of the Fixed Asset
Purchase Price.
(2) In the event that the Fixed
Asset Purchase Price is less than the December 31
Net Value, Seller shall pay to CrossLand in cash
or other immediately available funds the
difference between the December 31 Net Value and
the Fixed Asset Purchase Price within thirty (30)
days after the determination of the Fixed Asset
Purchase Price.
(c) Post-Closing Calculation of the Prepaid
Assets Purchase Price and Payment. Within thirty (30)
days following the Closing, Seller shall prepare and
attach a supplement to Schedule 1.1(f) reflecting the
amount of Prepaid Assets as of the Closing Date. Upon
approval by CrossLand of such supplement to Schedule
1.1(f) and the Prepaid Assets Purchase Price reflected
therein, which such consent or challenge to the
supplement must be made within ten (10) days of Cross
Land's receipt of such supplement and which approval
may not be unreasonably withheld, CrossLand shall pay
to Seller in cash or other immediately available funds
an amount equal to the Prepaid Assets Purchase Price.
(d) Incentive Earnout Payments.
(i) Monthly Incentive Payments.
The Incentive Earnout, if any, shall be paid in
monthly installments (the AMonthly Incentive
Payments@), payable within thirty (30) days after
the end of the calendar month in which such
Monthly Incentive Payment accrues. The Monthly
Incentive Payments shall accrue only on that
portion of the Production Volume closed during
the month that meets the definition of Eligible
Production Volume and shall in any event cease
accruing upon the expiration of the Incentive
Period. Until the Production Volume meets the
definition of Eligible Production Volume, within
thirty (30) days after the end of each calendar
month, CrossLand shall deliver to Harbourton a
report of the Production Volume closed during the
month in the form of Exhibit F.
(ii) Calculation of Monthly
Incentive Payments. Upon accrual of a Monthly
Incentive Payment, the Monthly Incentive Payment
shall be calculated as an amount equal to (i)
that portion of Production Volume for the
Harbourton Branches closed during the month that
qualifies as Eligible Production Volume,
multiplied by (ii) Twenty-five basis points
(.25%).
(iii) Adjustments to
Calculations. On each payment date for the
Monthly Incentive Payment, CrossLand shall
deliver to Harbourton the calculation (and
supporting worksheets, as appropriate) with
respect to such payment in the form of Exhibit F.
Harbourton shall have fifteen (15) days to object
to such calculation, after which period Harbour
ton shall be deemed to have accepted such calcu
lation. In the event Harbourton objects to the
amount of such payment it shall notify CrossLand
of such objection within said fifteen (15) day
period. Thereafter, the parties shall work
together to resolve such dispute. If the parties
are unable to resolve the dispute within sixty
(60) days of the receipt by CrossLand of the
notice of objection, then the calculation of the
applicable payments shall be made by an
independent, nationally recognized CPA firm, to
be mutually agreed upon by the parties, which
determination by such CPA firm shall be binding
on the parties. The parties shall share equally
the costs associated with any such determinations
made by the CPA firm.
2.4 Allocation of Purchase Price. The Purchase
Price shall be allocated among the Purchased Assets as set forth
in Schedule 0 to this Agreement.
2.5 Transfer Taxes. CrossLand shall pay any
sales, use or other taxes imposed by reason of the transfer of
the Purchased Assets as provided herein; provided, however, that
Seller shall be solely responsible for its income taxes.
CrossLand and Seller shall cooperate to seek exemptions, if
available, from sales tax which may be applicable to the
transfers contemplated hereby.
2.6 Proration of Expenses. The parties shall
prorate any expenses related to the Purchased Assets paid
before, on or after the Closing Date that cover a period in
which the Closing Date falls and that are not accounted for as
part of the Prepaid Assets or that are not otherwise expressly
provided for in this Agreement. Seller shall promptly notify
vendors of the sale of its assets to CrossLand and shall request
that vendors bill Seller for services provided and goods used
prior to the Closing Date, and bill CrossLand for services
provided and goods used on or after the Closing Date. In the
event that either Seller or CrossLand receives invoices that
include charges for services provided or goods used during the
period in which the Closing Date falls, the party receiving the
invoice will promptly process the invoice and pay for all the
services accruing during the month in which the Closing Date
falls. A copy of the invoice with the proration calculation
shall be provided to the other party with a reimbursement
request. The reimbursement payment shall be made within fifteen
(15) calendar days of the receipt of the request. Invoices that
only include charges for periods for which the other party is
solely responsible shall be promptly forwarded to and paid
directly by the responsible party.
3. Closing.
3.1 Closing. The closing of the transactions
contemplated herein (the AClosing@) shall be held, subject to
the provisions of Sections 0 and 0 of this Agreement, at the
offices of Ray, Quinney & Nebeker, 79 South Main Street, Salt
Lake City, Utah, 10:00 a.m. local time on Monday, March 31,
1997, or at such other time and date or such other location
agreed by the parties (the AClosing Date@).
3.2 Conveyances at Closing.
(a) Instruments. To effect the transfers
described in Section 0 hereof, Seller shall, on the
Closing Date, subject to the terms and conditions of
this Agreement, execute and deliver to CrossLand:
(i) one or more bills of sale,
deeds, assignments, endorsements and other
instruments of conveyance and transfer (together,
the ABills of Sale@) reasonably requested by
CrossLand, conveying to CrossLand in the
aggregate all the Purchased Assets together with
the goodwill of Seller associated with the
Business; the Bills of Sale shall warrant to
CrossLand that the Purchased Assets are
transferred to CrossLand free and clear of all
debts, liens, security interests, mortgages,
trusts, infringements, claims and other
liabilities or encumbrances whatsoever except as
specifically permitted by this Agreement;
(ii) the Assignment and
Assumption Agreement;
(iii) the Service Mark
Assignment;
(iv) such lessor and landlord
consents as are required under any of the leases
assigned in the Assigned Contracts;
(v) such other consents,
approvals or authorizations of third parties
necessary to transfer and assign the Purchased
Assets to CrossLand except for leases of office
equipment and the sublease of the Aurora,
Colorado, office;
(vi) such other certificates and
instruments as shall be reasonably requested by
CrossLand in order to vest in CrossLand title in
and to the Purchased Assets in accordance with
the provisions of this Agreement.
(b) Form of Instruments. All of the
foregoing instruments shall be in form and substance,
and shall be executed and delivered in a manner,
reasonably satisfactory to CrossLand and Harbourton
and their respective legal counsel.
3.3 Other Deliveries at Closing. In addition to
the foregoing matters, subject to the terms and conditions of
this Agreement, at the Closing:
(a) Purchased Assets. Seller shall deliver
to CrossLand possession of all the Purchased Assets at
their respective locations on the date hereof (or if
subsequently acquired, at the location where used by
Seller).
(b) Purchase Price. CrossLand shall
deliver to Seller the Closing Cash Payment.
(c) Non-Compete Agreement. David Mills
(AMills@) shall execute and deliver a Non-Compete
Agreement in substantially the form attached hereto as
Exhibit G (the ANon-Compete Agreement@).
(d) Administrative Services Agreement. The
parties shall have executed and delivered the
Administrative Services Agreement.
(e) Retail Administrative Services
Agreement. The parties shall have executed and
delivered the Retail Administrative Services Agree
ment, if applicable pursuant to Section 0 above.
(f) Other Deliveries. Each party shall
take such other actions, and shall execute and deliver
such other instruments or documents, as shall be
required under Sections 0 and 0 hereof.
4. Representations and Warranties of the Seller.
Each of Seller hereby represents and warrants to CrossLand as
follows:
4.1 Organization. Harbourton is a limited
partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. HFS is a
limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware. Harbourton
Funding is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
Harbourton Holdings is a limited partnership duly organized,
validly existing and in good standing under the laws of the
State of Delaware. HFS owns 99% of the partnership units of
Harbourton. HarFunding owns the remaining 1% of the partnership
units of Harbourton, and is a wholly owned subsidiary of HFS.
Harbourton Holdings owns approximately an 85% direct or indirect
beneficial interest in HFS, and Harbourton Holdings and its
subsidiaries are entitled to no less than 84% of the all
distributions, whether or not triggered by liquidation, made by
HFS to its partners.
4.2 Authority. Each of the Seller and
Harbourton Holdings has all necessary partnership or corporate
power and authority to enter into this Agreement and the other
documents and agreements contemplated hereby, to consummate the
transactions contemplated hereby and thereby, and to perform its
obligations hereunder and thereunder. The execution and
delivery of this Agreement and the performance of its obliga
tions under this Agreement by each of Seller and Harbourton
Holdings have been duly authorized by all necessary partnership
or corporate action, as the case may be. This Agreement has
been duly executed and delivered by each of Seller and
Harbourton Holdings and is a valid and binding obligation of
each of them, enforceable against each in accordance with its
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
creditor's rights generally or by equitable principles (whether
considered in an action at law or in equity) and other customary
limitations on enforceability.
