UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT to SECTION 13 or 15(d) of THE SECURITIES EXCHANGE
ACT of 1934
For the fiscal year ended DECEMBER 31, 1996
Commission File Number: 0-19822
LITCHFIELD FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3023928
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
789 MAIN ROAD, STAMFORD, VT 05352
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 694-1200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of class)
Indicate by check mark whether the 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 11, 1997 was $82,031,000 (based on the closing price of
the Company's common stock on The Nasdaq Stock Market's National Market.)
The number of outstanding shares of common stock as of March 11, 1997 was
5,449,940 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual stockholders report for the year ended December 31, 1996
are incorporated by reference into Parts I and II. Portions of the proxy
statement for the Special Meeting in Lieu of the Annual Meeting of Stockholders
to be held April 25,1997 are incorporated by reference into Part III.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1996
INDEX
PART I PAGE
- ------ ----
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
- -------
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 17
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
- -------
Item 14..Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
<PAGE>
Form 10-K
This document contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Reference is hereby made to
Risk Factors contained later in this document that could cause actual results to
differ materially from those contained in this document.
PART I
Item 1. BUSINESS
Overview
Litchfield Financial Corporation (the "Company") is a specialty consumer
finance company which provides financing for the purchase of rural and vacation
properties ("Land Loans") and financing of vacation ownership interests ("VOI
Loans"), popularly known as timeshare interests. In addition, the Company makes
loans to rural land dealers and resort developers secured by consumer
receivables and other secured loans (collectively "Dealer/Other Loans").
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gains from the sale of loans and (iii) servicing and other fee
income. Gains on sales of loans are based principally on the present value of
the difference between the interest to be collected from the borrower and the
interest to be passed on to the purchaser of the loan during the estimated
average life of the loans, less a normal servicing fee (referred to as "excess
servicing asset"). The excess servicing asset is calculated using prepayment,
default and interest rate assumptions prevalent in the marketplace at the time
of sale for similar instruments. The excess servicing asset is amortized over
the estimated term of the loans using the interest method. Because a significant
portion of the Company's revenues is comprised of gains realized upon sales of
loans, the timing of such sales has a significant effect on the Company's
results of operations.
Business Strategy
The Company was founded in November 1988. The Company's strategy has been
to build its Serviced Portfolio, consisting of the principal amount of Land, VOI
and Dealer/Other Loans serviced by or on behalf of the Company, by acquiring
loan portfolios from financial institutions, rural land dealers and resort
developers and by providing loans to such dealers and developers secured by
consumer receivables. As part of its business and financing strategy, the
Company seeks niche markets where its underwriting expertise and ability to
provide value-added services enable it to distinguish itself from its
competitors and earn an attractive rate of return on its invested capital.
Initially, the Company pursued this strategy by financing consumer Land Loans
through a land dealer network and portfolio acquisitions. Subsequently, the
Company extended its strategy to financing consumer VOI Loans and providing
loans to land dealers and resort developers secured by consumer Land and VOI
Loans ("Hypothecation Loans"). In 1995, the Company significantly expanded its
financing of VOI Loans when it acquired approximately $34.1 million of VOI Loans
as part of its purchase of the Government Employees Financial Corporation
3
<PAGE>
Form 10-K
("GEFCO") portfolio. In 1996, the Company expanded its financing of loans to
land dealers and resort developers for the acquisition of land and the
acquisition and development of timeshare resorts ("A&D Loans").
Management believes that the marketing and operating strategies implemented
by the Company have enabled it to provide financing to parties whose needs have
been historically underserved in a highly fragmented and inefficient market. In
doing so, the Company has increased its earnings per share during each of its
full years of operations.
Characteristics of the Serviced Portfolio
Land Loans
As of December 31, 1996, 49.2 % of the Serviced Portfolio consisted of Land
Loans with an average principal balance of approximately $12,000. The following
table sets forth as of December 31, 1996 the distribution of Land Loans in the
Company's Serviced Portfolio:
Percentage of Percentage of
Principal Principal Number of Number of
Principal Balance Amount Amount Loans Loans
- ----------------- ------ ------ ----- -----
Less than $ 10,000 $26,621,000 22.3% 5,144 51.6%
$ 10,000 - $ 19,999 47,870,000 40.1 3,373 34.0
$ 20,000 - $ 29,999 23,159,000 19.4 971 9.7
$ 30,000 - $ 49,999 13,609,000 11.4 371 3.7
$ 50,000 - $ 99,999 5,730,000 4.8 88 0.9
$100,000 - $250,000 2,387,000 2.0 14 0.1
------------ ------ ----- ------
Total $119,376,000 100.0% 9,961 100.0%
============ ====== ===== ======
As of December 31, 1996, the weighted average interest rate of the Land
Loans included in the Company's Serviced Portfolio was 12.24% and the weighted
average remaining maturity was 11.1 years. The following table sets forth as of
December 31, 1996 the distribution of interest rates payable on the Land Loans:
Percentage of
Principal Principal
Interest Rate Amount Amount
------------- --------- ------
Less than 8.0% $ 2,388,000 2.0%
8.0% - 9.9% 12,296,000 10.3
10.0% - 11.9% 25,427,000 21.3
12.0% - 13.9% 53,003,000 44.4
14.0% - 15.9% 25,188,000 21.1
16.0% and greater 1,074,000 0.9
----------- ------
Total 119,376,000 100.0%
=========== ======
4
<PAGE>
Form 10-K
A Land Loan borrower generally uses the property which secures the loan as
a site for a lower-cost primary residence, often consisting of manufactured
housing, as a site for a vacation or retirement home or for recreational
purposes. As of December 31, 1996, the Company's Land Loan borrowers resided in
50 states and the District of Columbia.
VOI Loans
As of December 31, 1996, 17.9% of the Serviced Portfolio consisted of VOI
Loans, with an average principal balance of approximately $4,200. The following
table sets forth as of December 31, 1996 the distribution of VOI Loans.
Percentage of Percentage of
Principal Principal Number of Number of
Principal Balance Amount Amount Loans Loans
----------------- ---------- ------- -------- --------
Less than $ 4,000 $13,288,000 30.7% 5,468 53.0%
$4,000 - $ 5,999 13,591,000 31.4 2,680 26.0
$6,000 - $ 7,999 11,773,000 27.2 1,670 16.2
$8,000 - $ 9,999 3,549,000 8.2 402 3.9
$10,000 - $18,000 1,083,000 2.5 91 0.9
--------- --- -- ---
Total 43,284,000 100.0% 10,311 100.0%
========== ===== ====== =====
As of December 31, 1996, the weighted average interest rate of the VOI
Loans included in the Company's Serviced Portfolio was 14.61% and the weighted
average remaining maturity was 4.0 years. The following table sets forth as of
December 31, 1996 the distribution of interest rates payable on the VOI Loans:
Percentage of
Principal Principal
Interest Rate Amount Amount
Less than 10.0% $ 1,169,000 2.7
10.0% - 11.9% 4,545,000 10.5
12.0% - 13.9% 11,124,000 25.7
14.0% - 15.9% 12,423,000 28.7
16.0% - 17.9% 14,023,000 32.4
---------- ----
Total 43,284,000 100.0%
========== ======
As of December 31, 1996, the Company's VOI borrowers resided in 50 states,
the District of Columbia and eight territories or foreign countries.
Loan Purchases and Originations
Litchfield purchases seller-originated consumer Land Loans and VOI Loans
and acquires seasoned loan portfolios from financial institutions, land dealers
and resort developers. The Company also provides loans to dealers and developers
secured by consumer receivables. For the year ended December 31, 1996, the
5
<PAGE>
FORM 10-K
Company extended and acquired $133.8 million of loans, of which 36.7% were Land
Loans, 12.3% were VOI Loans and 51.0% were Dealer/Other Loans.
(1) Dealer and Developer Program:
Financing is provided to consumers through a large number of experienced
land dealers and resort developers from which Litchfield regularly purchases
mortgage loans. The mortgage loans are made to consumers by land dealers and
resort developers using Litchfield's standard forms and subject to its terms.
Mortgage loans are in turn purchased by Litchfield from land dealers and resort
developers on an individually approved basis in accordance with Litchfield's
credit guidelines.
Each land dealer and resort developer from whom Litchfield purchases loans
must be interviewed by the Company's senior management and approved by its
credit committee. Management evaluates each land dealer's and resort developer's
experience, financial statements and credit references and personally inspects a
substantial portion of the land dealer's and resort developer's inventory of
land and VOIs prior to approval of loan purchases.
In order to enhance the creditworthiness of loans purchased from land
dealers and resort developers, Litchfield requires most land dealers and resort
developers to guarantee payment of the loans and ordinarily retains a portion of
the amount payable by the Company to each land dealer and resort developer on
purchase of the loan. The retained portion, or reserve, is released to the land
dealer or resort developer as the related loans are repaid
a. Land Loans
Dealers from whom the Company purchases Land Loans are typically
closely-held firms with annual revenues of less than $3.0 million. Dealers
generally purchase large rural tracts (generally 100 or more acres) from farmers
or other owners and subdivide the property into five to twenty acre parcels for
resale to consumers. Generally the subdivided property is not developed
significantly beyond the provision of graded access roads. In recreational
areas, sales are made primarily to urban consumers who wish to use the property
for a vacation or retirement home or for recreational purposes such as fishing,
hunting or camping. In other rural areas, sales are more commonly made to
persons who will locate a manufactured home on the parcel. The aggregate
principal amount of Land Loans purchased from individual dealers during the year
ended December 31, 1996 varied significantly from a low of approximately $2,300
to a high of approximately $4.7 million. As of December 31, 1996, the five
largest dealers accounted for approximately 23.6% of the principal amount of the
Land Loans in the Serviced Portfolio, and no single dealer accounted for more
than 7.1%.
b. VOI Loans
The Company purchases VOI Loans from various financial institutions and
resort developers. The Company generally targets mature, small resorts with
completed amenities and established property owners associations. These resorts
participate in programs that permit purchasers of VOIs to exchange their time
intervals for time intervals in other resorts around the world. During the year
ended December 31, 1996, the Company acquired from such institutions and
developers approximately $16.5 million of VOI Loans. As of December 31, 1996,
the five largest developers accounted for approximately 63.1% of the principal
amount of the VOI Loans in the Serviced Portfolio, and no single developer
accounted for more than 19.2%.
6
<PAGE>
FORM 10-K
(2) Portfolio Acquisitions
Litchfield also engages in the purchase of portfolios of seasoned loans
from land dealers, resort developers and financial institutions. Most purchases
are from land dealers and resort developers, substantially all of which
guarantee the loans sold and from which the Company ordinarily withholds a
reserve. Management believes that the portfolio acquisition program is
attractive to land dealers and resort developers because it provides them with
liquidity to purchase additional inventory.
Prior to purchasing such loans, Litchfield evaluates the credit and payment
history of each borrower in accordance with the Company's underwriting
guidelines, performs a sampling of borrower interviews, reviews the
documentation supporting the loans for completeness and obtains an appropriate
opinion from local legal counsel. Out of a land dealer's or resort developer's
total portfolio, Litchfield selects only individual loans which meet its credit
standards. In addition, Litchfield evaluates the dealer's or developer's credit
references, experience and financial statements and inspects a substantial
portion of the dealer's inventory prior to approval.
The Company, from time to time, has acquired loan portfolios from the RTC
and others secured by rural and vacation land. In evaluating the portfolios, the
Company conducted its normal review of the borrower's documentation, payment
history and underlying collateral. Although the Company was able to review loans
included in these portfolios, the Company could not select individual loans for
purchase, but rather had to purchase the entire portfolio offered. The Company
adjusted its purchase price accordingly.
(3) Dealer/Other Loans
The Company extends loans to land dealers and resort developers secured by
consumer receivables (Hypothecation Loans). During the year ended December 31,
1996, the Company extended or acquired approximately $43.1 million of
Hypothecation Loans to land dealers and resort developers, of which $15.1
million, or 35.0%, were secured by Land Loans and $28.0 million, or 65.0%, were
secured by VOI Loans.
Hypothecation Loans are typically extended to land dealers and resort
developers based on advance rates of 50% to 85% of the eligible consumer
receivables which serve as collateral. The Company's Hypothecation Loans are
typically made at variable rates based on the prime rate of interest plus 3% to
5%. As of December 31, 1996, the Company had $49.5 million of Hypothecation
Loans outstanding, none of which were 90 days or more past due. As of such date,
the largest Hypothecation Loan was $5.7 million and the average principal
balance was $839,000.
The Company also makes A&D Loans to dealers and developers with whom it has
an ongoing relationships. During the year ended December 31, 1996, the Company
made $25.1 million A&D Loans to land dealers and resort developers, of which
$7.0 million, or 27.9%, were secured by land and $18.1 million, or 72.1%, were
secured by resorts under development.
A&D Loans are generally extended to land dealers and resort developers
based on loan to value ratios of 30% to 70% at variable rates based on the prime
rate plus 2% to 5%. As of December 31, 1996, the Company had $25.1 million of
A&D Loans outstanding, none of which were 90 days or more past due. As of such
date, the largest A&D Loan was $3.4 million and the average principal balance
was $652,000
7
<PAGE>
FORM 10-K
The Company also makes other secured loans to dealers and developers with
whom it has an ongoing relationship. In addition, the Company acquired certain
secured and unsecured loans in connection with the GEICO purchase. As of
December 31, 1996, the Company has $6.5 million of such loans (collectively
referred to as "Other Loans") none of which were 90 days or more past due.
Geographic Distribution
Land Loans
The Company's portfolio of Land Loans is secured by property located in 34
states, primarily in the Eastern United States.
Number of Loans Principal Amount of Loans
--------------- -------------------------
December 31, December 31,
------------ ------------
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Southwest 17% 18% 20% 23% 35% 14% 14% 19% 27% 27%
South 36 34 38 32 34 28 29 32 38 34
Mid-Wes -- 2 3 4 5 -- 2 3 3 7
Mid-Atlantic 16 15 13 14 9 17 16 15 11 12
New York State 24 21 18 18 12 29 24 21 15 14
New England 7 10 8 9 5 12 15 10 6 6
--- --- --- --- --- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
=== === === === === === === === === ===
VOI Loans
The Company's portfolio of VOI Loans is secured by property located in 17
states.
Number of Loans Principal Amount of Loans
--------------- -------------------------
December 31, December 31,
------------ ------------
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
South 100% 2% 7% 28% 24% 100% 2% 7% 28% 28%
Mid-West --- --- --- 52 61 --- --- --- 53 55
Mid-Atlantic --- 98 93 19 13 --- 98 93 16 15
New England --- --- --- 1 2 --- --- --- 3 2
--- --- --- --- --- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
=== === === === === === === === === ===
Loan Underwriting
Litchfield has established loan underwriting criteria and procedures
designed to reduce credit losses on its portfolio. The loan underwriting process
includes reviewing each borrower's credit history and, for land loans in excess
of $50,000 and VOI loans in excess of $15,000, verifying employment and
calculating certain debt-to-income ratios. In addition, Litchfield's
underwriting staff routinely conducts telephone interviews with a selected
sample of borrowers. The primary focus of the Company's underwriting is to
assess the likelihood that the borrower will repay the loan as agreed by
examining the borrower's credit history through standard credit reporting
8
<PAGE>
FORM 10-K
bureaus. In order to verify a borrower's employment status, the Company may
contact the applicant's employer or obtain current pay stubs or recent tax
returns.
Litchfield's loan policy is to purchase Land and VOI Loans from $3,000 to
$50,000. On a case by case basis, the Company will also consider purchasing such
loans in excess of $50,000. As of December 31, 1996, the Company had 102 Land
Loans exceeding $50,000 representing 5.0% of the number of such loans in the
Serviced Portfolio, for a total of $8.1 million. There were no VOI Loans
exceeding $50,000 as of December 31, 1996. The Company will originate Dealer
Loans up to $10.0 million. All loans greater than $100,000 must be approved by
the Credit Committee which is comprised of the Chief Executive Officer,
Executive Vice President, a senior Vice President and the Chief Financial
Officer.
Collections and Delinquencies
Management believes that the relatively low delinquency rate for the
Serviced Portfolio is attributable primarily to the application of its
underwriting criteria, as well as to dealer guarantees and reserve requirements.
No assurance can be given that these delinquency rates can be maintained in the
future.
Collection efforts are managed and delinquency information is analyzed at
the corporate headquarters. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. Collection efforts begin when
an account is five days past due, at which time the Company attempts to contact
the borrower to determine the reason for the delinquency and to attempt to cause
the account to become current. If the status of the account continues to
deteriorate, an analysis of that delinquency is undertaken by the collection
supervisor to determine the appropriate action. When the loan is 90 days past
due in accordance with its original terms and it is determined that the amounts
cannot be collected from the dealer or developer guarantees or reserves, the
loan is generally placed on a non-accrual status and the collection supervisor
determines the action to be taken. The determination of how to work out a
delinquent loan is based upon many factors, including the borrower's payment
history and the reason for the current inability to make timely payments. The
Company has not restructured a material number of problem loans. When a dealer
program loan becomes 30 days past due, in addition to the Company's collection
procedures, the Company also has the assistance of the dealer or developer in
collecting the loan.
Regulations and practices regarding the rights of the mortgagor in default
vary greatly from state to state. To the extent permitted by applicable law, the
Company collects late charges and return-check fees and records these items as
additional revenue. Only if a delinquency cannot otherwise be cured will the
Company decide that foreclosure is the appropriate course of action. If the
Company determines that purchasing a property securing a mortgage loan will
minimize the loss associated with such defaulted loan, the Company may accept a
deed in lieu of foreclosure, take legal action to collect on the underlying note
or bid at the foreclosure sale for such property.
9
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FORM 10-K
Land Loans
The following table shows the Company's historic delinquency rate, net of
dealer/developer reserves and guarantees for Land Loans in the Serviced
Portfolio:
<TABLE>
Year ended December 31,
-----------------------
<S> <C>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Land Loans in Serviced
Portfolio $58,968,000 $77,258,000 $90,502,000 $97,266,000 $119,370,000
Delinquent Land Loans (1) 553,000 511,000 981,000 1,059,000 1,920,000
Delinquency as a
percentage of Land
Loans in Serviced Portfolio 0.94% 0.66% 1.08% 1.09% 1.61%
(1) Delinquent loans are those which are 30 days or more past due which are
not covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
</TABLE>
VOI Loans
The following table shows the Company's historic delinquency rate, net of
dealer/developer reserves and guarantees for VOI Loans in the Serviced
Portfolio:
<TABLE>
Year ended December 31,
-----------------------
<S> <C>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
VOI Loans in Serviced
Portfolio $300,000 $1,434,000 $2,851,000 $46,700,000 $43,284,000
Delinquent VOI Loans (1) --- --- --- 1,958,000 1,316,000
Delinquency as a percentage
of VOI Loans in Serviced
Portfolio ---% ---% ---% 4.19% 3.04%
(1) Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
</TABLE>
The following is an analysis of the total allowances for all loan losses
owned and sold:
<TABLE>
Year ended December 31,
-----------------------
<S> <C>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Allowance, beginning of year $299,000 $498,000 $1,064,000 $1,264,000 $3,715,000
Provision for loan losses 270,000 620,000 559,000 890,000 1,954,000
Net charge-offs of
uncollectible accounts (1) (179,000) (493,000) (359,000) (946,000) (1,965,000)
Allocation of purchase
adjustment (2) 108,000 439,000 --- 2,507,000 824,000
------- ------- ---------- ---------- ----------
Allowance, end of year $498,000 $1,064,000 $1,264,000 $3,715,000 $4,528,000
======== ========== ========== ========== ==========
</TABLE>
(1) Net of recoveries of $20,000, $10,000, $47,000, $11,000 and $310,000 in
1992, 1993, 1994, 1995 and 1996, respectively.
(2) Represents allocation of purchase adjustment related to purchase of certain
non-guaranteed loans including the GEFCO portfolio in 1995.
10
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FORM 10-K
The following is an analysis of net charge-offs by major loan and
collateral types experienced by the Company:
<TABLE>
Year ended December 31,
-----------------------
<S> <C>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Land Loans $179,000 $493,000 $359,000 $546,000 $669,000
VOI loans --- --- --- 45,000 1,284,000
Dealer/Other Loans --- --- --- 355,000 12,000
--------- -------- -------- -------- ---------
$ 179,000 $493,000 $359,000 $946,000 $965,000
========= ======== ======== ======== =========
Net charge-offs
as a percentage
of the average
Serviced Portfolio .37% .69% .38% .67% .94%
</TABLE>
As part of the Company's financing of Land Loans and VOI Loans,
arrangements are entered into with land dealers and resort developers, whereby
reserves are established to protect the Company from potential losses associated
with such loans. As part of the Company's agreement with the land dealers and
resort developers, a portion of the amount payable to them for a Land Loan or a
VOI Loan is retained by the Company and is available to the Company to absorb
loan losses for those loans. The Company negotiates the amount of the reserves
with the land dealers and resort developers based upon various criteria, two of
which are the financial strength of the land dealers and resort developers and
the credit risk associated with the loans being purchased. Dealer reserves for
Land Loans amounted to $6,112,000, $6,420,000 and $7,556,000 at December 31,
1994, 1995 and 1996, respectively. Developer reserves for VOI Loans amounted to
$463,000, $3,224,000 and $3,072,000 at December 31, 1994, 1995 and 1996,
respectively. Historically, substantially all of the dealers and developers have
provided personal and, when relevant, corporate guarantees to further protect
the Company from loss.
Loan Servicing and Sales
The Company retains the right to service all the loans it originates.
Servicing includes collecting payments from borrowers, remitting payments to
investors who have purchased the loans, accounting for principal and interest,
contacting delinquent borrowers and supervising foreclosure and bankruptcies in
the event of unremedied defaults. Substantially all servicing results from the
origination and purchase of loans by the Company, and the Company has not
historically purchased loan servicing rights except in connection with the
purchase of loans. Servicing rates generally approximate .5% to 2% of the
principal balance of a loan.
In connection with the Company's continuing growth, the Company decided to
subcontract its servicing rights in order to avoid incurring additional fixed
overhead costs associated with such servicing. Accordingly, the Company
subcontracted to an unaffiliated third party the servicing of VOI Loans in 1995
and the remaining loans in April 1996. The Company retains responsibility for
servicing all loans as master servicer.
In 1990, the Company began privately placing issues of pass-through
certificates evidencing an undivided beneficial ownership interest in pools of
loans which have been transferred to trusts. The principal and part of the
interest payments on the loans transferred to the trust are collected by the
Company, as the servicer of the loan pool, remitted to the trust for the benefit
of the investors, and then distributed by the trust to the investors in the
pass-through certificates.
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FORM 10-K
As of December 31, 1996, the Company has completed private placements of
pass-through certificate for a total of approximately $201.7 million, including
securitizations to Internationale Nederlanden (U.S.) Capital Markets, Inc.
("ING"), Cigna, Teachers Insurance and Annuity Association and the Bank of
Boston. In certain of the Company's issues of pass-through certificates, credit
enhancement was achieved by dividing the issue into a senior portion which was
sold to the investors and a subordinated portion which was retained by the
Company. In certain other of the Company's private placements, credit
enhancement was achieved through cash collateral. If borrowers default in the
payment of principal or interest on the loans underlying these issues of
pass-through certificates, losses would be absorbed first by the subordinated
portion or cash collateral account retained by the Company and might, therefore,
have to be charged against the allowance for loan losses to the extent dealer
guarantees and reserves are not available.
The Company also has a revolving line of credit and sale facility as part
of an asset backed commercial paper facility with Holland Limited
Securitization, Inc. ("HLS"), a multi-seller commercial paper issuer sponsored
by ING. In October 1996, the Company amended the facility to increase the
facility to $100 million, subject to certain terms and conditions, reduce
certain credit enhancement requirements and expand certain loan eligibility
criteria. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with HLS or sells the loans to HLS. HLS issues commercial paper
or other indebtedness to fund the purchase or pledge of loans from LMSC. HLS is
not affiliated with the Company or its affiliates. As of December 31, 1996, the
outstanding balance of loans sold under this facility was $77,521,000 and
outstanding borrowings under the line of credit were $1,799,000. Interest is
payable on the line of credit at an interest rate based on certain commercial
paper rates.
Marketing and Advertising
The Company markets its program to rural land dealers and resort developers
through referrals, dealer and developer solicitation, and targeted direct mail.
The Company employs four marketing executives based in Denver, Colorado and six
marketing executives based in Stamford, Vermont. In the last 5 years the Company
has closed loans with over 250 different dealers and developers.
Management believes that the Company benefits from name recognition as a
result of its referral, advertising and other marketing efforts. Referrals have
been the strongest source of new business for the Company and are generated in
the states in which the Company operates by dealers, brokers, attorneys and
financial institutions. Management and marketing representatives also conduct
seminars for dealers and brokers and attend trade shows to improve awareness and
understanding of the Company's programs.
Regulation
The Company is licensed as a mortgage banker in nine of the states in which
it operates, and in those states its operations are subject to supervision by
state authorities (typically state banking or consumer credit authorities).
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FORM 10-K
Expansion into other states may be dependent upon a finding of financial
responsibility, character and fitness of the Company and various other matters.
The Company is generally subject to state regulations, examination and reporting
requirements, and licenses are revocable for cause. The Company is subject to
state usury laws in all of the states in which it operates.
The Company's consumer finance activities are subject to the
Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure requirements
designed to provide consumers with uniform, understandable information with
respect to the terms and conditions of loans and credit transactions in order to
give them the ability to compare credit terms. Failure to comply with the
requirements of the Truth-in-Lending Act may give rise to a limited right of
rescission on the part of the borrower. The Company believes that it is in
substantial compliance in all material respects with the Truth-in-Lending Act.
The Company is also required to comply with the Equal Credit Opportunity
Act of 1974, as amended ("ECOA"), which prohibits creditors from discriminating
against applicants on the basis of race, color, sex, age or marital status.
Regulation B promulgated under ECOA restricts creditors from obtaining certain
types of information from loan applicants. It also requires certain disclosures
by the lender regarding consumer rights and requires lenders to advise
applicants of the reasons for any credit denial. In instances where the
applicant is denied credit or the interest rate charged increases as a result of
information obtained from a consumer credit agency, another statute, the Fair
Credit Reporting Act of 1970, as amended, requires the lenders to supply the
applicant with a name and address of the reporting agency.
Competition
The consumer finance business is highly competitive, with competition
occurring primarily on the basis of customer service and the term and interest
rate of the loans. Traditional competitors in the consumer finance business
include commercial banks, credit unions, thrift institutions, industrial banks
and finance companies, many of which have considerably greater financial,
technical and marketing resources than the Company. As a result of consolidation
and the failure of certain financial institutions, the number of financial
institutions is being reduced. There can be no assurance that the Company will
not face increased competition from remaining institutions or new financial
institutions.
The Company believes that it competes on the basis of providing competitive
rates and prompt, efficient and complete service, and by emphasizing customer
service on a timely basis to attract borrowers whose needs are not met by
traditional financial institutions.
Employees
As of December 31, 1996, the Company had 57 full-time equivalent employees.
The Company's employees are not covered by a collective bargaining agreement.
The Company considers its relations with its employees to be good.
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FORM 10-K
Risk Factors
General Business Risks. The Company's business is subject to various
business risks. The level of the Company's revenues is dependent upon demand for
the type of loans originated, purchased, sold and serviced by the Company from
both potential borrowers and investors. Future declines in real estate values,
changes in prevailing interest rates and changes in the availability of
attractive returns on alternative investments each could make loans of the type
originated and purchased by the Company less attractive to borrowers and
investors.
Funding Sources. The Company has an ongoing need for debt and equity
financing to fund its lending and purchasing activities. Historically, the
Company has funded its originations and purchases of loans by borrowing under
secured and unsecured lines of credit from unaffiliated financial institutions.
As of December 31, 1996, the Company had secured lines of credit totaling $50
million with three financial institutions, of which all $50 million was
available for borrowings, and $34.5 million of borrowings were outstanding. Two
of these lines are renewable on an annual basis and the other line has an
initial three-year term expiring in September 1999. The Company has also entered
into a four-year arrangement expiring in June 1998 with another financial
institution, pursuant to which such institution has agreed to provide credit
enhancements and liquidity to facilitate the sale by the Company of its loans.
Such institution's obligations under this arrangement cannot exceed $100.0
million at any one time. The Company has sold approximately $98.5 million of
loans using this facility. To the extent that the Company does not successfully
sell its loans into the secondary markets and maintain line of credit
arrangements, it may have to curtail its loan purchasing activities, which could
have a material adverse effect on its operation.
Impact of Economic Cycles. The business risks associated with the Company's
business become more acute in an economic slowdown. Such an environment is
generally characterized by decreased demand for rural and vacation real estate
and declining real estate values in many areas of the country. Delinquencies,
foreclosures, and loan losses generally increase during economic slowdowns or
recessions, and any such future slowdowns could adversely affect future
operations of the Company.