4.3 No Violation. Neither the execution and
delivery of this Agreement by Seller or Harbourton Holdings, nor
the consummation by Seller or Harbourton Holdings of the transac
tions with respect to such party contemplated hereby, nor
compliance by Seller or Harbourton Holdings with any of the
terms or provisions hereof, will (i) conflict with or result in
a breach of any provision of the Certificate of Limited
Partnership or Partnership Agreement of Harbourton, HFS or
Harbourton Holdings, respectively, or conflict with or result in
a breach of any provision of the Articles of Incorporation,
Bylaws or other organizing documents of HarFunding, (ii) violate
any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to Seller, Harbourton Hold
ings or any of the Purchased Assets, (iii) except as disclosed
on Schedule 4.14, violate, conflict with, result in a material
breach of any provisions of, constitute a material default (or
an event which, with notice or lapse of time, or both, would
constitute a material default) under, result in the termination
of, accelerate the performance required by, or result in a right
of termination or acceleration of any Assigned Contract, or
(iv) result in the creation of any encumbrance upon any of the
Purchased Assets.
4.4 Taxes. Seller has paid in a timely manner
all federal, state and local taxes, assessments and levies of
every kind, character or description, including but not limited
to ad valorem taxes and assessments for improvements imposed
upon Seller or payable by Seller, and sales and use taxes
collectible or payable by Seller, which could constitute a lien
on the Purchased Assets and which are payable by Seller with
respect to periods prior to, and are due and payable on or
before, the Closing Date.
4.5 Service Mark. Upon the Closing of this
transaction, CrossLand shall have all rights to use the Service
Mark in the manner in which Harbourton used it prior to Closing.
Harbourton has all rights, power and authority to transfer the
Service Mark in accordance with this Agreement.
4.6 Title to Purchased Assets. Except as set
forth in Schedule 0 to this Agreement, Seller has good title to
all the Purchased Assets, free and clear of all debts, liens,
security interests, mortgages, trusts, claims, lien and
encumbrances and liabilities whatsoever; except, however, that
with respect to each parcel of leased real property or item of
leased personal property, Harbourton has a valid leasehold
interest therein.
4.7 Prepaid Obligations. Schedule 1.1(f)
contains a complete and accurate listing of all of the Prepaid
Assets as of December 31, 1996, and their amounts, constituting
all prepaid obligations of Seller related to the Fixed Assets,
the Harbourton Branches and the Assigned Contracts. When
delivered, the supplement to Schedule 1.1(f) will contain a
complete and accurate listing of all of the Prepaid Assets as of
the Closing Date, and their amounts, and will constitute all
prepaid obligations of Seller related to the Fixed Assets, the
Harbourton Branches and the Assigned Contracts.
4.8 Assigned Contracts. Each Assigned Contract
is in full force and effect. Seller is not in material breach
of or default under any Assigned Contract, and no event has
occurred which with notice or lapse of time or both would
constitute a material breach or default by Seller of, or permit
termination, modification, or acceleration against Seller under,
any Assigned Contract. Seller has not received any notice that
it has breached any term, condition or covenant of any Assigned
Contract. Seller has not repudiated or waived any material
provision of any Assigned Contract. No other party to any
Assigned Contract is in default in any respect thereunder. Each
lease or sublease agreement identified on Schedule 1.1(e) is
legal, valid, binding, enforceable and in full force and effect
as against Seller and, to the knowledge of Seller, as against
the landlord, is fully assignable to CrossLand (or Seller has
obtained or will have obtained before Closing, the consent of
the lessor to such assignment), and will at the Closing be
legal, valid, binding, enforceable and in full force and effect.
4.9 Financial Statements. Seller and Harbourton
Holdings have previously delivered to CrossLand copies of
(i) the audited financial statements (the AHarbourton Audited
Financial Statements@) of Harbourton for the year ended December
31, 1995, with reports on all such audited financial statements
by Seller's independent accountants, (ii) the unaudited interim
consolidated financial statements (the AHarbourton Interim
Financial Statements@) of Harbourton dated September 30, 1996,
(iii) the Form 10-K for HFS for the year ended December 31,
1995, and (iv) the Form 10-Q for HFS for the quarter ended
September 30, 1996 ((iii) and (iv) referred to herein as the
AHFS Financials@) (the Harbourton Audited Financial Statements,
the Harbourton Interim Financial Statements and the HFS
Financials are collectively referred to herein as the AHarbour
ton Financial Statements@), copies of which are contained in
Schedule 4.9 hereto. The Harbourton Audited and Interim
Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered by
such statements and fairly present in all material respects the
financial position of Harbourton as of the respective dates
thereof, the results of its operations and the changes in its
financial position for the respective periods covered thereby;
provided, however, that the interim statements are subject to
normal year-end adjustments and the absence of footnote
disclosure.
4.10 Undisclosed Liabilities. Seller has no
liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known
or unknown, that materially and adversely affect the Purchased
Assets except for (a) liabilities and obligations stated or
adequately reserved against on Harbourton's Balance Sheet dated
December 31, 1996, or liabilities and obligations not required
to be disclosed on a balance sheet prepared in accordance with
GAAP which have been incurred in the ordinary course of business
on or prior to such date, (b) liabilities and obligations
specifically identified in Schedule 4.10, Schedule 4.13 or
Schedule 4.14 hereto, and (c) liabilities or obligations
incurred in the ordinary course of business consistent with past
practice since December 31, 1996 or incurred in connection with
this Agreement or the transactions contemplated hereunder.
4.11 No Material Adverse Change. Since January
31, 1997, the Purchased Assets, in the aggregate, and the
business of Seller's wholesale residential (one to four family)
loan production branches, taken as a whole, have not suffered a
material adverse change except for (i) those changes resulting
from any changes in law, regulations, guidelines, judicial
decisions, or accounting practice which are generally applicable
to the wholesale residential (one to four family) loan
production business, (ii) changes in general economic or
financial conditions or other changes generally prevailing in
the wholesale residential (one to four family) loan production
business (including without limitation changes in interest rates
for residential mortgages), (iii) changes resulting from the
actions of CrossLand or its representatives, and (iv) changes
contemplated by this Agreement.
4.12 Litigation. Except as set forth on
Schedule 4.12 to this Agreement, there are no actions, suits or
proceedings involving Seller pending or, to the best knowledge
of Seller and Harbourton Holdings, threatened against or
affecting any of the Purchased Assets or the consummation of the
transactions contemplated hereby, at law or in equity or before
or by any governmental authority or instrumentality or before
any arbitrator of any kind, which could have a material adverse
effect upon the Purchased Assets.
4.13 Compliance with Law. The conduct by Seller
of its business does not violate or infringe any domestic or
foreign laws, statutes, ordinances, rules or regulations, the
enforcement of which, individually or in the aggregate, would
materially and adversely affect the Purchased Assets. Except as
set forth on Schedule 4.13 to this Agreement, Seller has not
received any written notification alleging, nor do any of them
have knowledge of, any uncured violation of any applicable
statutes, rules, regulations, ordinances, codes, orders,
licenses, permits or authorizations, as such now apply to the
Purchased Assets.
4.14 Consents and Approvals. Except as set
forth on Schedule 4.14 hereto, no consent, approval or
authorization of, or declaration, filing or registration with
any governmental or regulatory authority, or any person or
entity, is required to be made or obtained by Seller in
connection with the execution, delivery and performance of this
Agreement and the other certificates, agreements and documents
contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby.
4.15 Absence of Brokerage Commissions, Etc. All
negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by Seller directly with
CrossLand without the participation or intervention of any other
person, firm or corporation employed or engaged by or on behalf
of Seller in such a manner as to give rise to any valid claim
against Seller or CrossLand for a brokerage commission, finder's
fee or like payment, except for the involvement of The Stratmor
Group. CrossLand shall pay any and all fees due to The Stratmor
Group for its services related to this Agreement.
4.16 Pipeline Loans. When delivered, Schedule
1.2 will contain a listing complete and accurate in all material
respects of the Pipeline Loans, together with the proposed loan
amount, interest rate, loan type, and closing date.
4.17 Employees. In connection with the
operation of the Business, Seller has complied in all material
respects with all applicable laws relating to the employment of
labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of
social security and other taxes. Except as set forth in
Schedule 4.17, there are no administrative charges or court com
plaints pending or, to the best knowledge of Seller, threatened
against Seller before the U.S. Equal Employment Opportunity
Commission or any state or federal court or agency concerning
alleged employment discrimination or any other matters relating
to the employment of labor in connection with the Business.
There is no unfair labor practice charge or complaint pending
or, to the best knowledge of Seller, threatened against Seller
before the National Labor Relations Board or any similar state
or local body. Within the last three (3) years, Seller has not
experienced any union organization attempts, labor disputes or
work stoppage or slowdowns due to labor disagreements. There is
no labor strike, dispute, work stoppage or slowdown pending or,
to the best knowledge of Seller, threatened. There is no
request for representation pending and no question concerning
representation has been raised. There is no grievance or
arbitration proceeding pending. Seller is not a party to any
labor or union agreement.
4.18 Employee Benefit Plans.
(a) Schedule 4.18 contains a true and
complete list of each Aemployee benefit plan@ (within
the meaning of Section 3(3) of ERISA (including
without limitation multiemployer plans within the
meaning of ERISA Section 3(37)), stock purchase, stock
option, severance, employment, change-in-control,
fringe benefit, collective bargaining, bonus,
incentive, deferred compensation, severance and all
other employee benefit plans, agreements, programs,
and policies generally applicable to employees in the
Business (after the lapse of any waiting period or
similar eligibility requirement) which is maintained
by Seller or any of its affiliates and legally
binding. All such plans, agreements, programs, and
policies shall be collectively referred to as the
AHarbourton Plans.@ Except as provided in Section 13
or as otherwise agreed by CrossLand (for example, in
its offer of employment to Transferring Employees),
following the Closing CrossLand shall not be liable to
any employee or former employee of Seller under the
Harbourton Plans or any other arrangement, plan or
policy of the Seller, whether formal or informal, oral
or written, or otherwise.