Prepayment Risk. A significant portion of the Company's revenues
historically has been comprised of gains on sales of loans. The gains are
recorded in the Company's revenues and on its balance sheet (as an "excess
servicing asset") at the time of sale, and the amount of gains recorded is based
in part on certain estimates made by management at that time. Those estimates
are based on management's expectations of future prepayment rates and other
considerations. If actual prepayments with respect to loans occur more quickly
than was projected at the time such loans were sold, as can occur when interest
rates decline, a charge to earnings will be taken in the period of adjustment.
If actual prepayments with respect to loans sold occur more slowly than
estimated, the carrying value on the balance sheet of the excess servicing asset
would not increase, although total income would exceed previously estimated
amounts.
Fluctuations in Quarterly Results of Operations. A significant portion of
the Company's revenues consists of gains recognized upon sales of loans. Thus,
the timing of loan sales has a significant effect on the Company's results of
operations, and the results of one quarter are not necessarily indicative of
results for the next quarter.
Contingent Repurchase Obligations. In connection with the Company's
practice of selling whole loans to investors, the Company generally commits to
repurchase such loans that become 90 days past due. These contingent obligations
14
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FORM 10-K
are subject to various terms and conditions, including limitations on the
amounts of loans which must be repurchased. The Company also has guaranteed
payment of loans included in certain of its mortgage securitization programs. As
of December 31, 1996, the Company had outstanding contingent repurchase
obligations in the aggregate amount of approximately $8.4 million. In addition,
when the Company sells loans through mortgage securitization programs, the
Company commits to replace any loans that do conform to certain representations
and warranties included in the operative loans sale documents. Also, in
connection with certain securitization programs $18.9 million of restricted cash
represent accounts established as credit enhancements as of December 31, 1996.
Dependence on Senior Management. The Company's success depends upon the
continued contributions of its senior management. The loss of services of
certain of the Company's executive officers could have an adverse effect upon
the Company's business. The Company maintains key man insurance on the life of
one member of its senior management, Chief Executive Officer and President
Richard A. Stratton.
Significant Influence of Certain Stockholders. As of January 31, 1997, the
executive officers and directors of the Company beneficially owned 16.4% of the
outstanding shares of Common Stock. Accordingly, such persons, if they were to
act in concert, would have significant influence on the Company.
Regulation. The operations of the Company are subject to extensive
regulation by federal, state and local government authorities and are subject to
various laws and judicial and administrative decisions imposing various
requirements and restrictions, including among other things, regulating credit
granting activities, establishing maximum interest rates and finance charges,
requiring disclosures to customers, governing secured transactions and setting
collection, repossession and claims handling procedures and other trade
practices. In addition, certain states have enacted legislation which restricts
the subdivision of rural land and numerous states have enacted regulation in
connection with vacation ownership interests. Although the Company believes that
it is in compliance in all material respects with applicable local, state and
federal laws, rules and regulations, there can be no assurance that more
restrictive laws, rules and regulations will not be adopted in the future which
could make compliance much more difficult or expensive, restrict the Company's
ability to originate or sell loans, further limit or restrict the amount of
interest and other charges earned under loans originated or purchased by the
Company, or otherwise adversely affect the business or prospects of the Company.
Environmental Liabilities. In the course of its business, the Company has
acquired, and may in the future acquire, properties securing loans it has
arranged that are in default. Although substantially all of the Company's loans
are secured by mortgages on rural land and VOIs, there is a risk that hazardous
substances or waste could be discovered on such properties after foreclosure by
the Company. In such event, the Company might be required to remove such
substances from the affected properties at its sole cost and expense. There can
be no assurances that the cost of such removal would not substantially exceed
the value of the affected properties or the loans secured by the properties or
that the Company would have adequate remedies against the prior owner or other
responsible parties, or that the Company would not find it difficult or
impossible to sell the affected properties either prior to or following any such
removal.
15
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Collection and Delinquency Risks Associated with VOI Loans. The Company's
collection of payments due under the VOI Loans is subject to certain risks
associated with VOI ownership. Although individual VOI owners are obligated to
make payments under their notes irrespective of any defect in, damage to, or
change in conditions of the vacation resort (such as erosion, construction on
adjacent or nearby properties, or environmental problems) or of any breach of
contract by the property owners association to provide certain services to the
VOI borrowers (including any such breach resulting from a destruction of the
resort) or of any other loss of benefits of ownership of their unit week(s)
(including cessation of the ability of the borrowers to exchange their time
intervals in the resort for time intervals in other unaffiliated resorts), any
such material defect, damage, change, breach of contract, or loss of benefits is
likely to result in a delay in payment or default by a substantial number of the
borrowers whose VOIs are affected. In addition, the Company relies upon
unaffiliated third parties to market VOIs and to resell VOIs securing defaulted
loans. If such third parties were to cease its sales and resales efforts, either
voluntarily or involuntarily, and the Company were unable to make suitable
arrangements with a successor marketer, the ability of the Company to realize on
defaulted loans might be substantially diminished. The costs of foreclosure and
resale of unit weeks securing defaulted loans are likely to be substantially
higher than such costs in the traditional mortgages, and this may materially
affect the amounts realized by the Company on defaulted loans in the best of
circumstances. Such marketing companies are entitled to sales and commission.
Competition. The financing of VOI loans is highly competitive and many of
the Company's competitors have greater financial resources. The Company
generally targets mature, small resorts with completed amenities and established
property owners associations. The Company believes that financing of such VOIs
is typically fragmented and less competitive. Nonetheless, there can be no
assurance that the Company's strategy will be successful.
Item 2. PROPERTIES
The Company owns an aggregate of approximately 13,000 square feet of office
space in Stamford, Vermont, which is used as the Company's headquarters. The
Company also occupies an aggregate of approximately 5,100 square feet of office
space in Lakewood, Colorado, pursuant to a lease expiring in January 1998, with
an option to renew until 2001, providing for an annual rental of approximately
$40,000, including utilities and exterior maintenance expenses.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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FORM 10-K
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The Nasdaq Stock Market's National
Market under the symbol "LTCH." At March 11, 1997, there were approximately
1,500 holders of record of the registrants common stock. Common Stock Market
Prices and Dividends on page 25 of the Annual Report to Stockholders for the
year ended December 31, 1996 is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The Selected Consolidated Financial Information on pages 2 and 3 of the
Annual Report of stockholders for the year ended December 31, 1996 is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 4 through 10 of the Annual Report of Stockholders for the
year ended December 31, 1996 is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent auditors
included on pages 11 through 27 of the Annual Report of Stockholders for the
year ended December 31, 1996 is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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FORM 10-K
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 4 through 7 of Litchfield Financial
Corporation's Proxy Statement dated March 27, 1997, with respect to directors
and executive officers of the Company, is incorporated herein by reference in
response to this item.
Item 11. EXECUTIVE COMPENSATION
The information contained on pages 8 through 13 of Litchfield Financial
Corporation's Proxy Statement dated March 27, 1997, with respect to executive
compensation and transactions, is incorporated herein by reference in response
to this item.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on pages 2 through 4 of Litchfield Financial
Corporation's Proxy Statement dated March 27, 1997, with respect to security
ownership of certain beneficial owners and management, is incorporated herein by
reference in response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 7 of Litchfield Financial Corporation's
Proxy Statement dated March 27, 1997, with respect to certain relationships and
transactions, is incorporated herein by reference in response to this item.
18
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FORM 10-K
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following consolidated financial statements of Litchfield Financial
Corporation and subsidiaries, included in the annual report of the registrant to
its stockholders for the year ended December 31, 1996 are incorporated by
reference in Item 8:
Consolidated balance sheets - December 31, 1996 and 1995
Consolidated statements of income - Years ended December 31, 1996, 1995 and
1994
Consolidated statements of stockholders' equity - Years ended December 31,
1996, 1995 and 1994
Consolidated statements of cash flows - Years ended December 31, 1996, 1995
and 1994
Notes to consolidated financial statements - December 31, 1996
(2) Financial statement schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(3) Listing of Exhibits
A. Exhibits Incorporated by Reference.
(i) The following exhibits are incorporated herein by reference to the
Company's Registration Statement on Form S-1 (No. 33-44915), as amended,
filed with the Securities and Exchange Commission (exhibit numbers
indicated below correspond to those used for exhibits originally filed with
such Registration Statement) (No. 33-44915):
3.1 Restated Articles of Organization of the Company.
3.2 Restated By-Laws of the Company.
10.1 1990 Stock Option Plan adopted and approved on May 30, 1990 and
form of Stock Option Agreement
10.2 Securities Purchase Agreement dated as of November 21, 1988.
10.28 Pooling and Trust Agreement dated as of December 31, 1990 between
the Company and State Street Bank and Trust Company of Connecticut,
N.A., as trustee of Litchfield Financial Mortgage Trust II.
10.29 Servicing Agreement dated December 31, 1990 between State Street
Bank and Trust Company of Connecticut, N.A., as trustee of
Litchfield Financial Mortgage Trust II, and the Company.
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FORM 10-K
10.30 Purchase Agreement dated December 31, 1990 with respect to the
sale of Mortgage Pass Through Certificates Series 1990-2 by
Litchfield Financial Mortgage Trust II.
10.31 Class B and Class B-1 Purchase Agreement dated December 31,
1990 with respect to the sale of Mortgage Pass-Through Certificate
Series 1990-2 by Litchfield Financial Mortgage Trust II.
10.35 Pooling and Trust Agreement as of December 20, 1991 between the
Company and James C. Farrington, as trustee of Litchfield
Financial Mortgage Trust V.
10.36 Servicing Agreement dated as of December 14, 1991 between the
Company and James C. Farrington, as trustee of Litchfield
Financial Mortgage Trust V.
10.37 Purchase Agreement dated December 20, 1991 with respect to the
sale of Mortgage Pass-Through Certificates Series 1991-1 of
Litchfield Financial Mortgage Trust V.
10.38 Class B Purchase Agreement dated December 20, 1991 with respect to
the sale of Mortgage Pass-Through Certificates Series 1991-1 of
Litchfield Financial Mortgage Trust V.
10.48 Amendment to the 1990 Stock Option Plan dated February 18, 1992.
(ii) The following exhibits are incorporated by reference to
the Company's Registration Statement on Form S-1 (No. 33-52390),
as amended, filed with the Securities and Exchange Commission
(exhibit numbers indicated below correspond to those exhibits
originally filed with such Registration Statement No. 33-52390):
4.1 Form of Indenture pursuant to which the Company's 10% Notes due
2002 were issued.
4.2 Form of 10% Note due 2002.
10.51 Pooling and Servicing Agreement dated as of March 31, 1992 among
the Company, Litchfield Mortgage Securities Corporation I, and
Thomas P. McHugh, Esquire, as trustee of Litchfield Financial
Mortgage Trust VII.
10.57 Pooling and Servicing Agreement dated as of September 14, 1992
among the Company, Litchfield Mortgage Securities Corporation
1992-2, and the Chase Manhattan Bank, N.A., as trustee of
Litchfield Financial Mortgage Trust 1992-2.
10.58 Mortgage Purchase Agreement dated as of September 24, 1992 between
the Company and Litchfield Mortgage Securities Corporation 1992-2.
(iii) The following exhibits are incorporated by reference to the
Company's annual report on Form 10-K for the year ended December
31, 1992 as filed with the Securities and Exchange Commission
(exhibit numbers indicated below correspond to those used for
exhibits originally filed with such annual report on Form 10-K):
10.59 Second Amendment to the 1990 Stock Option Plan.
10.61 Mortgage Purchase Agreement dated as of March 19, 1993 between the
Company and Litchfield Mortgage Securities Corporation I.
10.62 Pooling and Servicing Agreement dated as of February 23, 1993
among the Company, Litchfield Mortgage Securities Corporation I,
and Thomas P. McHugh, Esquire, as trustee of Litchfield Financial
Mortgage Trust 1993-1.
(iv) The following exhibits are incorporated by reference to the Company's
Registration Statement No. 33-60788, as amended, filed with the
Securities and Exchange Commission (exhibit numbers indicated
below correspond to those exhibits originally filed with such
Registration Statement No. 33- 60788):
4.3 Form of Indenture pursuant to which the Company's 8 7/8% Notes due
2003 were issued.
4.4 Form of 8 7/8% Note due 2003.
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<PAGE>
FORM 10-K
(v) The following exhibits are incorporated by reference to the
Company's annual report on Form 10-K for the year ended December 31,
1993 as filed with the Securities and Exchange Commission (exhibit
numbers indicated below correspond to those used for exhibits
originally filed with such annual report on Form 10-K)
10.64 Pooling and Servicing Agreement, dated as of August 27, 1993, among
the Company, Litchfield Mortgage Securities Corporation and Harris
Trust and Savings Bank, as Trustee of the Litchfield Financial
Mortgage Trust 1993-2.
10.65 Mortgage Purchase Agreement, dated as of September 28, 1993,
between the Company and Litchfield Mortgage Securities Corporation.
10.66 Pooling and Servicing Agreement, dated as of November 30, 1993,
among the Company, Litchfield Mortgage Securities Corporation and
Harris Trust and Savings Bank, as Trustee of the Litchfield
Financial Mortgage Trust 1993-3.
10.67 Mortgage Purchase Agreement, dated as of December 21, 1993,
between the Company and Litchfield Mortgage Securities Corporation
.
(vi) The following exhibits are incorporated by reference to the
Company's Registration Statement No. 33-89488, as amended, filed
with the Securities and Exchange Commission (exhibit numbers
indicated below correspond to those exhibits originally filed with
such Registration Statement No. 33- 89488):
4.5 Form of Indenture pursuant to which the Company's 10% Notes due
2004 were issued.
4.6 Form of 10% Note due 2004.
10.68 Pooling and Servicing Agreement, dated as of June 1, 1994, among
the Company, Litchfield Mortgage Securities Corporation 1994, and
The Chase Manhattan Bank, N.A., as trustee.
10.69 Series Trust Agreement, dated as of June 16, 1994, between the
Company, Litchfield Mortgage Securities Corporation 1994, and The
Chase Manhattan Bank, N.A., as trustee.
10.70 Mortgage Purchase Agreement, dated as of June 16, 1994, between the
Company and Litchfield Mortgage Securities Corporation 1994.
10.71 Pledge and Collateral Agency Agreement, dated as of June 16, 1994,
among the Company, Litchfield Mortgage Securities Corporation
1994, Internationale Nederlanden (U.S.) Finance Corporation and
The Chase Manhattan Bank, N.A., as collateral agent.
10.72 Sinking Fund Account Agreement, dated as of June 16, 1994, among
the Company, Internationale Nederlanden (U.S.) Finance
Corporation, The Chase Manhattan Bank, N.A. and Internationale
Nederlanden (U.S.) Capital Markets.
10.73 Rate Stabilization Agreement, dated as of June 16, 1994, between
the Company and Internationale Nederlanden (U.S.) Finance
Corporation.
10.74 Series Trust Agreement, dated as September 27, 1994, among the
Company Litchfield Mortgage Securities Corporation 1994, and The
Chase Manhattan Bank, N.A., as trustee.
10.75 Mortgage Purchase Agreement, dated as of September 27, 1994,
between the Company and Litchfield Mortgage Securities Corporation
1994.
10.76 Pledge and Collateral Agency Agreement, dated as of September 27,
1994, among the Company, Litchfield Mortgage Securities
Corporation 1994, Internationale Nederlanden (U.S.) Finance
Corporation and The Chase Manhattan Bank, N.A., as collateral
agent.
10.77 Sinking Fund Account Agreement, dated as of September 27, 1994,
among the Company, Internationale Nederlanden (U.S.) Finance
Corporation, The Chase Manhattan Bank, N.A. and Internationale
Nederlanden (U.S.) Capital Markets.
10.78 Rate Stabilization Agreement, dated as of September 27, 1994,
between the Company and Internationale Nederlanden (U.S.) Finance
Corporation.
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FORM 10-K
10.79 Pooling and Servicing Agreement, dated as of August 31, 1994, among
the Company, Litchfield Mortgage Securities Corporation and Thomas
P. McHugh, Esquire, as trustee.
10.80 Mortgage Purchase Agreement, dated as of September 12, 1994 between
the Company and Litchfield Mortgage Securities Corporation.
10.81 Lease, dated as of February 1, 1995, between the Company and Fox
Point Property L.L.C.
10.84 Employment Agreement, date as of December 23, 1994, between the
Company and Wayne M. Greenholtz.
10.85 Third Amendment to the 1990 Stock Option Plan.
(vii) The following exhibits are incorporated by reference to the
Company's annual report on Form 10-K for the year ended December
31, 1994 as filed with the Securities and Exchange Commission
(exhibit numbers indicated below correspond to those used for
exhibits originally filed with such annual report on Form 10-K)
10.91 Series Trust Agreement, dated as of December 28, 1994, among the
Company, Litchfield Mortgage Securities Corporation 1994, and The
Chase Manhattan Bank, N.A., as trustee.
10.92 Mortgage Purchase Agreement, dated as of December 28, 1994, between
the Company and Litchfield Mortgage Securities Corporation 1994.
10.93 Certificate Purchase Agreement, dated as of December 28, 1994,
among Litchfield Mortgage Securities Corporation 1994, the
Company, Holland Limited Securitizations, Inc., and Internationale
Nederlanden (U.S.) Capital Markets.
10.94 Pledge and Collateral Agency Agreement, dated as of December 28,
1994, among the Company, Litchfield Mortgage Securities
Corporation 1994, Holland Limited Securitization, Inc. and The
Chase Manhattan Bank, N.A., as collateral agent.
10.95 Sinking Fund Account Agreement, dated as of December 28, 1994,
among the Company, Holland Limited Securitization, Inc., The Chase
Manhattan Bank, N.A. and Internationale Nederlanden (U.S.) Capital
Markets.
10.97 Amendment No. 1 to Pooling and Servicing Agreement, dated as of
December 1, 1994, among the Company, Litchfield Mortgage
Securities Corporation 1994, and The Chase Manhattan Bank, N.A.,
as trustee.
10.98 Amendment No. 1 to Series Trust Agreement Dated June 16, 1994,
dated as of December 28, 1994, among the Company, Litchfield
Mortgage Securities Corporation 1994, and The Chase Manhattan
Bank, N.A., as trustee.
10.99 Amendment to Sinking Fund Account Agreement (Litchfield Mortgage
Trust 1994-1), dated as of December 28, 1994, among the Company,
Internationale Nederlanden (U.S.) Finance Corporation, The Chase
Manhattan Bank, N.A., Internationale Nederlanden (U.S.) Capital
Markets.
10.100 Amendment No. 1 to Series Trust Agreement Dated September 27,
1994, dated as of December 28 , 1994, among the Company, Litchfield
Mortgage Securities Corporation 1 994, and The Chase Manhattan
Bank, N.A., as trustee.
10.101 Amendment to Sinking Fund Account Agreement (Litchfield
Mortgage Trust 1994-2), dated as of December 28, 1994, among the
Company, Internationale Nederlanden (U.S.) Finance Corporation,
The Chase Manhattan Bank, N.A., Internationale Nederlanden (U.S.)
Capital Markets.
10.102 Indenture, dated as of January 9, 1995, between Litchfield
Residual Securities Corporation and The Chase Manhattan Bank,
N.A., as note trustee.
10.103 Note Purchase Agreement, dated as of January 9, 1995, among
Litchfield Residual Securities Corporation, Connecticut General
Life Insurance Company and Connecticut General Life Insurance
Company on behalf of one or more accounts.
10.104 10.43% Secured Notes, due May 1, 2024.
10.105 Agreement and Certificate, dated as of January 9, 1995, between
the Company and the Chase Manhattan Bank, N.A., as Note Trustee.
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FORM 10-K
10.106 Amendment No. 1 to Pooling and Trust Agreement, dated as
January 6, 1995, among the Company, State Street Bank and Trust
Company of Connecticut, National Association, as trustee, and
those Certificateholders on the signature pages thereto.
10.107 Amendment No. 1 to Servicing Agreement, dated as of January 6,
1995, among the Company, State Street Bank and Trust Company of
Connecticut, National Association, as trustee, and those
Certificateholders on the signature pages thereto.
10.108 Amendment No. 1 to Pooling and Trust Agreement, dated as of
January 6, 1995, among the Company, James C. Farrington, as
trustee, and those Certificateholders on the signature pages
thereto.
10.109 Intercreditor Agreement, dated as of January 9, 1995, in
connection with the Litchfield Mortgage Trust 1994-1, among the
Chase Manhattan Bank, N.A., as trustee under an Indenture, the
Chase Manhattan Bank, N.A., as collateral agent under a Pledge and
Collateral Agency Agreement for the benefit of Internationale
Nederlanden (U.S.) Finance Corporation, The Chase Manhattan Bank,
N.A., as agent there under and the Company.
10.110 Mortgage Loan Pledge Agreement, dated as of January 9, 1995, in
connection with the Litchfield Mortgage Trust 1994-1, among the
Company, Internationale Nederlanden (U.S.) Finance Corporation,
and The Chase Manhattan Bank, N.A., as collateral agent.
10.111 Amendment No. 1 to Pledge and Collateral Agency Agreement,
dated as of January 9, 1995, in connection with the Litchfield
Mortgage Trust 1994-1, among the Company, Litchfield Mortgage
Securities Corporation 1994, Internationale Nederlanden (U.S.)
Finance Corporation, and The Chase Manhattan Bank, N.A., as
collateral agent.
10.112 Amendment No. 1 Rate Stabilization Agreement, dated as of
January 9, 1995, in connection with the Litchfield Mortgage Trust
1994-1, between the Company, and Internationale Nederlanden
(U.S.) Finance Corporation.
10.113 Intercreditor Agreement, dated as of January, 9, 1995, in
connection with the Litchfield Mortgage Trust 1994-2, among The
Chase Manhattan Bank, N.A., s trustee under an Indenture, The
Chase Manhattan Bank, N.A., as collateral agent under a Pledge and
Collateral Agency Agreement for the benefit of Internationale
Nederlanden (U.S.) Finance Corporation and The Chase Manhattan
Bank, N.A., as collateral agent.
10.114 Mortgage Loan Pledge Agreement, dated as of January 9, 1995, in
connection with the Litchfield Mortgage Trust 1994-2, among the
Company, Internationale Nederlanden (U.S.) Finance Corporation,
and The Chase Manhattan Bank, N.A., as agent thereunder and the
Company.
10.115 Amendment No. 1 to Pledge and Collateral Agency Agreement,
dated as of January 9, 1995, in connection with the Litchfield
Mortgage Trust 1994-2, among the Company, Litchfield Mortgage
Securities Corporation 1994, Internationale Nederlanden (U.S.)
Finance Corporation, and The Chase Manhattan Bank, N.A., as
collateral agent.
10.116 Amendment No. 1 Rate Stabilization Agreement, dated as of January 9,
1995, in connection with the Litchfield Mortgage Trust 1994-2, between
the Company and Internationale Nederlanden (U.S.) Finance Corporation.
10.117 Certificate Purchase Agreement (for Litchfield Mortgage Trust 1994-1),
dated as of January 26, 1995, among Litchfield Mortgage Securities
Corporation 1994, the Company, Holland Limited Securitizations, Inc.,
and Internationale Nederlanden (U.S.) Capital Markets.
10.118 Certificate Purchase Agreement (for Litchfield Mortgage Trust 1994-2),
dated as of January 26, 1995, among Litchfield Mortgage Securities
Corporation 1994, the Company, Holland Limited Securitizations, Inc.,
and Internationale Nederlanden (U.S.) Capital Markets.
10.119 Amended and Restated Pledge and Collateral Agency Agreement Dated
June 16, 1994, dated as of January 26, 1995, among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securitization, Inc., and The Chase Manhattan Bank, N.A., as collateral
agent.
10.120 Amendment No. 1 to Mortgage Loan Pledge Agreement(Litchfield Mortgage
Trust 1994-1), dated as of January 26,1995, among the Company, Holland
Limited Securitization, Inc., and The Chase Manhattan Bank, N.A.,
as collateral agent.
23
<PAGE>
FORM 10-K
10.121 Amendment No. 2 to Pooling and Servicing Agreement, dated as of January
26,1995, among the Company, Litchfield Mortgage Securities Corporation
1994, and The Chase Manhattan Bank, N.A., as trustee.
10.122 Amendment No. 2 to Series Trust Agreement Dated June 16, 1994, dated
as of January 26, 1995, among the Company, Litchfield Mortgage
Securities Corporation 1994, and The Chase Manhattan Bank, N.A.,
as trustee.
10.123 Amended and Restated Pledge and Collateral Agency Agreement Dated
September 27, 1994, dated as of January 26, 1995, among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securitization, Inc., and The Chase Manhattan Bank, N.A., as collateral
agent.
10.124 Amendment No. 1 to Mortgage Loan Pledge Agreement (Litchfield Mortgage
Trust 1994-2), dated as of January 26, 1995, among the Company, Holland
Limited Securitization, Inc., and The Chase Manhattan Bank, N.A.,
as collateral agent.
10.125 Amendment No. 2 to Series Trust Agreement Dated September 27, 1994,
dated as of January 26, 1995, among the Company, Litchfield Mortgage
Securities Corporation 1994, and The Chase Manhattan Bank, N.A.,
as trustee.
(iii) The following exhibits are incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarter ended June 30,
1995 as filed with the Securities and Exchange Commission (exhibit
numbers indicated below correspond to those used for exhibits
originally filed with such quarterly report on Form 10-Q) 10.126 Asset
Purchase Agreement dated as of March 30, 1995 between GEICO
Corporation, Government Employees Financial Corporation, GEICO
Financial Services, Inc., GEICO Financial Company, Willow Valley
Associates, LTD., Variproperties, Inc. as sellers and Litchfield
Financial Corporation as purchaser (excluding exhibits and
schedules).
10.127 Litchfield Financial Corporation 1995 Stock Option Plan for
Non-Employee Directors.
10.128 Sale and Servicing Agreement dated as of March 22, 1995 between
Litchfield Timeshare Securities Corporation as depositor and
Litchfield Financial Corporation as servicer and Litchfield
Timeshare Trust 1995-1.
10.129 Amended and Restated Sale and Servicing Agreement dated as of
March 22, 1995 between Litchfield Timeshare Securities Corporation
as depositor and Litchfield Financial Corporation as servicer and
Litchfield Timeshare Trust 1995-1.
10.130 Litchfield Timeshare Trust 1995-1 Trust Agreement dated as of
March 22, 1995 between Litchfield Timeshare Securities Corporation
1995-1 and the Chase Manhattan Bank, N.A. as trustee.
10.131 Amended and Restated Litchfield Timeshare Trust 1995-1 Trust
Agreement dated as of March 22, 1995 between Litchfield Timeshare
Securities Corporation 1995-1 and the Chase Manhattan Bank, N.A. as
trustee.
10.132 Loan and Security Agreement between Litchfield Financial
Corporation and the First National Bank of Boston as amended in the
principal amount of $15,000,000 under the revolving line of credit
promissory note.
10.133 Litchfield Timeshare Trust 1995-1 Class A Certificates Purchase
Agreement dated April 27, 1995 between Litchfield Timeshare
Securities Corporation 1995-1 as depositor, Litchfield Financial
Corporation as initial servicer, and Teachers Insurance and Annuity
Association of America as purchaser.
10.134 Litchfield Timeshare Trust 1995-1 Class A Certificates Purchase
Agreement dated June 22, 1995 between Litchfield Timeshare
Securities Corporation 1995-1 as depositor, Litchfield Financial
Corporation as initial servicer, and Teachers Insurance and Annuity
Association of America as purchaser.
10.135 Subservicing Agreement between Concord Servicing Corporation,
Litchfield Financial Corporation, and Litchfield Timeshare Trust
1995-1, as amended.
24
<PAGE>
FORM 10-K
(ix) The following exhibits are incorporated by reference to the
Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1995 as filed with the Securities and Exchange
Commission (exhibit numbers indicated below correspond to those
used for exhibits originally filed with such quarterly report on
Form 10-Q)
10.136 Receivables Financing facility extended by Holland Limited
Securitization, Inc. and Internationale Nederlanden (U.S.) capital
Markets, Inc., to Litchfield Financial Corporation and Litchfield
Mortgage Securities Corporation 1994 dated September 29, 1995.
25
<PAGE>
B. Exhibits Filed with this Report on Form 10-K.
The following exhibits are filed herewith:
10.137 Amended and Restated Employment Agreement, dated as of July 19,
1996, between the Company and Richard A. Stratton.
10.138 Amended and Restated Employment Agreement, dated as of July 19, 1996,
between the Company and Heather A. Sica.
10.139 Employment Agreement, dated as of July 19, 1996, between the
Company and Ronald E. Rabidou.
10.140 Commercial Security Agreement dated as of July 23, 1996, in the
principal amount of $5,000,000 between the Company and BSB Bank and
Trust Co.
10.141 Promissory Note, dated as of July 23, 1996 , in the principal
amount of $5,000,000 between the Company and BSB Bank and Trust Co.
10.142 Loan Agreement, dated as of September 13, 1996, in the principal
amount of $15,000,000 between the Company and Bank of Scotland.
10.143 Pledge Agreement, dated as of September 13, 1996 between the
Company and Bank of Scotland.
10.144 Security Agreement, dated as of September 13, 1996 between the
Company and Bank of Scotland.
10.145 Amendment No. 1 to Receivable Purchase Agreement dated September
29, 1995, dated as of December 18, 1995 among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securities, Inc. and Internationale Nederlanden (U.S.) Capital
Markets, Inc.