(b) With respect to each Harbourton Plan,
Seller has delivered or made available to CrossLand a
current, accurate and complete copy of the most recent
determination letter, if applicable.
(c) Except as disclosed on Schedule 4.18
hereto, (A) each Harbourton Plan which is an "employee
benefit plan" within the meaning of Section 3(3) of
ERISA has been established and administered
substantially in accordance with its terms and in
compliance in all material respects with the
applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; and (B) each
Harbourton Plan which is intended to be qualified
within the meaning of section 401(a) of the Code is so
qualified and has received a favorable determination
letter as to its qualification, or application has
been made to the Internal Revenue Service for the
issuance of such letter and nothing has occurred,
whether by action or failure to act, that would cause
the loss of such qualification or would prevent such
letter from being issued.
(d) No Harbourton Plan is a multiemployer
plan within the meaning of Section 4001(a)(3) of ERISA
subject to Title IV of ERISA. The only Harbourton
Plan which is an Aemployee pension plan@ within the
meaning of ERISA Section 3(2) is the Harbourton
Holdings, L.P. 401(k) Profit Sharing Plan (the
AHarbourton 401(k) plan@) listed on Schedule 4.18.
4.19 Environmental Issues. As of the Closing
Date, (i) the Harbourton Branches are not contaminated by and do
not contain Hazardous Material in any regulated form or
quantity, whether contained in construction or fill materials or
used to any material extent or stored thereon or therein, and
(ii) neither Seller nor, to the best knowledge of Seller, any
other owner, operator, tenant or other occupant or user of the
Harbourton Branches has received any summons, citation,
directive, letter, order, information request, notice of
violation (NOV) or other communication, written or oral, from
any local, state or federal agency or department concerning any
known, alleged or suspected intentional or unintentional action
or omission by any person which may have resulted in the
Disposal of Hazardous Material on, in or under the Harbourton
Branches (other than matters which have been fully and finally
resolved to the satisfaction of each governmental agency or
department involved) which could have a material adverse affect
on the Purchased Assets.
For purposes hereof, the following terms shall be
defined as follows:
ADisposal of Hazardous Material@ shall mean any
emitting, releasing, spilling, leaking, pumping, pour
ing, emptying, disposing or dumping of any Hazardous
Material into air or waters (including ground water)
or onto lands.
AEnvironmental Laws@ shall mean all federal,
state and local laws and ordinances pertaining to the
generation, manufacture, refining, recycling,
treatment, handling, use, storage, transportation,
disposal and cleanup of hazardous, radioactive,
reactive, flammable, infectious, toxic or dangerous
substances or materials or the protection of public
health or of the environment, including without
limitation the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. ''
9601, et seq.), the Resource Conservation and Recovery
Act of 1976 (42 U.S.C. '' 6901, et seq.), the Toxic
Substances Control Act (15 U.S.C. '' 2601, et seq.),
the Clean Air Act (42 U.S.C. '' 7401, et seq.), the
Federal Water Pollution Control Act (33 U.S.C.
'' 1251, et seq.), and any similar state law,
including all amendments thereto and all regulations
promulgated thereunder.
AHazardous Material@ shall mean oil, petroleum,
petroleum products, asbestos, PCB's, dioxins and any
other pollutants, contaminants, hazardous substances,
hazardous wastes and toxic or dangerous substances or
materials as defined in or regulated under any Environ
mental Laws.
5. Covenants of Seller
5.1 Negative Covenants. Except as otherwise
specifically contemplated hereby, between the date hereof and
the Closing Date, or the time when this Agreement terminates as
provided below, Seller shall not, without the prior written
authorization of CrossLand, allow or cause Seller to:
(a) Conduct and Preservation of the
Business. Except as contemplated by this Agreement,
take or fail to take any commercially reasonable
action which (i) causes Harbourton or HarFunding not
to conduct its wholesale residential (one to four
family) branch production operations in a manner
consistent with industry standards, except to the
extent Harbourton or HarFunding is precluded from
acting in such fashion due to the actions of CrossLand
or its representatives or due to the terms of this
Agreement, or (ii) causes or is likely to cause a
breach of Section 4.11.
(b) Purchased Assets. Sell, agree to sell
or otherwise dispose of any of the Purchased Assets in
excess of an aggregate of $10,000 other than in the
ordinary course of business and consistent with past
practice;
(c) Fixed Assets. From and after
January 30, 1997, acquire additional Fixed Assets for
the Business in an aggregate amount which exceeds Ten
Thousand Dollars ($10,000);
(d) Liens; Indebtedness; Etc. Mortgage,
pledge or subject to a security interest, lien or any
other encumbrance any of the Purchased Assets, or
incur or cancel any indebtedness or claims affecting
the Purchased Assets;
(e) Mortgage Loans. Materially alter or
vary its methods or policies of underwriting, pricing
or originating wholesale residential mortgage loans;
(f) Representations and Warranties. Take
any action, or fail to take any commercially
reasonable action, that would result in a material
breach or material violation of the representations
and warranties of Harbourton contained in this
Agreement or that would cause any condition to the
transactions contemplated hereby to not be satisfied;
(g) Assigned Contracts. Accelerate,
terminate, modify or cancel any Assigned Contract; or
(h) Other. Agree to do any of the
foregoing included in (a) through (g).
5.2 Post-Closing Negative Covenants. Between
the date hereof and two (2) years from the Closing Date, or the
time when this Agreement earlier terminates as provided below,
Harbourton Holdings shall not, without the prior written
authorization of CrossLand, liquidate, dissolve, or distribute,
transfer, sell or otherwise convey all or substantially all of
its assets to its equity holders or to any third party.
5.3 Cooperation in Transition. Prior to
closing, Seller will allow CrossLand reasonable access to the
premises of the Harbourton Branches to install CrossLand's PC
front-end system set-up and reasonable access to employees and
agents of Seller who have accepted employment with CrossLand to
train them on such system. After Closing, Seller shall, at no
cost to CrossLand, provide such support services to CrossLand as
are reasonably necessary to maintain the AS 400 loan processing
and closing system to perform functions specifically related to
services to be provided by CrossLand under the Administrative
Services Agreement and the Retail Administrative Services
Agreement during the term of such agreements, including without
limitation the provision of technical, trained employees at the
Harbourton Branches and support from Seller's Denver headquar
ters. Seller shall not remove its AS 400 loan processing and
closing system from the Harbourton Branches until the expiration
of the Administrative Services Agreement and/or the Retail
Administration Services Agreement.
5.4 Investigation; Access. Seller and
Harbourton Holdings shall use its best efforts to take or cause
to be taken all action required under this Agreement on their
part to be taken as promptly as practicable so as to permit the
consummation of the transactions contemplated by this Agreement
as soon as is reasonably practicable, and cooperate fully with
CrossLand to that end, including, without limitation, by
providing to CrossLand and its employees, agents, accountants
and counsel, access to Seller's books, records, reports, tax
returns and facilities and to Seller's employees, agents, accoun
tants and counsel to the extent reasonably related to that end;
provided, however, that CrossLand shall pursue such access in a
manner that will not unreasonably interfere with Seller's normal
operations, customers or employee relations.
5.5 Disclosure Supplements. No later than
fifteen (15) days following the end of each calendar month prior
to the Closing Date and no later than five (5) business days
prior to the Closing Date, Seller shall supplement or amend the
disclosure Schedules attached hereto with respect to any matter
hereafter arising which, if existing, occurring or known at the
date of this Agreement, would have been required to be set forth
or described by it or which is necessary to correct any
information in such Schedules that has been rendered inaccurate
thereby. No supplement or amendment to any Disclosure Schedule
shall have any effect on the representations and warranties
contained in this Agreement as of the date hereof or for the
purpose of determining satisfaction of the conditions set forth
in Section 10.1 hereof.
6. Representations and Warranties of CrossLand.
CrossLand hereby represents and warrants to Seller as follows as
of the date hereof and as of the Closing Date:
6.1 Organization of CrossLand. CrossLand is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Utah.
6.2 Authorization. CrossLand has all necessary
corporate power and authority to enter into this Agreement and
the documents and agreements contemplated hereby, to consummate
the transactions contemplated hereby and thereby, and to perform
its obligations hereunder and thereunder. CrossLand's execution
and delivery of this Agreement and the performance of its
obligations under this Agreement has been duly authorized by all
necessary corporate action. This Agreement has been duly
executed and delivered by CrossLand, and is a valid and binding
obligation of CrossLand, enforceable against CrossLand in accor
dance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to creditor's rights generally or by equitable
principles (whether considered in an action at law or in equity)
and other customary limitations on enforceability.
6.3 Consents and Approvals. Except as set forth
in Schedule 0 hereto, no consent, approval or authorization of,
or declaration, filing or registration with any governmental or
regulatory authority, or any other person or entity, is required
to be made or obtained by CrossLand in connection with the
execution, delivery and performance of this Agreement and the
other certificates, agreements and documents contemplated
hereby, and the consummation of the transactions contemplated
hereby and thereby, that has not been made or obtained by
CrossLand.