10.146 Amendment No. 1 to Receivable Loan and Security Agreement dated
September 29, 1995, dated as of December 18, 1995 among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securities, Inc. and Internationale Nederlanden (U.S.) Capital
Markets, Inc.
10.147 Amendment No. 2 to Receivable Purchase Agreement dated September
29, 1995, dated as of September 27, 1996 among the Company,
Litchfield Mortgage Securities Corporation 1994, Holland Limited
Securities, Inc. and Internationale Nederlanden (U.S.) Capital
Markets, Inc.
10.148 Amendment No. 2 to Receivable Loan and Security Agreement dated
September 29, 1995, dated as of September 27, 1996 among the
Company, Litchfield Mortgage Securities Corporation 1994, Holland
Limited Securities, Inc. and Internationale Nederlanden (U.S.)
Capital Markets, Inc.
10.149 Revolving Credit Note, dated as of April 26, 1996, in the
principal amount of $20,000,000 between the Company and the First
National Bank of Boston.
10.150 Revolving Credit Note, dated as of October 26, 1996, in the
principal amount of $10,000,000 between the Company and Fleet
Bank-NH.
10.151 Promissory Note, dated as of January 23, 1997, in the principal
amount of $8,000,000 between the Company and BSB Bank and Trust Co.
11.1 Statement Re: Computation of Earnings per Share.
13.1 Annual Report to Stockholders for the Year Ended December 31, 1996.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
26
<PAGE>
FORM 10-K
(c) Exhibits required by Item 601 of Regulation S-K
Such exhibits are either filed herewith or incorporated by reference, as
described above.
(d) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have
been omitted.
27
<PAGE>
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.
LITCHFIELD FINANCIAL CORPORATION
/s/ Richard A. Stratton
- ------------------------------------
RICHARD A. STRATTON
Chief Executive Officer and Director
March 26, 1997
/s/ Ronald E. Rabidou
- ------------------------------------
RONALD E. RABIDOU
Chief Financial Officer
March 26, 1997
/s/ Norah K. Bresett
- -------------------------------------
NORAH K. BRESETT
Chief Accounting Officer and Controller
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John Costa /s/Heather Sica
- --------------------------- -------------------------------------
JOHN COSTA HEATHER A. SICA
Director Executive Vice President and Director
March 26, 1997 March 26, 1997
/s/ Donald R. Dion, Jr /s/ Richard A. Stratton
- --------------------------- -------------------------------------
DONALD R. DION, JR. RICHARD A. STRATTON
Director Chief Executive Officer and Director
March 26, 1997 March 26, 1997
/s/ David J. Ferrari /s/ James Westra
- --------------------------- -------------------------------------
DAVID J. FERRARI JAMES WESTRA
Director Director
March 26, 1997 March 26, 1997
/s/ Gerald Segel
- ---------------------------
GERALD SEGEL
Director
March 26, 1997
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<PAGE>
FORM 10-K
Exhibit 10.137
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT entered into as of the 19th day of July, 1996, by and between
Litchfield Financial Corporation, a Massachusetts corporation (the "Company"),
and Richard A. Stratton, an individual residing in Williamstown, Massachusetts
(the "Executive").
WHEREAS, the Company and the Executive originally entered into an
Employment Agreement, dated as of November 21, 1988 in connection with the
initial financing of the Company (the "Employment Agreement"); and
WHEREAS, the Company and the Executive entered into an Amendment to
Employment Agreement, dated as of January 1, 1992 (the "Amendment"), which
Amendment increased the term, changed the base salary and changed the bonus
arrangement; and
WHEREAS, the Company and the Executive entered into an Amended and Restated
Employment Agreement, dated as of July 1, 1994 (the "Restated Agreement");
WHEREAS, the Compensation Committee of the Board of Directors determined
that it is in the best interest of the Company to amend and restate the Restated
Agreement further to increase the term, to change the base salary, to change the
bonus arrangement and to add certain severance benefits.
NOW, THEREFORE, for good and valuable consideration , the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby enter into
this Amended and Restated Employment Agreement as follows:
1. Nature of Employment; Term of Employment. The Company shall employ the
Executive as its President and the Executive shall serve the Company in such
capacity, upon the terms and conditions contained herein. The Executive's
employment shall commence on the date first written above and shall continue
until December 31, 1998. The term of the Executive's employment hereunder,
subject to termination as herein provided, is referred to herein as the "Term."
The Executive agrees to devote his full working time and energy and best efforts
to the business of the Company and the performance of his duties hereunder
during the Term; provided that nothing herein shall preclude the Executive from
managing his personal business affairs as long as the same do not interfere with
his services hereunder.
2. Compensation. In consideration of the services rendered by the Executive
under this Agreement, the Company shall pay the Executive a base salary (the
"Base Salary") of (i) Two Hundred Fifteen Thousand Dollars ($215,000) per year
during the period from the date hereof through December 31, 1996, (ii) Two
Hundred Twenty-Five Thousand Dollars ($225,000) per year during the period
January 1, 1997 through December 31, 1997, and (iii) Two Hundred Forty-Five
Thousand Dollars ($245,000) per year during the period January 1, 1998 through
December 31, 1998. The Executive's Base Salary will be reviewed not less than
annually by the Company's Board of Directors, but in no event reduced. In
addition, the Executive shall be entitled to receive a bonus (the "Bonus") upon
the terms as set forth on Schedule 1 hereto.
29
<PAGE>
FORM 10-K
3. Fringe Benefits. During the Term and thereafter to the extent provided
in Section 5.6(c), the Executive shall be entitled to participate in such
employee benefit plans as are made available generally to key executive
employees of the Company, including four (4) weeks paid vacation per year.
4. Expenses. The Company shall reimburse the Executive for reasonable
expenses incurred in connection with its business affairs, subject to guidelines
approved by the Board of Directors and to the receipt of appropriate
documentation therefor.
5. Termination.
5.1 Death. In the event of the death of the Executive during his employment
hereunder, his employment by the Company shall be deemed to terminate at the end
of the calendar month in which his death occurs.
5.2 Disability. In the event of the physical or mental disability of the
Executive for a period in excess of ninety (90) consecutive days as determined
by a qualified physician, such that the Executive is unable to discharge his
responsibilities hereunder, then the Board of Directors may vote to terminate
the Executive's employment effective as of the end of the calendar month which
includes the last day of such ninety (90) day period.
5.3 By the Executive for Cause. In the event the Company shall fail to make
any payment of salary owed to the Executive under Section 2 hereof when due or
pay any expenses for which the Executive is entitled to reimbursement under
Section 4 hereof, or breach any of the other material covenants of the Company
hereunder, and such non-payment, non-reimbursement or breach shall continue for
a period of twenty (20) days after the Executive gives written notice hereof to
the Company, the Executive shall be entitled to terminate this Agreement on the
expiration of such twenty (20) day period.
5.4 By the Executive Without Cause. The Executive may terminate his
employment at any time without cause upon 30 days' prior written notice to the
Company.
5.5 By the Company for Cause. The Company may terminate the Executive's
employment for "reasonable cause," by which phrase is meant only one or more of
the following:
(a) If the Executive has been convicted of, or pleads guilty or nolo
contendere to a felony, the Company may terminate the Executive's
employment immediately upon the occurrence of such conviction or plea.
(b) If the Executive shall commit any embezzlement against the Company,
the Company may terminate the Executive's employment at any time after
the commission of such act.
(c) If the Executive has (i) engaged in willful misconduct with respect to
the Company other than that covered by subparagraph (b), or (ii)
grossly neglected his duties to the Company, and after written notice
of the same, specifying in reasonable detail the alleged misconduct or
neglect, the Executive fails to cease such misconduct or neglect
within a reasonable period of time not exceeding thirty (30) days
30
<PAGE>
FORM 10-K
following the date of such notice, the Company may terminate the
Executive's employment at any time after expiration of such thirty
(30) day period; provided that the Company has complied with the
following terms and conditions:
(A) the Executive is provided with written notice of the proposed
termination;
(B) the Executive is given the opportunity to appear with his
counsel, and to present evidence and a defense to the alleged
misconduct or neglect, at a duly called and held meeting of the
Board of Directors of the Company, the purpose of which shall be
to determine whether the Executive engaged in such willful
misconduct or grossly neglected his duties and should be
terminated; and
(C) if the Executive avails himself of the opportunity set forth in
clause (B), following such meeting not less than two-thirds of
the members of the Board of Directors determine that the
Executive engaged in such willful misconduct or grossly neglected
his duties and should be terminated.
5.5A By the Company Without Cause. The Company may terminate the
Executive's employment other than for "reasonable cause" upon 60 days' prior
written notice to the Executive.
5.6 Rights and Obligations of the Executive and the Company upon
Termination.
(a) In the event the Executive's employment terminates pursuant
to Section 5.1, the Company shall continue to make, until
December 31, 1998, payments at a rate equal to the Base
Salary in effect on the date of death. The Executive shall
have no liability to the Company as a result of a
termination of employment pursuant to Sections 5.1 or 5.2
hereof. In the event of termination pursuant to Sections 5.1
or 5.2 the Executive shall also be entitled to receive a pro
rata share of any bonus which otherwise would have been
payable with respect to the year in which termination
occurs, but shall not be entitled to any bonus for any
subsequent year.
(b) In the event of the Executive's employment terminates or is
terminated pursuant to Sections 5.4 or 5.5, all of the
Executive's rights to receive compensation under Section 2
(other than Base Salary for services rendered prior to the
date of termination and other amounts earned but unpaid) and
other benefits (excluding any benefits which by their terms
have vested) shall cease upon the date of termination. The
Executive shall have no liability to the Company as a result
of a termination of employment pursuant to Sections 5.3 or
5.4 hereof.
(c) If the Executive terminates his employment pursuant to
Section 5.3 or if the Company terminates the Executive's
employment pursuant to Section 5.5A, the Company shall,
until December 31, 1998, continue to pay and provide to the
Executive the Base Salary, Bonus and fringe benefits which
the Executive would otherwise have received under Sections 2
and 3 during that period. Such payments and benefits shall
be liquidated damages for termination of employment, and the
Executive shall not be entitled to receive any further
payment or benefit.
6. Restrictive Covenants. In consideration of his employment hereunder, the
Executive agrees that he will observe the following covenants. For the purposes
31
<PAGE>
FORM 10-K
of this Section, the term "Company" shall include any of the Company's current
or future direct or indirect subsidiaries.
6.1 Non-disclosure. The Executive acknowledges that the technology,
research, know-how, trade secrets, marketing techniques, business plan and other
confidential information used or to be used by the Company in pursuit of its
business (collectively, the "Proprietary Information") are of value to the
Company and provide the Company with substantial competitive advantage in its
business. By virtue of his relationship to the Company, the Executive has
knowledge of and will be given access to Proprietary Information. The Executive
agrees that he will not, during the Term or at any time thereafter, directly or
indirectly divulge, transmit or otherwise disclose or cause to be divulged,
other than in the ordinary course of his employment hereunder, any Proprietary
Information. Any Proprietary Information which comes into the public domain
through no fault of the Executive's shall cease to be Proprietary Information
for purposes of this Agreement.
6.2 Non-Competition.
(a) The Executive agrees that upon any termination of his employment
pursuant to any one of Sections 5.3, 5.5, or 5.5A, he will, during the
Non-Competition Period (as defined in Section 6.2(d)) observe the
non-competition covenant set forth in Section 6.2(c).
(b) The Executive agrees that upon any termination of his employment
pursuant to any one of Sections 5.2, or 5.4, or upon expiration of the
Term on December 31, 1998, he will, during the Non-Competition Period,
observe the noncompetition covenant set forth in Section 6.2 (c)
provided that within thirty days after termination pursuant to Section
5.2 or 5.4, or in the event of termination upon expiration of the
Term, at least thirty days prior to such expiration, the Company shall
have given written notice to the Executive of its election to require
the Executive to be bound by the non-competition covenant set forth in
Section 6.2(c) in exchange for the payments to be made pursuant to
Section 6.2(e).
(c) If the Executive is required under Section 6.2 (a) or (b) to observe a
non-competition covenant, he shall not engage in any business or
render services to any business in the United States, as an officer,
director, employee, agent, stockholder (excluding ownership of not
more than one (1%) percent of the outstanding shares of a publicly
held corporation if such ownership does not involve managerial or
operational responsibility), manager partner or consultant, if such
business is competitive with any product or service then being
developed, produced or marketed by the Company. The parties agree that
the current business of the Company consists of the origination,
purchasing, servicing, packaging or disposing of loans, obligations,
receivables, notes or mortgages or the acquisition of or investment in
any company which engages in such services.
(d) The term "Non-Competition Period" shall mean: (i) for purposes of
Section 6.2(a), the first to occur of (x) the date 12 months after
termination of employment and (y) December 31, 1998; and (ii) for
purposes of Section 6.2(b), the date 18 months after termination of
employment or expiration of the Term, as the case may be.
(e) If the Company wishes to require that the Executive be bound by the
non-competition covenant in Section 6.2(c) following a termination of
32
<PAGE>
FORM 10-K
employment pursuant to Sections 5.2 or 5.4 or upon expiration of the
Term on December 31, 1998, it shall give the Executive written notice
of such effect as set forth in Section 6.2(b). In such event, the
Company shall pay the Executive (i) compensation at a monthly rate
equal to the annual Base Salary in effect as of the date of the
termination of employment divided by 12, to be paid monthly in
advance, during the continuation of the Non-Competition Period, and
(ii) an amount equal to one-half of the Bonus paid to the Executive
under Section 2 for the year immediately preceding the year in which
termination occurs, which payment shall be made in equal monthly
payments on the first day of each month during the Non-Competition
Period.
7. [Intentionally Omitted]
8. Payments Upon Change of Control. In the event of a Change of Control
Transaction (as herein defined), the provisions of this Section 8 shall apply:
(a) If within one year following consummation of a Change of Control
Transaction, the Company shall seek to (x) relocate the principal
office of the Company more than 25 miles from its current location or
(y) materially alter the Executive's authority or responsibility
within the Company, and such alteration continues for 20 days after
notice thereof from the Executive to the Company, the Executive may
terminate his employment pursuant to Section 5.3. In such event, the
Executive shall receive the payments and benefits provided under
Section 5.6(c) unless he elects, by written notice to the Company
within 30 days of such termination, to receive, in a lump sum payment,
an amount equal to 150% of the Base Salary then in effect. If the
Executive elects such lump sum payment, it shall be paid within 30
days of such election, he shall have no further obligations hereunder,
except to observe the covenants set forth in Section 6.1, and the
Company shall have no further obligations hereunder, other than to pay
such lump sum payment.