6.4 No Violation. Neither the execution and
delivery of this Agreement by CrossLand, nor the consummation by
CrossLand of the transactions contemplated hereby, nor
compliance by CrossLand with any of the terms or provisions
hereof, will (i) conflict with or result in a breach of any pro
vision of its Articles of Incorporation or Bylaws, (ii) violate
any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to CrossLand, or
(iii) violate, conflict with, result in a material breach of any
provisions of, constitute a material default (or an event which,
with notice or lapse of time, or both, would constitute a
material default) under, result in the termination of, acceler
ate the performance required by, or result in a right of termina
tion or acceleration of any material contract or indebtedness of
CrossLand that, if so violated, conflicted with, breached or
defaulted under, terminated or accelerated, could have a
material adverse effect on CrossLand's ability to perform and
performance of under the terms of this Agreement.
6.5 Absence of Brokerage Commissions, Etc. All
negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by CrossLand directly
with Seller without the participation or intervention of any
other person, firm or corporation employed or engaged by or on
behalf of CrossLand in such a manner as to give rise to any
valid claim against Seller or CrossLand for a brokerage
commission, finder's fee or like payment, except for the
involvement of The Stratmor Group. CrossLand shall pay any and
all fees due to The Stratmor Group for its services related to
this Agreement.
6.6 Financial Statements. CrossLand has
previously delivered to Harbourton copies of (i) the annual
report of First Security Corporation for the year ended December
31, 1995, (ii) the 10-Q for First Security Corporation for the
quarter ended September 30, 1996, and (iii) the Consolidating
Balance Sheet for First Security Corporation and its affiliates
for the year ended December 31, 1995 (collectively referred to
herein as the AFirst Security Financial Statements@), copies of
which are attached as Schedule 6.6 hereto. The First Security
Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered by
such statements and fairly present in all material respects the
financial position of CrossLand as of the respective dates
thereof, the results of its operations and the changes in its
financial position for the respective periods covered thereby;
provided, however, that the interim statements are subject to
normal year-end adjustments and the absence of full footnote
disclosure.
6.7 Litigation. Except as set forth on Schedule
6.7 to this Agreement, there are no actions, suits or
proceedings involving CrossLand pending or, to the best
knowledge of CrossLand, threatened against CrossLand, at law or
in equity or before or by any governmental authority or
instrumentality or before any arbitrator of any kind, which, if
determined adversely to CrossLand, could have a material adverse
effect upon CrossLand's ability to perform or its performance of
its obligations under this Agreement.
6.8 Compliance with Law. The conduct by
CrossLand of its business does not violate or infringe any
domestic or foreign laws, statutes, ordinances, rules or regula
tions, the enforcement of which, individually or in the
aggregate, would materially and adversely affect CrossLand's
ability to perform or its performance of its obligations under
this Agreement. Except as set forth on Schedule 6.8 to this
Agreement, CrossLand has not received any written notification
alleging, nor does it have knowledge of, any uncured violation
of any applicable statutes, rules, regulations, ordinances,
codes, orders, licenses, permits or authorizations which could
materially and adversely affect CrossLand's ability to perform
or its performance of its obligations under this Agreement.
7. Covenants of CrossLand. CrossLand shall use its
best efforts to take or cause to be taken all action required
under this Agreement on its part to be taken as promptly as
practicable so as to permit the consummation of the transactions
contemplated by this Agreement as soon as is reasonably
practicable, and cooperate fully with Seller to that end.
Without limiting the foregoing, CrossLand agrees to use commer
cially reasonable efforts to train the employees and agents of
Seller who have accepted employment with CrossLand and who have
a need to be trained on CrossLand's PC front-end computer system
and/or concerning CrossLand's business procedures.
8. Regulatory and Other Approvals.
8.1 Filings. Each party shall promptly use its
best efforts necessary to obtain all consents, approvals, per
mits, authorizations, and registrations required to be obtained
by them in order to consummate the transactions contemplated
hereby. The parties shall cooperate with each other in obtain
ing or making the necessary filings and consent solicitations.
The parties shall use their best efforts to cause the filings
and consent solicitations to be made as soon as practicable.
The parties hereto agree that they will consult with each other
with respect to the obtaining of all necessary permits,
consents, approvals and authorizations of all third parties and
governmental bodies necessary or advisable to consummate the
transactions contemplated by this Agreement, and each party will
keep the others apprised of the status of matters relating to
completion of the transactions contemplated herein.
8.2 Copies. The parties shall promptly furnish
each other with copies of written communications received by any
of them from, or delivered by any of them to, any governmental
body, agency, private mortgage insurer or other parties whose
consent is required hereunder in respect of the transactions
contemplated hereby.
9. Conditions to the Obligations of Seller. The
obligations of Seller to consummate the transactions described
in this Agreement are subject to the satisfaction or waiver of
each of the following conditions on or before the Closing Date.
Upon such satisfaction or waiver, Seller will be obligated to
close.
9.1 Representations, Warranties and Covenants.
The representations and warranties of CrossLand contained in
this Agreement shall be true and correct in all material
respects at and as of the Closing Date (except as to any
representation or warranty which speaks to a specific date in
which case such representation or warranty shall be deemed to
have been made again on and as of the Closing Date but only with
respect to such specific date), and CrossLand shall have per
formed in all material respects all agreements and covenants
required hereby or thereby to be performed by it prior to or at
the Closing Date.
9.2 No Governmental Proceedings or Litigation.
No suit, action, or other legal or administrative proceeding by
any governmental authority or any third party shall have been
instituted or threatened which questions the validity or
legality of, or seeks to prevent, the transactions contemplated
hereby.
9.3 Certificates. CrossLand shall furnish
Seller with such certificates of its officers and others to
evidence compliance with the conditions set forth in this
Section 0 as may reasonably be requested by Seller.
9.4 Consents and Approvals. The parties hereto
shall have received all regulatory approvals and filed all
notices required in connection with the transactions contem
plated by this Agreement, and all notice periods and waiting
periods required by law or regulation applicable to the
transactions contemplated by this Agreement.
9.5 Other Documents.
(a) CrossLand shall have executed and
delivered the Assignment and Assumption Agreement.
(b) CrossLand shall have executed and
delivered the Administrative Services Agreement.
(c) If applicable, CrossLand shall have
executed and delivered the Retail Administrative
Services Agreement.
9.6 Legal Opinion. Seller shall have received a
legal opinion of Ray, Quinney & Nebeker, CrossLand's legal
counsel, dated the Closing Date, in substantially the form
attached hereto as Exhibit H.
10. Conditions to CrossLand's Obligations. The
obligations of CrossLand to consummate the transactions
described in this Agreement are subject to the satisfaction or
waiver of each of the following conditions on or before the
Closing Date. Upon such satisfaction or waiver, CrossLand will
be obligated to close.
10.1 Representations, Warranties and Covenants.
The representations and warranties of each of Seller and
Harbourton Holdings contained in this Agreement shall be true
and correct in all material respects at and as of the Closing
Date (except as to any representation or warranty which speaks
to a specific date in which case such representation or warranty
shall be deemed to have been made again on and as of the Closing
Date but only with respect to such specific date), and each of
Seller and Harbourton Holdings shall have performed in all
material respects all agreements and covenants required hereby
or thereby to be performed by each prior to or at the Closing
Date.
10.2 No Governmental Proceedings or Litigation.
No suit, action, or other legal or administrative proceeding by
any governmental authority or any third party shall have been
instituted or threatened which questions the validity or
legality of, or seeks to prevent, the transactions contemplated
hereby.
10.3 Certificates. Each of Seller and
Harbourton Holdings shall furnish CrossLand with such
certificates of its officers and others, to evidence compliance
with the conditions set forth in this Section 0 as may reason
ably be requested by CrossLand.
10.4 Consents and Approvals. The parties hereto
shall have received all regulatory and agency approvals and
filed all notices required in connection with the transactions
contemplated by this Agreement, and all notice periods and
waiting periods required by law or regulation applicable to the
transactions contemplated by this Agreement such that CrossLand
has, as of the Closing Date, all rights and approvals to
consummate this transaction and to operate the Harbourton
Branches without material disruption of the operations and
Business at such branches. All consents, approvals and
authorizations to be obtained by Seller from any third parties
in connection with the execution, delivery and performance of
this Agreement shall, including without limitation those related
to the Assigned Contracts, have been obtained by Seller and
delivered to CrossLand; except for leases of office equipment
and the sublease of the Aurora, Colorado, office.
10.5 Other Documents.
(a) Seller shall have executed and
delivered to CrossLand the Bills of Sale, the
Assignment and Assumption Agreement, the Service Mark
Assignment, and such other certificates and
instruments as shall be reasonably requested by
CrossLand in order to vest in CrossLand title in and
to the Purchased Assets in accordance with the provi
sions of this Agreement.
(b) Mills shall have executed and delivered
the Non-Compete Agreement to CrossLand at Closing.
(c) Sample shall have executed and
delivered the Sample Employment Agreement to CrossLand
at Closing.
(d) Harbourton shall have executed and
delivered the Administrative Services Agreement.
(e) If applicable, Harbourton shall have
executed and delivered the Retail Administrative
Services Agreement.
10.6 Legal Opinion. CrossLand shall have
received a legal opinion of Lowenstein, Sandler, Kohl, Fisher
and Boylan, P.C., Seller's legal counsel, dated the Closing
Date, in the form attached hereto as Exhibit I.
11. Risk of Loss. Until the Closing Date, all risk
of loss or damage to the Purchased Assets shall be borne by
Seller, and thereafter shall be borne by CrossLand. If any
Purchased Asset is destroyed or damaged by fire or other cause
prior to Closing, Seller shall promptly give notice to CrossLand
of such damage or destruction and the amount of insurance, if
any covering such Purchased Asset. Prior to the Closing Date,
CrossLand shall have the option of (a) excluding such damaged or
destroyed Purchased Asset from this Agreement, in which event
the Purchase Price shall be reduced by the fair value of such
damaged or destroyed Purchased Assets, as mutually agreed by the
parties, or (b) if such damage or destruction affects Purchased
Assets representing five percent (5%) or more of the total
Purchase Price (excluding the value, if any, of the Incentive
Earnout), then CrossLand shall have the right, within ten (10)
business days after receiving written notice and summary of such
damage or destruction to notify Seller that this Agreement shall
terminate unless within thirty (30) days after such notice
Harbourton repairs, replaces and/or obtains comparable
substitutes in the same or better condition as the damaged or
destroyed Purchased Assets as of the date hereof so that
CrossLand may operate the Harbourton Branches substantially as
in existence as of the date of this Agreement without material
disruption or change in operations. In such event the date for
closing shall automatically be extended to allow Harbourton such
opportunity to repair, replace and or substitute, but in no
event shall the Closing Date be extended for longer than thirty
(30) days without the prior written consent of CrossLand.
12. Actions by all Parties after the Closing.
12.1 Records. Each party agrees that it will
cooperate with and make available to the other party, during
normal business hours at any time in connection with any audit
of a party's taxes by local, state or federal authorities, all
records or information retained by such party and remaining in
existence after the Closing Date which are necessary or useful
solely in connection with the ownership of the Purchased Assets.
The party requesting any such records or information shall bear
all of the out-of-pocket costs and expenses (including, without
limitation, attorneys' and accountants' fees, but excluding
reimbursement for salaries and employee benefits) reasonably
incurred in connection with providing such records or
information. CrossLand or Seller may require certain financial
information relating to the Purchased Assets for periods prior
to the Closing Date for the purpose of filing federal, state,
local and foreign tax returns and other governmental reports,
and the party holding such information agrees to furnish such
information to the other party at the requesting party's request
and expense (including without limitation attorneys' and
accountants' fees, but excluding employees salaries and
benefits).
12.2 Further Assurances. After the Closing,
each party shall cooperate in good faith with the others and
shall take all appropriate action and execute any documents,
instruments, assignments, assumptions or conveyances of any kind
which may reasonably be necessary or advisable to carry out any
of the transactions contemplated hereunder. The parties shall
cooperate in providing such information as may be necessary to
be in compliance with relevant sections of the Internal Revenue
Code. Seller shall promptly forward to CrossLand all notices,
tax assessments and similar materials received by Seller after
the Closing Date and relating to the Purchased Assets, and
CrossLand shall promptly forward to Harbourton all notices, tax
inquiries, and similar materials for Harbourton received by it
at the Harbourton Branches after the Closing Date and not
related to the Purchased Assets.
13. Employee Matters.
13.1 Employment. Attached hereto as Schedule 13
is a complete and accurate list of employees associated with and
paid by the Seller who are employed in the Harbourton Branches
as of February 26, 1997, and the date of full-time employment of
such employee by Seller (and its affiliated predecessors,
Western Sunrise Mortgage Co., L.P., Western Sunrise Mortgage
Corporation, TMC Mortgage Corporation, TMC Mortgage Co., L.P.,
and Platte Valley Mortgage Corporation (collectively, its
APredecessors@)), which Schedule shall be updated within five
(5) business days after the Closing to list all such employees
as of the Closing Date. CrossLand shall offer employment at
will to the employees on Schedule 13, upon such terms as
CrossLand and each such employee may agree. Those employees of
Seller who accept such employment with CrossLand as of the
Closing Date shall be referred to herein as ATransferring Employ
ees.@ Except as expressly provided in this Section 13, Cross
Land shall not assume any obligations, liabilities, benefits or
related costs associated with any employees of Seller accruing
before the Closing Date, including without limitation obliga
tions relating to any employee benefits and the employment agree
ments between Seller and any of its employees. Seller shall pay
all accrued salaries, commissions and bonuses of its employees
up to the Closing Date.
13.2 Health Insurance. Those Transferring
Employees who are eligible for and participate in Seller's
health insurance plans as of the Closing Date shall be entitled
to such health coverage as is provided to similarly situated
CrossLand employees without any probationary or waiting period,
subject only to a one-year waiting period for preexisting
conditions. Transferring Employees shall receive past service
credit for his or her time of participation in Harbourton Plans
for purposes of satisfying the one-year waiting period for
preexisting conditions. Those Transferring Employees who are
not eligible for or do not participate in Seller's health
insurance plans as of the Closing Date shall be entitled to such
health coverage as is provided to similarly situated CrossLand
employees at such time as such Transferring Employees meet the
eligibility requirements of the First Security Health Plan, but
in determining such eligibility such Transferring Employee shall
receive service credit for his or her time of employment with
Seller and its Predecessors.
13.3 Sick and Vacation Leave. CrossLand will
grant each Transferring Employee credit for any sick leave
accrued under the Harbourton Plans as of the Closing Date, up to
a maximum of twenty (20) days. In calculating entitlement to
sick leave as employees of CrossLand after the Closing Date,
Transferring Employees shall receive service credit for their
time of employment with Seller and its Predecessors.
CrossLand will grant each Transferring Employee credit
for any unused vacation time of such Transferring Employee that
has accrued under the Harbourton Plans as of the Closing Date,
up to a maximum equal to the amount of vacation time to which
such employee was entitled for the one (1) year prior to the
Closing Date; provided that all such vacation time must be used
prior to the first year anniversary of the Closing Date.
Subject to CrossLand's compliance with the terms of this Section
13.3, if prior to the first anniversary of the Closing Date,
such accrued and transferred vacation time is not used or if the
Transferring Employee's employment with CrossLand is terminated
for any reason, CrossLand shall have no obligation to pay for
any unused portion thereof, and to the extent there is any
liability related to such unused vacation time, Seller shall be
solely responsible for all such payments. In computing future
vacation time under the CrossLand vacation policy, each
Transferring Employee will be given service credit for full
completed years of service with Seller (and its Predecessors) as
if such employment had occurred with CrossLand. Vacation time
under CrossLand's vacation policy shall begin accruing on the
Closing Date. On the Closing Date, Seller will pay to each
Transferring Employee any accrued vacation days in excess of the
maximum amounts allowed hereunder.
13.4 401(k) Plan. In determining eligibility in
the First Security Incentive Savings Plan (the AFirst Security
401(k) plan@), for participating and vesting purposes CrossLand
shall give Transferring Employees service credit for all service
with Seller and its Predecessors as if such employment had
occurred with CrossLand. No past service credit shall be given
to any Transferring Employee for any other pension plan main
tained by CrossLand or otherwise provided to its employees.
Transferring Employees who become entitled to receive distribu
tions from Harbourton's 401(k) plan shall be permitted to roll
over their accounts in Harbourton's 401(k) plan to First
Security's 401(k) plan solely upon the approval and consent of
the trustee and sponsor of First Security's 401(k) plan, in its
sole discretion, and its counsel to such rollover and/or
distribution, which approval will not be given in any event
without receipt of such documentation from Seller and Harbourton
Holdings as may be requested by First Security Corporation,
including without limitation, an Internal Revenue Service ruling
obtained by Seller approving the rollover and ensuring the
qualification of the First Security 401(k) plan if it accepts
such rollovers.
14. Indemnifications.
14.1 Seller's and Harbourton Holdings' Indemni
ty. Subject to the provisions of this Section 14, each of
Seller and Harbourton Holdings jointly and severally shall
indemnify, save and hold harmless CrossLand, its affiliates and
its directors, officers, agents and representatives (the
ACrossLand Indemnitees@), from and against any and all costs,
losses, liabilities, damages, lawsuits, claims and expenses
(whether or not arising out of third-party claims), including
without limitation court costs, reasonable attorneys' fees and
disbursements and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, ACrossLand's
Damages@), incurred in connection with or arising out of or
resulting from (i) any material breach of any warranty, or the
material inaccuracy of any representation made by Seller or
Harbourton Holdings in or pursuant to this Agreement or
information set forth in any schedule attached hereto or any of
the documents contemplated by this Agreement, for the Survival
Period; (ii) the material failure by Seller or Harbourton
Holdings to perform or observe any term, provision or covenant
of this Agreementf or any of the documents contemplated by this
Agreement, (iii) the enforcement of this indemnification
obligation; and (iv) any claim, liability, obligation or commit
ment of any nature (absolute, accrued, contingent or otherwise)
of Seller or Harbourton Holdings not specifically assumed by
CrossLand under this Agreement, including without limitation,
any liabilities arising from claims of employees of Seller not
specifically assumed by CrossLand under this Agreement.
Seller's and Harbourton Holdings' indemnification obligations
under this Section shall survive the Closing.