(b) A "Change of Control Transaction" shall mean (i) a sale, conveyance,
lease or other transfer of all or substantially all of the assets of
the Company, (ii) a consolidation or merger of the Company with or
into another corporation in which the Company is not the surviving or
resulting corporation or after which more than 50% of the issued and
outstanding shares of voting capital stock of the surviving or
resulting corporation is thereafter owned of record or beneficially by
any single Person or Group of affiliated Persons, (iii) a sale or
transfer in a single transaction of shares of the voting capital stock
of the Company, which results in more than 50% of the issued and
outstanding shares of the voting capital stock of the Company being
thereafter owned of record or beneficially by any single Person or
Group of affiliated Persons, (iv) any other transaction or series of
transactions involving the issuance, sale or transfer of shares of the
capital stock of the Company, which results in more than fifty percent
(50%) of the issued and outstanding shares of the voting capital stock
of the Company being thereafter owned of record or beneficially by any
single Person or Group of affiliated Persons, or (v) a majority of the
Board of Directors of the Company ceasing to consist of individuals
(A) who are currently members of the Board or (B) for whose nomination
for such membership a majority of such current members voted in favor.
(c) "Group of affiliated Persons" shall mean a group of tow (2) or more
33
<PAGE>
FORM 10-K
persons (i) in which one (1) or more of such Persons controls, is
controlled by, or is under common control with, another of such
Persons, or (ii) which is associated by agreement for the purpose of
controlling the Company or any successor corporation thereof. The term
"Group of affiliated Persons" shall not include any such group which
consists entirely of Persons who are current stockholders and/or
directors of the Company which any currently be deemed to control the
Company. "Person" shall mean an individual, partnership, corporation,
trust, or other business entity.
9. Termination of this Agreement. This Agreement shall remain in full
force and effect, notwithstanding any termination of the Term, until
all of the parties' obligations hereunder have been fully performed.
10. Notices. All notices hereunder, to be effective, shall be in writing
and shall be delivered by hand or by certified mail, postage and fees
prepaid, as follows:
(i) If to the Company: Litchfield Financial Corporation
789 Main Road
Stamford, VT 05352
With a Copy to: James Westra, Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
(ii) If to Executive: Richard A. Stratton
Three Hawthorne Court
Williamstown, MA 01267
With a Copy to: John M. Cornish, Esq.
Choate, Hall & Stewart
Exchange Place
Boston, MA 02109
unless and until notice of another or different address shall be given as
provided herein.
11. Modification. This Agreement constitutes the entire Agreement between
the parties hereto with regard to the subject matter hereof, superseding all
prior understandings and agreements, whether written or oral. This Agreement may
not be amended or revised except by a writing signed by the parties.
12. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company or its successor
may be merged or which may succeed to its assets or business, although the
obligations of the Executive are personal and may be performed only by him.
34
<PAGE>
13. Captions. Captions herein have been inserted solely for convenience of
reference and in no way define, limit or describe the scope or substance of any
provision of this Agreement.
14. Severability. The provisions of this Agreement are severable, and
invalidity of any provision shall not affect the validity of any other
provision. In the event that any court of competent jurisdiction shall determine
that any provision of this Agreement or the application thereof is unenforceable
because of the duration or scope thereof, the parties hereto agree that said
court in making such determinations shall have the power to reduce the duration
and scope of such provision to the extent necessary to make it enforceable, and
that the Agreement in its reduced form shall be valid and enforceable to the
full extent permitted by law.
15. Governing Law. This Agreement shall be construed under and governed by
the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
a sealed instrument as of the day and year first above written.
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Heather A. Sica
---------------------------------
Title: Executive Vice President
/s/ Richard A. Stratton
----------------------------------
Richard A. Stratton
35
<PAGE>
FORM 10-K
Schedule 1
Terms of Management Bonus
1. The Company shall pay to the Executive a bonus with respect to the year
ending December 31, 1996 equal to two and nine tenths percent (2.9%) of the
Company's Pre-Tax Income (as hereinafter defined) for such year if, and only if,
the Earnings per Share (as hereinafter defined) of the Company for such year
equal at least 115% of the Earnings per Share of the Company for the immediately
preceding year.
2. The Company shall pay to the Executive a bonus with respect to the year
ending December 31, 1997 equal to the Base Salary in effect for such year if,
and only if, the Earnings per Share of the Company for such year equal at least
118% of the Earnings per Share of the Company for the immediately preceding
year.
3. The Company shall pay to the Executive a bonus with respect to the year
ending December 31, 1998 equal to the Base Salary in effect for such year if,
and only if, the Earnings per Share of the Company for such year equal at least
118% of the Earnings per Share of the Company for the immediately preceding
year.
4. Pre-Tax Income of the Company shall mean the consolidated income of the
Company and its subsidiaries, as determined by the Company's independent public
accountants in accordance with generally accepted accounting principles
("GAAP"), prior to the payment of taxes, and prior to taking into account the
effect of any extraordinary gains or losses. Earnings per Share of the Company
shall mean the consolidated net income per share of the Company and its
subsidiaries, as determined by the Company's independent accountants in
accordance with GAAP, prior to taking into account the effect of any
extraordinary gains or losses.
5. Any bonus payable shall be paid within 30 days after release by the
Company's independent public accountants of audited financial statements for the
year with respect to which such bonus is payable. Failure to earn a bonus with
respect to any one year shall not affect the Executive's right to earn a bonus
for any other year.
36
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FORM 10-K
Exhibit 10.138
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT entered into as of the 19th day of July, 1996, by and between
Litchfield Financial Corporation, a Massachusetts corporation (the "Company"),
and Heather A. Sica, an individual residing in Brunswick, New York (the
"Executive").
WHEREAS, the Compensation Committee of the Board of Directors determined
that it is in the best interest of the Company to enter into an Employment
Agreement with the Executive
NOW, THEREFORE, for good and valuable consideration , the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby enter into
this Employment Agreement as follows:
1. Nature of Employment; Term of Employment. The Company shall employ the
Executive as its Chief Financial Officer and the Executive shall serve the
Company in such capacity, upon the terms and conditions contained herein. The
Executive's employment shall commence on the date first written above and shall
continue until December 31, 1998. The term of the Executive's employment
hereunder, subject to termination as herein provided, is referred to herein as
the "Term." The Executive agrees to devote her full working time and energy and
best efforts to the business of the Company and the performance of her duties
hereunder during the Term; provided that nothing herein shall preclude the
Executive from managing her personal business affairs as long as the same do not
interfere with her services hereunder.
Notwithstanding the foregoing, the Executive may by written notice to the
Company from time to time during the Term (a) reduce her working time to
part-time status which may be any percentage (but not less than 50%) of
full-time status designated by her in such notice, and (b) if her working time
has been reduced under clause (a), increase her working time to any percentage
of full-time status designated by her in such notice. Any such change shall be
effective at the beginning of the third calendar week which begins after the
giving of such notice, unless otherwise mutually agreed.
2. Compensation. In consideration of the services rendered by the Executive
under this Agreement, the Company shall pay the Executive a base salary (the
"Base Salary") of (i) One Hundred Fifty Thousand Dollars ($150,000) per year
during the period from the date hereof through December 31, 1998. The
Executive's Base Salary will be reviewed not less than annually by the Company's
Board of Directors, but in no event reduced. In addition, the Executive shall be
entitled to receive a bonus (the "Bonus") upon the terms as set forth on
Schedule 1 hereto. Notwithstanding the foregoing, during any period that the
Executive is working on part-time status pursuant to Section 1, the Base Salary
and Bonus otherwise payable for such period shall be reduced so that it is the
same percentage of such Base Salary and Bonus as the percentage of full-time
status then being worked by the Executive.
3. Fringe Benefits. During the Term and thereafter to the extent provided
in Section 5.6(c), the Executive shall be entitled to participate in such
employee benefit plans as are made available generally to key executive
employees of the Company, including four (4) weeks paid vacation per year.
4. Expenses. The Company shall reimburse the Executive for reasonable
expenses incurred in connection with its business affairs, subject to guidelines
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approved by the Board of Directors and to the receipt of appropriate
documentation therefor.
5. Termination.
5.1 Death. In the event of the death of the Executive during her employment
hereunder, her employment by the Company shall be deemed to terminate at the end
of the calendar month in which her death occurs.
5.2 Disability. In the event of the physical or mental disability of the
Executive for a period in excess of ninety (90) consecutive days as determined
by a qualified physician, such that the Executive is unable to discharge her
responsibilities hereunder, then the Board of Directors may vote to terminate
the Executive's employment effective as of the end of the calendar month which
includes the last day of such ninety (90) day period.
5.3 By the Executive for Cause. In the event the Company shall fail to make
any payment of salary owed to the Executive under Section 2 hereof when due or
pay any expenses for which the Executive is entitled to reimbursement under
Section 4 hereof, or breach any of the other material covenants of the Company
hereunder, and such non-payment, non-reimbursement or breach shall continue for
a period of twenty (20) days after the Executive gives written notice hereof to
the Company, the Executive shall be entitled to terminate this Agreement on the
expiration of such twenty (20) day period.
5.4 By the Executive Without Cause. The Executive may terminate her
employment at any time without cause upon 30 days' prior written notice to the
Company.
5.5 By the Company for Cause. The Company may terminate the Executive's
employment for "reasonable cause," by which phrase is meant only one or more of
the following:
(a) If the Executive has been convicted of, or pleads guilty or nolo
contendere to a felony, the Company may terminate the Executive's
employment immediately upon the occurrence of such conviction or plea.
(b) If the Executive shall commit any embezzlement against the Company,
the Company may terminate the Executive's employment at any time after
the commission of such act.
(c) If the Executive has (i) engaged in willful misconduct with respect to
the Company other than that covered by subparagraph (b), or (ii)
grossly neglected her duties to the Company, and after written notice
of the same, specifying in reasonable detail the alleged misconduct or
neglect, the Executive fails to cease such misconduct or neglect
within a reasonable period of time not exceeding thirty (30) days
following the date of such notice, the Company may terminate the
Executive's employment at any time after expiration of such thirty
(30) day period; provided that the Company has complied with the
following terms and conditions:
(A) the Executive is provided with written notice of the proposed
termination;
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(B) the Executive is given the opportunity to appear with her
counsel, and to present evidence and a defense to the alleged
misconduct or neglect, at a duly called and held meeting of the
Board of Directors of the Company, the purpose of which shall be
to determine whether the Executive engaged in such willful
misconduct or grossly neglected her duties and should be
terminated; and
(C) if the Executive avails himself of the opportunity set forth in
clause (B), following such meeting not less than two-thirds of
the members of the Board of Directors determine that the
Executive engaged in such willful misconduct or grossly neglected
her duties and should be terminated.
5.5A By the Company Without Cause. The Company may terminate the
Executive's employment other than for "reasonable cause" upon 60 days' prior
written notice to the Executive.
5.6 Rights and Obligations of the Executive and the Company upon
Termination.
(a) In the event the Executive's employment terminates pursuant to
Section 5.1, the Company shall continue to make, until December
31, 1998, payments at a rate equal to the Base Salary in effect
on the date of death. The Executive shall have no liability to
the Company as a result of a termination of employment pursuant
to Sections 5.1 or 5.2 hereof. In the event of termination
pursuant to Sections 5.1 or 5.2 the Executive shall also be
entitled to receive a pro rata share of any bonus which otherwise
would have been payable with respect to the year in which
termination occurs, but shall not be entitled to any bonus for
any subsequent year.
(b) In the event of the Executive's employment terminates or is
terminated pursuant to Sections 5.4 or 5.5, all of the
Executive's rights to receive compensation under Section 2 (other
than Base Salary for services rendered prior to the date of
termination and other amounts earned but unpaid) and other
benefits (excluding any benefits which by their terms have
vested) shall cease upon the date of termination. The Executive
shall have no liability to the Company as a result of a
termination of employment pursuant to Sections 5.3 or 5.4 hereof.
(c) If the Executive terminates her employment pursuant to Section
5.3 or if the Company terminates the Executive's employment
pursuant to Section 5.5A, the Company shall, until December 31,
1998, continue to pay and provide to the Executive the Base
Salary, Bonus and fringe benefits which the Executive would
otherwise have received under Sections 2 and 3 during that
period. Such payments and benefits shall be liquidated damages
for termination of employment, and the Executive shall not be
entitled to receive any further payment.
6. Restrictive Covenants. In consideration of her employment
hereunder, the Executive agrees that she will observe the
following covenants. For the purposes of this Section, the term
"Company" shall include any of the Company's current or future
direct or indirect subsidiaries.
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6.1 Non-disclosure. The Executive acknowledges that the technology,
research, know-how, trade secrets, marketing techniques, business
plan and other confidential information used or to be used by the
Company in pursuit of its business (collectively, the
"Proprietary Information") are of value to the Company and
provide the Company with substantial competitive advantage in its
business. By virtue of her relationship to the Company, the
Executive has knowledge of and will be given access to
Proprietary Information. The Executive agrees that she will not,
during the Term or at any time thereafter, directly or indirectly
divulge, transmit or otherwise disclose or cause to be divulged,
other than in the ordinary course of her employment hereunder,
any Proprietary Information. Any Proprietary Information which
comes into the public domain through no fault of the Executive's
shall cease to be Proprietary Information for purposes of this
Agreement.
6.2 Non-Competition.
(a) The Executive agrees that upon any termination of her employment
pursuant to any one of Sections 5.3, 5.5, or 5.5A, she will,
during the Non-Competition Period (as defined in Section 6.2(d))
observe the non-competition covenant set forth in Section 6.2(c).
(b) The Executive agrees that upon any termination of her employment
pursuant to any one of Sections 5.2, or 5.4, or upon expiration
of the Term on December 31, 1998, she will, during the
Non-Competition Period, observe the noncompetition covenant set
forth in Section 6.2 (c) provided that within thirty days after
termination pursuant to Section 5.2 or 5.4, or in the event of
termination upon expiration of the Term, at least thirty days
prior to such expiration, the Company shall have given written
notice to the Executive of its election to require the Executive
to be bound by the non-competition covenant set forth in Section
6.2(c) in exchange for the payments to be made pursuant to
Section 6.2(e).
(c) If the Executive is required under Section 6.2 (a) or (b) to
observe a non-competition covenant, she shall not engage in any
business or render services to any business in the United States,
as an officer, director, employee, agent, stockholder (excluding
ownership of not more than one (1%) percent of the outstanding
shares of a publicly held corporation if such ownership does not
involve managerial or operational responsibility), manager
partner or consultant, if such business is competitive with any
product or service then being developed, produced or marketed by
the Company. The parties agree that the current business of the
Company consists of the origination, purchasing, servicing,
packaging or disposing of loans, obligations, receivables, notes
or mortgages or the acquisition of or investment in any company
which engages in such services.