14.2 CrossLand's Indemnity. Subject to the
provisions of this Section 14, CrossLand shall indemnify, save
and hold harmless Seller and Harbourton Holdings and their
affiliates and their directors, officers, agents and representa
tives (the AHarbourton Indemnitees@), from and against any and
all costs, losses, liabilities, damages, lawsuits, claims and
expenses (whether or not arising out of third-party claims),
including without limitation court costs, reasonable attorneys'
fees and disbursements and all amounts paid in investigation,
defense or settlement of any of the foregoing (the AHarbourton
Damages@), incurred in connection with or arising out of or
resulting from (i) any material breach of any warranty, or the
material inaccuracy of any representation, made by CrossLand in
or pursuant to this Agreement or information set forth in any
schedule attached hereto or any of the documents contemplated by
this Agreement, for the Survival Period; (ii) the material
failure by CrossLand to perform or observe any term, provision
or covenant of this Agreement or any of the documents
contemplated by this Agreement; (iii) the enforcement of this
indemnification obligation, and (iv) on or after the Closing
Date, any other claim, liability, obligation or commitment of
any nature which is specifically assumed by CrossLand pursuant
to this Agreement or which arises out of the conduct of business
by CrossLand at the Harbourton Branches on or after the Closing
Date. CrossLand's indemnification obligations under this Section
0 shall survive the Closing.
14.3 Survival of Representations and Warranties;
Limits; Exclusive Remedy.
(a) The representations and warranties of
the parties in this Agreement or in any document
contemplated by this Agreement shall survive the
Closing for the benefit of the other party and its or
his respective successors and assigns for fifteen (15)
months from the Closing Date (the ASurvival Period@).
(b) Notwithstanding anything to the
contrary in this Agreement, neither Seller nor
Harbourton Holdings shall be liable under this Section
14 unless the aggregate of all of the CrossLand
Damages suffered by all of the CrossLand Indemnitees
exceeds One Hundred Thousand Dollars ($100,000), and
then only to the extent of such excess. Notwithstand
ing anything to the contrary in this Agreement,
CrossLand shall not be liable under this Section 14
unless the aggregate of all of the Harbourton Damages
suffered by all of the Harbourton Indemnitees exceeds
One Hundred Thousand Dollars ($100,000), and then only
to the extent of such excess.
(c) Notwithstanding anything to the
contrary in this Agreement, in the event CrossLand
seeks damages pursuant to a claim of a breach of any
warranty or the inaccuracy of any representations made
in Section 4.11 (including as Abrought down@ to the
Closing Date), neither Seller nor Harbourton Holdings
shall be liable under this Section 14 unless the aggre
gate of all of the CrossLand Damages suffered by all
of the CrossLand Indemnitees for such breach under
Section 4.11 exceeds One Hundred Fifty Thousand
Dollars ($150,000), and then only to the extent of
such excess. Such limitation shall not apply to
claims of indemnification related to any other
representations, warranties, covenants or otherwise
hereunder.
(d) Notwithstanding anything to the
contrary in this Agreement, the aggregate maximum
liability of Seller and Harbourton Holdings for all
claims of indemnification under this Section 14 shall
be an amount equal to the Purchase Price.
Notwithstanding anything to the contrary in this
Agreement, the aggregate maximum liability of
CrossLand for all claims of indemnification under this
Section 14 shall be an amount equal to the greater of
$2,500,000 and an amount equal to the maximum Incen
tive Earnout calculation.
(e) The provisions of this Section 14 shall
constitute the sole and exclusive remedy of any
CrossLand Indemnitee or Harbourton Indemnitee after
the Closing for any CrossLand Damages or Harbourton
Damages, respectively, arising under Sections 14.1(i)
or 14.2(i), respectively, and the related expenses and
costs arising under Section 14.1(iii) or 14.2(iii),
respectively, and any other rights or remedies with
respect to the same, whether now existing or hereafter
arising, are hereby waived to the maximum extent
permitted by applicable law.
14.4 Procedures for Third Party Claims. In the
case of any claim for indemnification arising from a claim of a
third party (a AThird Party Claim@), the party entitled to
indemnification (an AIndemnified Party@) under this Section 14
shall give prompt written notice to the party providing
indemnification under this Section 14 (an AIndemnifying Party@)
of any claim or demand of which such Indemnified Party has
knowledge and as to which it may request indemnification
hereunder. The Indemnifying Party shall have the right to
defend and to direct the defense against any such Third Party
Claim, in its name or in the name of the Indemnified Party, as
the case may be, at the expense of the Indemnifying Party, and
with counsel selected by the Indemnifying Party unless (i) such
Third Party Claim seeks an injunction or other equitable relief
against the Indemnified Party, or (ii) the Indemnifying Party
shall have reasonably concluded that the Indemnified Party has
one or more defenses not available to the Indemnifying Party.
Notwithstanding anything to the contrary, the Indemnified Party
shall, at the expense of the Indemnifying Party, cooperate with
the Indemnifying Party and keep the Indemnifying Party fully
informed in the defense of such Third Party Claim. The
Indemnified Party shall have the right to participate in the
defense of any Third Party Claim with counsel employed at its
own expense; provided, however, that, in the case of any Third
Party Claim described in clause (i) or (ii) of the second
preceding sentence or as to which the Indemnifying Party shall
not in fact have employed counsel to assume the defense of such
Third Party Claim within a reasonable time, the reasonable fees
and disbursements of counsel employed by the Indemnified Party
shall be at the expense of the Indemnifying Party. If the
Indemnifying Party is conducting the defense of any Third Party
Claim pursuant to the foregoing provisions of this Section 14.4,
the Indemnifying Party shall have the right to settle any such
Third Party Claim, except that if there is any injunction or
other relief which will adversely affect the Indemnified Party,
no settlement may be reached without the prior written consent
of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnified Party is
conducting the defense of any Third Party Claim pursuant to the
provisions of this Section 14.4, the Indemnifying Party shall
have no indemnification obligations with respect to any Third
Party Claim which shall be settled by the Indemnified Party
without the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld or delayed.
14.5 Procedures for Inter-Party Claims. In the
event that an Indemnified Party determines that it has a claim
for indemnification against an Indemnifying Party hereunder
(other than as a result of a Third Party Claim), the Indemnified
Party shall give prompt written notice thereof to the
Indemnifying Party, specifying the amount of such claim and any
relevant facts and circumstances relating thereof. The
Indemnified Party shall provide the Indemnifying Party with
reasonable access to its books and records for the purpose of
allowing the Indemnifying Party a reasonable opportunity to
verify any such claim for indemnification. The Indemnified
Party and the Indemnifying Party shall negotiate in good faith
regarding the resolution of any disputed claims for
indemnification.
14.6 Escrow Upon Indemnity Claim. If during
the Survival Period CrossLand determines that it has a claim for
indemnification against Seller or Harbourton Holdings (the
AHarbourton Parties@) under this Section 14, CrossLand shall
give prompt written notice thereof to the Harbourton Parties,
specifying the amount of such claim and the relevant facts and
circumstances related thereto. If at such time there is a
Monthly Incentive Payment due and owing, at CrossLand's option
CrossLand may withhold the amount of such claim from the Monthly
Incentive Payment and, in such event, CrossLand shall pay such
amount into an escrow account pursuant to the Escrow Agreement
in the form attached as Exhibit J hereto, which will then be
executed by CrossLand, Seller and Harbourton Holdings and the
escrow agent. The escrow fund shall be invested in investment
grade money market interests, certificates of deposit and U.S.
Treasury obligations. One-half of the fees of the escrow agent
shall be payable by CrossLand, and one-half of the fees of the
escrow agent shall be payable by Seller and Harbourton Holdings.
CrossLand and the Harbourton Parties shall negotiate in good
faith regarding the resolution of the disputed claim for
indemnification and, if such dispute is not resolved within 30
days, the parties will appoint a third party arbitrator,
experienced in the mortgage banking industry, to resolve the
claim. CrossLand shall provide Seller and Harbourton Holdings
with reasonable access to its books and records for purposes of
responding to any claim of indemnification. If the parties are
unable to agree upon such an arbitrator, then the appointment
shall be made by the American Arbitration Association from its
New York headquarters. Arbitration proceedings shall be held in
a location mutually agreed upon within ten (10) days, or if not
agreed to within such 10-day period, in Los Angeles, California.
The decision of the arbitrator shall be conclusive and binding
upon the parties. If the parties mutually agree, or if the
arbitrator determines, that CrossLand is entitled to an
indemnification payment then such amount shall be payable out of
the escrow fund under the Escrow Agreement, and the balance
shall be payable to Harbourton, or if it designates to Har
bourton Holdings (and the full amount shall be paid to
Harbourton (or Harbourton Holdings if Harbourton so designates)
if it is so agreed or determined that no payment at all is owing
to CrossLand). All of the parties shall cooperate to resolve
any arbitration as soon as is reasonably practicable.
15. Termination.
15.1 Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) By Mutual Consent. By mutual consent
of all the parties hereto.
(b) Upon Date Certain. By any party at any
time after April 8, 1997, upon fifteen (15) days prior
written notice to the other parties, if at the end of
such fifteen (15) day period the sale contemplated
hereby has not been consummated by the failure to
satisfy conditions to Closing not within the control
of the electing party.
(c) Upon Breach by Seller or Harbourton
Holdings. By CrossLand, upon notice to Seller, at any
time prior to Closing if (i) any representation or
warranty of Seller or Harbourton Holdings contained in
this Agreement was materially incorrect when made or
becomes materially incorrect on or prior to the
Closing Date and the same is not cured within ten (10)
days after notice of such misrepresentation or breach
of warranty, or (ii) Seller or Harbourton Holdings
fail to comply in any material respect with any of
their respective covenants contained in this
Agreement, and the same is not cured in all material
respects within ten (10) days after the giving of
notice of such inaccuracy or noncompliance or prior to
the Closing, whichever is the shorter time period,
subject to a minimum cure period of five (5) days.
(d) Upon Breach by CrossLand. By Seller,
upon notice to CrossLand, at any time prior to Closing
if (i) any of CrossLand's representations or
warranties contained in this Agreement was materially
incorrect when made or becomes materially incorrect on
or prior to the Closing Date and the same is not cured
within ten (10) days after notice of such misrepre
sentation or breach of warranty, or (ii) CrossLand
fails to comply in any material respect with any of
its covenants contained in this Agreement, and the
same is not cured in all material respects within ten
(10) days after the giving of notice of such
inaccuracy or noncompliance or prior to the Closing,
whichever is the shorter time period, subject to a
minimum cure period of five (5) days.
15.2 Effect of Termination. In the event of the
termination and abandonment of this Agreement pursuant to the
provisions of Section 15.1, except for Sections 19, 21.10 and
21.11, this Agreement shall become void and have no force or
effect. Such termination shall not relieve any party of
liability for any default, breach, violation or other noncompli
ance prior to such termination; except that Harbourton Holdings
will not be liable for any such defaults, breaches, violations
or other noncompliance unless this transaction is closed.
15.3 Waiver. At any time prior to the Closing,
either Seller or CrossLand may (a) extend the time for the
performance of any of the obligations or other acts of the other
party hereto, (b) waive any inaccuracies in the representations
and warranties of the other party contained herein or in any
document delivered pursuant hereto or (c) waive compliance by
the other party with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid
if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
16. Agreement Not to Compete.
16.1 Agreement Not to Compete. Seller and
Harbourton Holdings each hereby acknowledges that the Purchased
Assets include substantially all of the assets related to the
Business and all of the goodwill related to such operations and
that the agreements and covenants contained in this Section 16
are essential to protect the value of the Purchased Assets and
that CrossLand would not enter into this Agreement except for
such agreements and covenants and the covenant not to compete
entered into by David Mills under the Non-Compete Agreement. As
partial consideration for the Purchase Price, each of Seller and
Harbourton Holdings covenants and agrees that it and each of its
affiliates shall not, for a period of three (3) years following
the Closing Date, compete with or Aparticipate,@ as defined
below, in any wholesale residential (one to four family) mort
gage loan production (newly originated) business or operations
within 300 miles of any Harbourton Branch or CrossLand branch.
This covenant shall not limit the current business activities of
Seller, Harbourton Holdings or their affiliates (exclusive of
their wholesale residential (one to four family) branch
production (newly originated) operations), any activities
related to the Pipeline Loans or the performance of any of
Seller's or Harbourton Holdings' obligations to CrossLand.
16.2 AParticipation@ Defined. For purposes
hereof, Seller or Harbourton Holdings shall be deemed to be
participating in a business if it allows its name to be used by,
works for, is employed by, consults with, participates in, or
renders advice or assistance to or has any ownership or other
interest in, or is affiliated with, the business, directly or
indirectly, as agent, stockholder, consultant, investor,
partner, officer, director, investor, member, manager or
otherwise (except as the holder of no more than ten percent
(10%) of the stock of a publicly-held company; provided that it
does not work for or render advice or assistance to such
company).
16.3 Enforcement. Seller and Harbourton Holdings
each hereby acknowledge that irreparable injury may result to
CrossLand, its business and its property if Harbourton, HFS or
Harbourton Holdings breaches any of the restrictions imposed by
this Section 16. Therefore, each of Seller and Harbourton
Holdings agrees that if it shall engage in any act in violation
of such provisions, CrossLand shall be entitled, in addition to
such other remedies and damages as may be available, to an
injunction prohibiting Seller and Harbourton Holdings from
engaging in such act, without posting a bond or other surety, to
the extent permitted by law. If any restriction, including
without limitation any time or geographical restriction,
contained in this Section 16 is deemed to be unenforceable by a
court of competent jurisdiction, the parties agree that such
court may modify and enforce such restrictions to the extent
that it believes to be reasonable under the circumstances
existing at the time.
17. Representations and Warranties of Harbourton
Holdings. Harbourton Holdings hereby represents and warrants to
CrossLand that the representations and warranties regarding
Harbourton Holdings set forth in Sections 4.1, 4.2 and 4.3 of
this Agreement are true and accurate.
18. Survival of Covenants, Representations and
Warranties. Except as otherwise expressly stated in this
Agreement, all the covenants, representations and warranties
contained in this Agreement, the other agreements and documents
required or contemplated hereby to be delivered in connection
with the transactions described herein or any certificate
delivered pursuant hereto or thereto, together with any
obligation of either party contained herein or therein to be
performed subsequent to Closing, shall survive the Closing,
subject to any limitations, including the Survival Period, set
forth in Section 14 hereof.
19. Expenses. Each party shall bear its own legal,
accounting and other costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereunder.
20. Tax Returns. The parties shall reflect the
allocations of the Purchase Price set forth in Section 0 hereof
in any and all applicable tax returns.
21. Miscellaneous.
21.1 Assignment. The benefits of this Agreement
may not be assigned or in any other manner transferred and the
obligations may not be delegated without the prior written
consent of the other parties hereto. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, heirs and
assigns, and no other person shall have any right, benefit or
obligation hereunder.
21.2 Notices. All notices, requests, consents
and demands shall be given to or made upon the parties at their
respective addresses set forth below, or at such other address
as a party may designate in writing delivered to the other
parties. Unless otherwise agreed in this Agreement, all
notices, requests, consents and demands shall be given or made
by personal delivery, by confirmed air courier, or by first
class mail, postage prepaid, to the party addressed as
aforesaid. If sent by confirmed air courier, such notice shall
be deemed to be given upon the earlier to occur of the date upon
which it is actually received by the addressee or the business
day upon which delivery is made at such address, as confirmed by
the air courier (or if the date of such confirmed delivery is
not a business day, the next succeeding business day). If
mailed, such notice shall be deemed to be given upon the earlier
to occur of the date upon which it is actually received by the
addressee or the third business day following the date upon
which it is deposited in a certified first-class postage-prepaid
envelope, return receipt requested, in the United States mail
addressed to such address.
If to Seller:
Harbourton Financial Services L.P.
2530 South Parker Road, Suite 500
Aurora, Colorado 80014
Attention: Jack W. Schakett, CEO
with a copy to:
Lowenstein, Sandler, Kohl, Fisher and Boylan,
P.C.
65 Livingston Avenue
Roseland, New Jersey 07068
Attention: Allen B. Levithan
If to CrossLand:
CrossLand Mortgage Corp.
Attention: Brian Casper
3902 South State Street
Salt Lake City, Utah 84107
with a copy to:
Brad D. Hardy, Esq.
First Security Corporation
79 South Main Street, Suite 200
Salt Lake City, Utah 84111
and with a copy to:
Ray, Quinney & Nebeker
Attention: Sylvia I. Iannucci
79 South Main Street
P.O. Box 45385
Salt Lake City, UT 84145-0385
21.3 Choice of Law. This Agreement shall be
construed in accordance with, and governed by the substantive
laws of, the State of Utah, without reference to principles
governing choice or conflicts of laws.
21.4 Severability. In the event any one or more
of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect the validity of any other provision hereof and this
Agreement shall be construed as if such invalid, illegal or unen
forceable provision were not contained herein; provided that the
Agreement as so modified preserves the basic intent of the
parties.
21.5 Captions. The captions used herein are for
ease of reference only and shall not define or limit the
provisions hereof.
21.6 Sale of Assets Only. This Agreement
constitutes a sale of certain assets of Harbourton only and is
not a sale of any interest in Harbourton. CrossLand is not
assuming and shall not be responsible for the payment of any
liabilities or obligations of Harbourton whatsoever, except as
expressly set forth herein. The parties do not intend to
create, and this Agreement shall not be construed as creating, a
joint venture, partnership or agency/principal relationship
between the parties, except for the independent contractor
relationships to be effected under the Administrative Services
Agreement and the Retail Administrative Services Agreement.
21.7 Enforcement. In the event of a dispute
between the parties arising under this Agreement, the party
prevailing in such dispute shall be entitled to collect such
party's costs from the other parties, including without
limitation court costs and reasonable attorneys' fees.
21.8 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original, but all of which taken together shall
constitute one and the same agreement.
21.9 Entire Agreement; Amendments. This
Agreement, the schedules and exhibits attached hereto, and the
other agreements and documents required or contemplated hereby
to be delivered in connection with the transactions described
herein, constitute the entire agreement between the parties
hereto with respect to the subject matter contained herein, and
there are no covenants, terms or conditions, express or implied,
other than as set forth or referred to herein. This Agreement
supersedes all prior agreements between the parties hereto
relating to all or part of the subject matter herein. No
representations, oral or written, modifying or contradicting the
terms of this Agreement have been made by any party except as
contained herein. This Agreement may not be amended, modified
or canceled except as provided herein or by written agreement of
the parties signed by the party against whom enforcement is
sought. No further consideration shall be required to make such
amendments binding on the parties thereto.
21.10 Confidentiality. Each party shall use all
information that it obtains or has obtained from the others in
connection with the negotiation (including without limitation
due diligence investigations) pursuant to this Agreement solely
for the effectuation of the transactions contemplated by this
Agreement or for other purposes consistent with the intent of
this Agreement and shall not use any of such information for any
other purpose, including, without limitation, the competitive
detriment of the other parties. Each party may disclose such
information to its respective affiliates, counsel, accountants,
tax advisors and consultants, provided that such persons are
subject to the same obligations of confidentiality as the
disclosing party under this Section 21.10. This provision shall
not prohibit the use or disclosure of confidential information
pursuant to court order or which has otherwise become publicly
available through no fault of the recipient party.