(d) The term "Non-Competition Period" shall mean: (i) for purposes of
Section 6.2(a), the first to occur of (x) the date 12 months
after termination of employment and (y) December 31, 1998; and
(ii) for purposes of Section 6.2(b), the date 18 months after
termination of employment or expiration of the Term, as the case
may be.
(e) If the Company wishes to require that the Executive be bound by
the non-competition covenant in Section 6.2(c) following a
termination of employment pursuant to Sections 5.2 or 5.4 or upon
expiration of the Term on December 31, 1998, it shall give the
Executive written notice of such effect as set forth in Section
6.2(b). In such event, the Company shall pay the Executive (i)
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compensation at a monthly rate equal to the annual Base Salary in
effect as of the date of the termination of employment divided by
12, to be paid monthly in advance, during the continuation of the
Non-Competition Period, and (ii) an amount equal to one-half of
the Bonus paid to the Executive under Section 2 for the year
immediately preceding the year in which termination occurs, which
payment shall be made in equal monthly payments on the first day
of each month during the Non-Competition Period.
7. [Intentionally Omitted]
8. Payments Upon Change of Control. In the event of a Change of Control
Transaction (as herein defined), the provisions of this Section 8 shall apply:
(a) If within one year following consummation of a Change of Control
Transaction, the Company shall seek to (x) relocate the principal
office of the Company more than 25 miles from its current
location or (y) materially alter the Executive's authority or
responsibility within the Company, and such alteration continues
for 20 days after notice thereof from the Executive to the
Company, the Executive may terminate her employment pursuant to
Section 5.3. In such event, the Executive shall receive the
payments and benefits provided under Section 5.6(c) unless she
elects, by written notice to the Company within 30 days of such
termination, to receive, in a lump sum payment, an amount equal
to 150% of the Base Salary then in effect. If the Executive
elects such lump sum payment, it shall be paid within 30 days of
such election, she shall have no further obligations hereunder,
except to observe the covenants set forth in Section 6.1, and the
Company shall have no further obligations hereunder, other than
to pay such lump sum payment.
(b) A "Change of Control Transaction" shall mean (i) a sale,
conveyance, lease or other transfer of all or substantially all
of the assets of the Company, (ii) a consolidation or merger of
the Company with or into another corporation in which the Company
is not the surviving or resulting corporation or after which more
than 50% of the issued and outstanding shares of voting capital
stock of the surviving or resulting corporation is thereafter
owned of record or beneficially by any single Person or Group of
affiliated Persons, (iii) a sale or transfer in a single
transaction of shares of the voting capital stock of the Company,
which results in more than 50% of the issued and outstanding
shares of the voting capital stock of the Company being
thereafter owned of record or beneficially by any single Person
or Group of affiliated Persons, (iv) any other transaction or
series of transactions involving the issuance, sale or transfer
of shares of the capital stock of the Company, which results in
more than fifty percent (50%) of the issued and outstanding
shares of the voting capital stock of the Company being
thereafter owned of record or beneficially by any single Person
or Group of affiliated Persons, or (v) a majority of the Board of
Directors of the Company ceasing to consist of individuals (A)
who are currently members of the Board or (B) for whose
nomination for such membership a majority of such current members
voted in favor.
(c) "Group of affiliated Persons" shall mean a group of tow (2) or
more persons (i) in which one (1) or more of such Persons
controls, is controlled by, or is under common control with,
another of such Persons, or (ii) which is associated by agreement
for the purpose of controlling the Company or any successor
corporation thereof. The term "Group of affiliated Persons" shall
not include any such group which consists entirely of Persons who
are current stockholders and/or directors of the Company which
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any currently be deemed to control the Company. "Person" shall
mean an individual, partnership, corporation, trust, or other
business entity.
9. Termination of this Agreement. This Agreement shall remain in full
force and effect, notwithstanding any termination of the Term, until all of
the parties' obligations hereunder have been fully performed.
10. Notices. All notices hereunder, to be effective, shall be in
writing and shall be delivered by hand or by certified mail, postage and
fees prepaid, as follows:
(i) If to the Company: Litchfield Financial Corporation
789 Main Road
Stamford, VT 05352
With a Copy to: James Westra, Esq.
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
(ii) If to Executive:Heather A. Sica
[Include Address]
With a Copy to: John M. Cornish, Esq.
Choate, Hall & Stewart
Exchange Place
Boston, MA 02109
unless and until notice of another or different address shall be given as
provided herein.
11. Modification. This Agreement constitutes the entire Agreement between the
parties hereto with regard to the subject matter hereof, superseding all prior
understandings and agreements, whether written or oral. This Agreement may not
be amended or revised except by a writing signed by the parties.
12. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company or its successor
may be merged or which may succeed to its assets or business, although the
obligations of the Executive are personal and may be performed only by her
13. Captions. Captions herein have been inserted solely for convenience of
reference and in no way define, limit or describe the scope or substance of any
provision of this Agreement.
14. Severability. The provisions of this Agreement are severable, and invalidity
of any provision shall not affect the validity of any other provision. In the
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event that any court of competent jurisdiction shall determine that any
provision of this Agreement or the application thereof is unenforceable because
of the duration or scope thereof, the parties hereto agree that said court in
making such determinations shall have the power to reduce the duration and scope
of such provision to the extent necessary to make it enforceable, and that the
Agreement in its reduced form shall be valid and enforceable to the full extent
permitted by law.
15. Governing Law. This Agreement shall be construed under and governed by the
laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above
written.
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Richard A. Stratton
----------------------------
Title: President
/s/ Heather A. Sica
--------------------------------
Heather A. Sica
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Schedule 1
Terms of Management Bonus
-------------------------
1. The Company shall pay to the Executive a bonus with respect to the each of
the years ending December 31, 1996, 1997 and 1998 equal to one half of the
aggregate Base Salary and Bonus paid or payable to Richard A. Stratton for such
year reduced by the Executive's Base Salary paid for such year.
2. Any bonus payable shall be paid within 30 days after release by the Company's
independent public accountants of audited financial statements for the year with
respect to which such bonus is payable. Failure to earn a bonus with respect to
any one year shall not affect the Executive's right to earn a bonus for any
other year.
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FORM 10-K
Exhibit 10.139
AGREEMENT
This AGREEMENT dated as of July 19, 1996, is made by and between Litchfield
Financial Corporation, a Massachusetts corporation ("Litchfield") and Ronald E.
Rabidou (the "Executive").
WHEREAS, Litchfield considers it essential to the best interest of Litchfield
and its current stockholders (hereinafter known as "Shareholders", which term
shall include Affiliates of the current stockholders to foster the continuous
employment of key management personnel; and
WHEREAS, Litchfield has determined that appr opriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
Litchfield's management, including the Executive, to their assigned duties with
Litchfield, without distraction in the face of circumstances arising from the
possibility of a Transaction;
NOW THEREFORE, in consideration of the premises and the mutual covenants herein
contained, and for other valuable consideration, Litchfield and the Executive
hereby agree as follows:
1. Defined Terms. The definition of capitalized terms used in this Agreement
are provided in the last Section hereof
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect through December 31, 1997, provided that
commencing on January 1, 1998, and each January 1 thereafter, the term of
this Agreement shall automatically be extended for one additional year
unless, not later than October 31 of the previous year, either Litchfield
or the Executive shall have given notice to the other not to extend this
Agreement. Notwithstanding the foregoing, if a Transaction shall have
occurred during the term of this Agreement, this Agreement shall continue
in effect for a period of one (1) year beyond the date on which the closing
for such Transaction occurred, provided, however, that if a notice not to
extend this Agreement was given before closing of the Transaction, this
Agreement shall not continue unless the executive consents in writing.
3. Litchfield's Covenants Summarized. In order to induce the Executive to
remain in the employ of Litchfield and in consideration of the Executive's
covenants set forth in Sections 4 and 7 hereof, Litchfield agrees, under
the conditions described herein, to pay the Executive the Severance
Payments described in Section 6 hereof and the other payments and benefits
described in Section 5 hereof in the event (i) that during the term of this
Agreement following a Transaction either (x) the employment of the
Executive is terminated by Litchfield for reasons other than Cause, death
or disability, or (y) the Executive terminates his employment by Litchfield
for Good Reason, and (ii) the Executive has fulfilled his covenants set
forth in Section 4. No amount or benefit shall be payable under this
Agreement unless there shall have been a termination of the Executive's
employment by Litchfield for reasons other than Cause or the death or
disability of the Executive or by the Executive for Good Reason within one
year following a Transaction. This Agreement shall not be construed as
creating an express or implied contract of employment, and except as
otherwise agreed in writing between the Executive and Litchfield, the
Executive shall not have any right to be retained in the employ of
Litchfield. No benefits shall be payable hereunder in the event of
termination of Executive's employment prior to a Potential Transaction.
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4. Executive's Covenants . The Executive agrees that, subject to the terms and
conditions of this Agreement, in the event of a Potential Transaction
during the term of this Agreement, the Executive will in good faith use all
reasonable efforts, consistent with his duties and authority a an employee
of Litchfield to consummate a Transaction which has been approved by the
Board of Directors of Litchfield. Notwithstanding the foregoing, the
Executive shall in all events be entitled to terminate his employment with
or without Good Reason, and shall have no liability to Litchfield as a
result of such termination.
5. Compensation Other than Severance Payments.
5.1 Payment of Salary upon Termination. If the Executive's
employment shall be terminated for any reason following a Transaction
and during the term of this Agreement, Litchfield shall pay the
Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of
Termination is given.
5.2 Payment of Benefits upon Termination. IF the Executive's
employment shall be terminated for any reason following a Transaction
and during the term of this agreement, Litchfield shall pay or make
available to the Executive any rights, compensation, and benefits
which are vested in the Executive or which the Executive has or is
otherwise entitled to receive under any plan or program of Litchfield
as such rights, compensation or benefits become due. Such rights,
compensation, and benefits shall be determined under, and paid or made
available in accordance with, Litchfield's applicable insurance and
other compensation or benefit plans, programs, and arrangements.
6. Severance Payments.
6.1 Determination of Severance Payments. In addition to the
payments and benefits under Section 5, Litchfield shall pay the
Executive the payments described in this Section 6.1 (the "Severance
Payments") upon the termination of the Executive's employment, during
the term of this Agreement, following a Transaction in the event (i)
the employment of the Executive is terminated by Litchfield for
reasons other than Cause, death or disability or the Executive
terminates his employment by Litchfield for Good Reason, and (ii) the
Executive has fulfilled his covenants set forth in Section 4. In lieu
of any further salary payments to the Executive for periods subsequent
to the Date of Termination and in lieu of any severance benefits
otherwise payable to the Executive under any then existing broad-based
employee severance plan, Litchfield shall pay to the Executive a
lump-sum severance payment, in cash, equal to the higher of the
Executive's annual base salary in effect immediately prior to the
occurrence of the event or circumstance upon which the Notice of
Termination is based or in effect immediately prior the Transaction.
6.2 Gross-up Payments. In the event that the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any penalty or excise tax subsequently imposed by law
applies to any payment or benefit received or to be received by the
Executive in connection with a Transaction or the termination of the
Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement, or agreement with
Litchfield, any Person whose actions result in the Transaction or any
Person affiliated with Litchfield or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter
called "Total Payments"), an additional amount shall be paid by
Litchfield to the Executive such that the aggregate after-tax amount
that he shall receive with respect to the Total Payments, including
this Section, shall have a present value equal to the aggregate
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after-tax amount that he would have received and retained had such
excise or penalty tax (and any interest or penalties in respect
thereof) not applied to him. For this purpose, the Executive shall be
assumed to be subject to tax in each year relevant to the computation
at the then maximum applicable combined Federal and Massachusetts
income tax rate, and the present value of payments to him shall be
made consistent with the principles of Section 280G of the Code.
6.3 Timing of Payments. The payments provided for in Section 6.1
hereof shall be made not later that the tenth business day following
the Date Termination. The payment provided for be Section 6.2 shall be
paid not later than the tenth business day following the date the
gross-up amount is computed, but in no event later than the date any
excise tax is due and payable.
7. Termination Procedures and Agreement Not to Compete.
7.1 Notice of Termination. After a Transaction and during the
term of this Agreement, any purported termination of the Executive's
employment (other than by reason of death) shall be communicated by
written Notice of Termination fro one party hereto to the other party
hereto in accordance will Section 10 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and
circumstances, if any, claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
7.2 Date of Termination. "Date of Termination," with respect to
any purported termination of the Executive's employment after a
Transaction and during the term of this Agreement, shall mean the date
specified in the Notice of Termination (which, in the case of a
termination by Litchfield, shall not be less than thirty (30) days
(except in the case of a termination for Cause) and, in any case of at
termination by the Executive, shall not be less than fifteen (15) days
or more than sixty (60) days, respectively, from the date such Notice
of Termination is given).
8. No Mitigation. If the Executive's employment by Litchfield is terminated
during the term of this Agreement, the executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the
Executive by Litchfield pursuant to Section 6 hereof. Further, the amount of any
payment or benefit provided for in Section 6 hereof shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to Litchfield, or otherwise.
9. Successors; Binding Agreement.
9.1 Successors of Litchfield. The provision of this Agreement shall be
binding upon, and shall inure to the benefit of the successors and
assigns of Litchfield.
9.2 Successors of the Executive. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If the Executive shall die while
any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all such amounts,
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unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the executors, personal representatives, or
administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To Litchfield: To the Executive:
Litchfield Financial Corporation Apt 207, 1 Berkshire Square
P.O. Box 488 Adams, MA 01220
Williamstown, MA 01267
Attn:
11. Miscellaneous. No provision of this Agreement may be modified, waived,
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by both the Executive and by Litchfield. Except as expressly
provided herein, no waiver by either party hereto at any time of any breach by
the other party hereto, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly se forth in this Agreement. The validity,
interpretation construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an
instrument under seal. All references to sections of the Code shall be deemed
also to refer to any successor provisions to such sections. An payments provided
for hereunder shall be paid net of any applicable withholding required under
federal, state , or local law and any additional withholding to which the
Executive has agreed. The obligations of Litchfield and Executive under Sections
6, 7, 8 and 14 hereof shall survive the expiration of the term of this
Agreement.
12. Validity. The invalidity or unenforceability of any provision of this
Agreemen t shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may have executed in several counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All claims by the Executive for
benefits under this Agreement shall be in writing. Any denial by the Litchfield
of a claim for benefits under this Agreement shall be delivered to the Executive
in writing and shall set forth the specific reasons for the denial and specified
provisions of this Agreement relied upon. Any further dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Boston, Massachusetts, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Executive shall ,
however, be entitled to seek specific performance of the Executive's right to be
paid until the Date Termination during the pendency of any dispute or
controversy arising under or in connections with this Agreement.