21.11 Public Statements. No party to this
Agreement shall issue any press release or other public
statement concerning the transactions contemplated by this
Agreement without first providing the other parties hereto with
a written copy of the text of such release or statement and
obtaining the consent of the other parties respecting such
release or statement, which consent will not be unreasonably
withheld or delayed, except that no such consent shall be
required in connection with any public disclosure (including a
press release or a disclosure filing with Securities and
Exchange Commission) which counsel for the party advises is
required to comply with applicable law or other requirements.
[The balance of this page intentionally left blank.]
In Witness Whereof, the parties hereto have executed this
Agreement or, in the case of entities, have caused this
Agreement to be executed on their behalf by their respective
officers thereunto duly authorized, in multiple originals, all
as of the day and year first above written.
CrossLand Mortgage Corp.
By:
Name: Brian O. Casper
Title: Executive Vice
President
Harbourton Mortgage Co., L.P.
By
Harbourton Funding
Corporation, its General
Partner
By:
Name: Jack W. Schakett
Title: Executive Vice
President
Harbourton Financial Services
L.P.
By
Harbourton Mortgage
Corporation, its General
Partner
By:
Name: Jack W. Schakett
Title: Chief Executive
Officer
Harbourton Funding
Corporation
By:
Name: Jack W. Schakett
Title: Executive Vice
President
Harbourton Holdings, L.P.
By Harbourton General
Corporation, its
General Partner
By:
Name: Jack W. Schakett
Title: Executive Vice
President
211737.08
Asset Purchase Agreement
Table of Contents
1. Purchase and Sale of Assets and Certain Related
Transactions 1
1.1 Purchase and Sale 1
1.2 Exclusion of Pipeline Loans. 2
1.3 Limited Assumption of Liabilities 2
1.4 Seller's Other Debts, Liabilities and
Obligations 3
1.5 Sample Employment Agreement 3
1.6 Administrative Services Agreement 3
1.7 Retail Administrative Services Agreement 3
2. Purchase Price 4
2.1 Purchase Price 4
2.2 Incentive Earnout. 4
(a) Calculation. 4
(b) Definition of AProduction Volume.@ 4
(c) Definition of AIncentive Period.@ 4
(d) Consolidation of Branches. 4
2.3 Payment of the Purchase Price 5
(a) Closing Cash Payment 5
(b) Post-Closing Calculation of the Fixed Asset Purchase
Price and Payment Adjustment 5
(c) Post-Closing Calculation of the Prepaid Assets Purchase
Price and Payment. 6
(d) Incentive Earnout Payments. 6
(i) Monthly Incentive Payments. 6
(ii) Calculation
of Monthly Incentive Payments. 6
(iii) Adjustments
to Calculations. 6
2.4 Allocation of Purchase Price 7
2.5 Transfer Taxes 7
2.6 Proration of Expenses. 7
3. Closing 7
3.1 Closing 7
3.2 Conveyances at Closing 7
(a) Instruments 7
(b) Form of Instruments 8
3.3 Other Deliveries at Closing 8
(a) Purchased Assets 8
(b) Purchase Price 8
(c) Non-Compete Agreement 8
(d) Administrative Services Agreement. 9
(e) Retail Administrative Services Agreement. 9
(f) Other Deliveries 9
4. Representations and Warranties of the Seller. 9
4.1 Organization 9
4.2 Authority 9
4.3 No Violation 9
4.4 Taxes 10
4.5 Service Mark 10
4.6 Title to Purchased Assets 10
4.7 Prepaid Obligations 10
4.8 Assigned Contracts 10
4.9 Financial Statements 11
4.10 Undisclosed Liabilities. 11
4.11 No Material Adverse Change 11
4.12 Litigation 12
4.13 Compliance with Law 12
4.14 Consents and Approvals 12
4.15 Absence of Brokerage Commissions, Etc 12
4.16 Pipeline Loans 12
4.17 Employees. 13
4.18 Employee Benefit Plans. 13
4.19 14
5. Covenants of Seller 15
5.1 Negative Covenants 15
(a) Conduct and Preservation of the Business 15
(b) Purchased Assets 15
(c) Fixed Assets. 15
(d) Liens; Indebtedness; Etc 15
(e) Mortgage Loans 15
(f) Representations and Warranties 16
(g) Assigned Contracts 16
(h) Other 16
5.2 Post-Closing Negative Covenants 16
5.3 Cooperation in Transition. 16
5.4 Investigation; Access 16
5.5 Disclosure Supplements 17
6. Representations and Warranties of CrossLand 17
6.1 Organization of CrossLand 17
6.2 Authorization 17
6.3 Consents and Approvals 17
6.4 No Violation 17
6.5 Absence of Brokerage Commissions, Etc 18
6.6 Financial Statements 18
6.7 Litigation 18
6.8 Compliance with Law 18
7. Covenants of CrossLand 19
8. Regulatory and Other Approvals 19
8.1 Filings 19
8.2 Copies 19
9. Conditions to the Obligations of Seller. 19
9.1 Representations, Warranties and Covenants 19
9.2 No Governmental Proceedings or Litigation 20
9.3 Certificates 20
9.4 Consents and Approvals 20
9.5 Other Documents 20
9.6 Legal Opinion 20
10. Conditions to CrossLand's Obligations 20
10.1 Representations, Warranties and Covenants 20
10.2 No Governmental Proceedings or Litigation 21
10.3 Certificates 21
10.4 Consents and Approvals 21
10.5 Other Documents 21
10.6 Legal Opinion 22
11. Risk of Loss 22
12. Actions by all Parties after the Closing 22
12.1 Records 22
12.2 Further Assurances 23
13. Employee Matters 23
13.1 Employment 23
13.2 Health Insurance 23
13.3 Sick and Vacation Leave 24
13.4 401(k) Plan 24
14. Indemnifications 24
14.1 Seller's and Harbourton Holdings' Indemnity 24
14.2 CrossLand's Indemnity 25
14.3 Survival of Representations and Warranties;
Limits; Exclusive Remedy. 25
(a) 25
(b) 26
(c) 26
(d) 26
(e) 26
14.4 Procedures for Third Party Claims. 26
14.5 Procedures for Inter-Party Claims. 27
14.6 Escrow Upon Indemnity Claim. 27
15. Termination 28
15.1 Termination 28
(a) By Mutual Consent 28
(b) Upon Date Certain 28
(c) Upon Breach by Seller or Harbourton Holdings 28
(d) Upon Breach by CrossLand 29
15.2 Effect of Termination 29
15.3 Waiver 29
16. Agreement Not to Compete. 29
16.1 Agreement Not to Compete. 29
16.2 AParticipation@ Defined 30
16.3 Enforcement 30
18. Survival of Covenants, Representations and Warranties 30
19. Expenses 31
20. Tax Returns 31
21. Miscellaneous 31
21.1 Assignment 31
21.2 Notices 31
21.3 Choice of Law 32
21.4 Severability 32
21.5 Captions 32
21.6 Sale of Assets Only 32
21.7 Enforcement 33
21.8 Counterparts 33
21.9 Entire Agreement; Amendments 33
21.10 Confidentiality 33
21.11 Public Statements 33
21.12 Employee Benefit Plans. vi
Schedules:
Schedule 1.1(a) - Harbourton Branches
Schedule 1.1(b)-1 - Fixed Assets
Schedule 1.1(b)-2 - Excluded Assets
Schedule 1.1(e) - Assigned Contracts
Schedule 1.1(f) - Prepaid Obligations of Harbourton
Related to the Fixed Assets
Schedule 1.2 - Pipeline Loans
Schedule 1.3 - Assumed Liabilities and Obligations
Schedule 1.7 - Retail Branches
Schedule 2.3(a) - December 31 Net Value of Fixed Assets
Schedule 2.3(b) - Fixed Asset Purchase Price
Schedule 0 - Allocation of Purchase Price
Schedule 0 - Title to Purchased Assets
Schedule 4.9 - Financial Statements
Schedule 4.10 - Undisclosed Liabilities
Schedule 4.12 - Harbourton Pending and Threatened Litigation
Schedule 4.13 - Harbourton Compliance Exceptions
Schedule 4.14 - Harbourton Consents and Approvals
Schedule 4.17 - Employee Complaints
Schedule 4.18 - Employee Benefit Plans
Schedule 6.3 - CrossLand Consents and Approvals
Schedule 6.6 - CrossLand Financial
Schedule 6.7 - CrossLand Pending and Threatened Litigation
Schedule 6.8 - CrossLand Compliance Exceptions
Schedule 13 - Harbourton Branch Employees
Exhibits:
Exhibit A - Service Mark Assignment
Exhibit B B Assignment and Assumption Agreement
Exhibit C B Sample Employment Agreement
Exhibit D - Administrative Services Agreement
Exhibit E - Retail Administrative Services Agreement
Exhibit F B Form of Report on Production Volume
Exhibit G - Non-Compete Agreement
Exhibit H - CrossLand's Opinion of Counsel Form
Exhibit I - Harbourton's Opinion of Counsel Form
Exhibit J - Escrow Agreement
211737.07
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-TYPE> 3 MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7147
<SECURITIES> 678
<RECEIVABLES> 11809
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 126119
<PP&E> 2477
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0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 126119
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