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15. Definitions. For purposes of this Agreement, the following terms shall
have the meanings indicated below:
(A) "Affiliate" with respect to any person shall mean one who controls, is
controlled by, or in under common control with, such Person.
(B) "Cause" for termination by Litchfield of the Executive's employment,
after any Transaction, shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's
duties with Litchfield (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to the
Executive by Litchfield, which demand identifies with reasonable
specificity the manner in which Litchfield believes that the Executive
has not substantially performed the Executive's duties, ,or (ii) the
willful engaging by the Executive in misconduct which is materially
and adversely injurious to Litchfield or its parent company or any
subsidiaries or affiliates thereof, monetarily or otherwise, or (iii)
the conviction of the Executive of, or the plea by the Executive of
guilty or nolo contendere to, a felony; provided, however, that
"Cause" shall not exist under clauses (i) and (ii) unless Litchfield
has complied with the following terms and conditions:
(A) the Executive is provided with written notice of the
proposed termination;
(B) the Executive is given the opportunity to appear with his
counsel, and to present evidence and a defense to the
alleged acts or omissions constituting "Cause", at a duly
called and held meeting of the Board of Directors of
Litchfield, the purpose of which shall be to determine
whether "Cause" exists under clause (i) or (ii) and the
Executive should be terminated; and
(C) if the Executive avails himself of the opportunity set forth
in clause (B), following such meeting not less than
two-thirds of the members of the Board of Directors
determine that "Cause" exists under clause (1) and (ii) and
the Executive should be terminated. For purposes of clauses
(i) and (ii) of this definition, no act, or failure to act,
n the Executive's part shall be deemed "willful" unless
done, or omitted to be done, b the executive not in good
faith and without reasonable belief that the Executive's act
or failure to act, was in the best interest of Litchfield.
(C) "Code" shall mean the Internal Revenue code o f1986, as amended from
time to time.
(D) "Date of Termination" shall have the meaning stated in Section 7.2
hereof.
(E) "Litchfield" shall mean Litchfield Financial Corporation and any
successor to its business and/or assets. Payments or benefits from
Litchfield shall include those from any of its stockholders.
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FORM 10-K
(F) "Good Reason" shall mean termination by the Executive of his
employment following a Transaction for any one or more of the
following reasons: (i) the responsibility and authority of the
Executive shall be materially altered following the Transaction; (ii)
the compensation of the Executive (taking into account only base
salary and bonus) shall be diminished following the Transaction; or
(iii) following a Transaction Litchfield shall require the Executive
to relocate to a location more than 25 miles distant.
(G) "Notice of Termination" shall have the meaning stated in Section 7.1
hereof.
(H) "Person" shall mean a natural person or company; however, a Person
shall not include any shareholder or any company owned, directly or
indirectly, by any shareholder.
(I) "Potential Transaction" shall be deemed to have occurred if the
conditions asset forth in any one of the following paragraphs shall
have been satisfied:
(i) Litchfield enters into an agreement, the consummation of which
would result in the occurrence of a Transaction; or
(ii) Litchfield or any Person (with the approval of Litchfield)
publicly announces an intention to take or to consider taking
actions which, if consummated, would constitute a Transaction.
(J) "Severance Payments" shall mean those payments described in Section
6.1 hereof.
(K) "Total Payments" shall mean those payments described in Section 6.2
hereof.
(L) A "Transaction" shall be deemed to have occurred upon (i) a sale,
conveyance, lease or other transfer of all or substantially all of the
assets of Litchfield, (ii) a consolidation or merger of Litchfield
with or into another corporation in which Litchfield is not the
surviving or resulting corporation or after which more than 50% of the
issued and outstanding shares of voting capital stock of the surviving
or resulting corporation is thereafter owned of record or beneficially
by any single Person or Group of affiliated Persons, (iii) a sale or
transfer in a single transaction of shares of the voting capital stock
of Litchfield, which results in more than 50% of the issued and
outstanding shares of the voting capital stock of Litchfield being
thereafter owned of record or beneficially by any single Person or
Group of affiliated Persons, (iv) any other transaction or series of
transactions involving the issuance, sale or transfer of shares of the
capital stock of Litchfield, which results in more than fifty percent
(50%) of the issued and outstanding shares of the voting capital stock
of Litchfield being thereafter owned of record or beneficially by any
single Person or Group of affiliated Persons, or (v) a majority of the
Board of Directors of Litchfield ceasing to consist of individuals (A)
who are currently members of the Board or (B) for whose nomination for
such membership a majority of such current members voted in favor.
(M) "Group of affiliated Persons" shall mean a group of two (2) or more
Persons (i) in which one (1) or more of such Persons controls, is
controlled by, or is under common control with, another of such
Persons, or (ii) which is associated by agreement for the purpose of
controlling Litchfield or any successor corporation thereof. The term
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FORM 10-K
"Group of affiliated Persons" shall not include any such group which
consists entirely of Persons who are current stockholders and/or
directors of Litchfield and which may currently be deemed to control
Litchfield. "Person" shall mean an individual, partnership,
corporation, trust or other business entity.
Executed as of the date first above written.
LITCHFIELD FINANCIAL CORPORATION
By: /s/ Richard A. Stratton
-----------------------------
Name: Richard A. Stratton
Title: President
/s/ Ronald E. Rabidou
--------------------------------
(Executive)
51
<PAGE>
FORM 10-K
Exhibit 10.140
COMMERCIAL SECURITY AGREEMENT
Borrower: LITCHFIELD FINANCIAL CORPORATION Lender: BSB BANK & TRUST COMPANY
789 MAIN ROAD Commercial Loan Department
STAMFORD, VT 05352 58-68 Exchange Street,
(P.O. Box 1056)
Binghamton, NY 13902
THIS COMMERCIAL SECURITY AGREEMENT is entered into between LITCHFIELD FINANCIAL
CORPORATION (referred to below as "Grantor"); and BSB BANK & TRUST COMPANY
(referred to below as "Lender). For valuable consideration, Grantor grants to
Lender a security interest in the Collateral to secure the indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
(a) All accounts, general intangibles, instruments, rents, moneys,
payments, and all other rights, arising out of a sale, lease or other
disposition of any of the property described in this Collateral
section.
(b) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(c) Those certain loans made by Grantor and assigned to Lender (the
"Pledged Loans") along with the original promissory notes, endorsed to
Lender and if applicable , the recorded Mortgage, Deed of Trust or
comparable Security Instrument (or copy of Mortgage, Deed of Trust or
comparable Security Instrument, accompanied by evidence of recordation
in the appropriate public recording office), an original executed
Assignment of Mortgage, Deed of Trust or comparable Security
Instrument in favor of Lender in recordable form. All such collateral
must be satisfactory to Lender prior to assignment of Grantor's
interest.
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FORM 10-K
Commercial Security Agreement
(continued)
(d) All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Events of Default " mean and include without
limitation any of the Events of Default set forth below in the section
filled "Event of Default."
Grantor. The word "Grantor " means Litchfield Financial Corporation, its
successors and assigns
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to lender, as
well as all claims by Lender against Grantor, or any one or more or them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such Indebtedness
may be hereafter may become barred by any statute of limitations and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means BSB BANK & TRUST COMPANY, its successors
and assigns.
Note. The word "Note" means the Revolving Line of Credit Promissory Note
dated July 23, 1996, in the principal amount of $5,000,000.00 from
Litchfield Financial Corporation to Lender, together with all renewals of,
extensions of, modifications of, refinancing of, consolidations of and
substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
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FORM 10-K
COMMERCIAL SECURITY AGREEMENT (continued)
RIGHT OF SETOFF. In addition to Lender's right of setoff arising by
operation of law, Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right. title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account and
whether evidenced by a certificate of deposit), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for
which the grant of security interest would be prohibited by law. Grantor's
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all Indebtedness against any and all such accounts. OBLIGATIONS OF
GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization: Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of
Massachusetts. Grantor has its chief executive office at 789 Main Road,
Stamford, Vermont 05352. Grantor will notify Lender of any changes in the
location of Grantor's chief executive office.
Authorization. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict wit, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor may deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor authorizes Lender to file a financing statement
covering the Collateral without Grantor's signature pursuant to Uniform
Commercial Code Section 9-402(2)(e). Grantor promptly will notify Lender
before any change in Grantor's name including any change to the assumed
business names of Grantor. This is a continuing Security Agreement and will
continue in effect even though all or any part of the Indebtedness is paid
in full and even though for a period of time Grantor may not be Indebted to
Lender.
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FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions and
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; (d) all
other properties where Collateral is or may be located; and (e) any other
collateral described above. Except in the ordinary course of business,
Grantor shall not remove the Collateral from its existing locations without
the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above , or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of New York, without the prior written consent of Lender.
Notwithstanding the above Lender acknowledges that some of the collateral
consists of mobile homes which will be located outside of the State of New
York.
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<PAGE>
FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Transaction Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer of dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrances or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender. At Borrower's
request, and in the absence of any default as defined herein by Grantor in
making any payment of principal or interest when the same shall become due
under the $5,000,000.00 Note, Lender shall release collateral in Lender's
possession from time to time in the manner instructed by Grantor, but only
if after such release the outstanding principal balance of the Note shall
not exceed the Borrowing Base. Grantor and its agents shall continue to
service and administer the loans constituting Collateral in the ordinary
course of business. Grantor shall collect all amounts due to Grantor with
respect to the Collateral, and, in the absence of a Default, may use the
same to carry on Grantor's business.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
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FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Collateral Schedules and Locations. As often as Lender shall require , and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction the Collateral or any part of the
Collateral. Lender and Its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operations, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien in Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral si subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, reasonable attorney's fees or other charges that could
accrue as a result of foreclosure or sale of the Collateral. In any contest
Grantor shall defend itself and Lender and shall satisfy any final adverse
judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the
contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
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FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Hazardous Substances. Grantor represents and warrants that to the best of
Grantor's knowledge, the Collateral never has been, and never will be as
long as this Agreement remains a lien on the Collateral, used for the
generation, manufacture, storage, transportation, treatment, disposal,
release or threatened release of any hazardous waste or substance, as those
terms are defined in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42, U.S.C. Section
9601,et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act
of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum by-products
or any fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in investigating the
Collateral for hazardous wastes and substances. Grantor hereby (a) releases
and waives any future claims against Lender for indemnity or contribution
in the event Grantor becomes liable for cleanup or other costs under any
such laws, and (b) agrees to indemnity and hold harmless Lender against any
and all claims and losses resulting from a breach of this provision of this
Agreement. This obligation to indemnity shall survive the payment of the
Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft, and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverage's and basis
reasonably acceptable to Lender and issued by a company or companies
reasonably acceptable to Lender .Grantor, upon request of Lender, will
deliver to Lender from time to item the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at least ten (10)
days' prior written notice to Lender and not including any disclaimer of
the insurer's liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security Interest. Grantor
will provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not be
obligated to) obtain such insurance as Lender deems appropriate, including
if it so chooses "single interest insurance", which will cover only
Lender's interest in the Collateral.
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FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to repay the Indebtedness. Grantor hereby appoints Lender as
Its attorney-in-fact- with full power and authority to endorse in Grantor's
name any check or draft representing the proceeds of any insurance on the
Collateral and to settle or compromise in Grantor's name any claims with
respect to such insurance.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment if the insurance premiums required to be paid by Grantor, and
Lender is not the agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the payment of
premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risk insured; (c) the amount of the Policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
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FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may
have possession of the tangible personal property and beneficial use of all
the Collateral and may use it in any lawful manner not inconsistent with
this Agreement or the Related Documents, provided that Grantor's right to
possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to perfect
Lender's security interest in such Collateral. Until otherwise notified by
Lender, Grantor may collect any of the Collateral consisting of accounts.
Upon the occurrence of an Event of Default, and Grantor's failure to cure
same as provided herein, Lender may exercise its rights to collect the
accounts and to notify account debtors to make payments directly to Lender
for application to the Indebtedness. If Lender at any time has possession
of any Collateral, whether before or after an Event of Default, Lender
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose
as Grantor shall request or as Lender, in Lender's sole discretion, shall
deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise
reasonable care. Lender shall not be required to take any steps necessary
to preserve any rights in the Collateral against prior parties, nor to
protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated) discharge or pay any amounts required to be
discharge or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may
(but shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes, with the exception of insurance premiums paid by Lender
with incurred or paid by Lender to the date of repayment by Grantor. All
such expenses shall become a balance of the Note and be apportioned among
and by payable with any installment payments to become due during either
(i) the term of any applicable insurance policy or (ii) the remaining term
of the Note; or (c) be treated as a balloon payment which will be due and
payable at the Note's maturity. This Agreement also will secure payment of
these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default of Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
60
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FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency or Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditors or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceedings, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and If Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender moneys or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not by required
to, permit the Guarantor estate or assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) If Grantor. after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to produce compliance as soon as reasonably practical.
61
<PAGE>
FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the New York Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. Any
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral (including legal fees and costs), shall become a
part of the Indebtedness secured by this Agreement and payable from the
proceeds of the disposition of the Collateral, and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the
appointment of a receiver: (a) Lender may have a receiver appointed
as a matter of right; (b) the receiver may be an employee of
62
<PAGE>
FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Lender and may serve without bond; and (c) all fees of the receiver and his
or her attorney shall become part of the Indebtedness secured by this
Agreement and payable from the proceeds of the disposition of the
Collateral, and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the indebtedness in
such order of preference as Lender may determine, Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, chooses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclosure, or
realize on the Collateral as Lender may determine, whether or not
indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, draft, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligators on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time, In addition, Lender shall have and may
exercise any or all rights and remedies it may have available by law, in
equity, or otherwise.
63
<PAGE>
FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged of bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of New York. If there is a lawsuit. Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Broome
County, State of New York. Lender and Grantor hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either
Lender or Grantor against the other. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Attorney's Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may pay someone else to help enforce this Agreement,
and Grantor shall pay the costs and expenses of such enforcement. Costs and
expenses include Lender's reasonable attorneys' fees and legal expenses
whether or not there is a lawsuit, including reasonable attorneys' fees and
legal expenses for bankruptcy proceedings (and including efforts to modify
or vacate any automatic stay or injunction), appeals , and any anticipated
post-judgment collection services. Grantor also shall pay all court costs
and such additional fees as may be directed by the court.
64
<PAGE>
FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
Notices. Any notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
The the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current addressees.
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, draft or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect as long as there is any amount due and owing under
the Note.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any person or circumstance, such finding shall not
render that such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid and
enforceable.
65
<PAGE>
FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and insure to the
benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of the Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any further
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
66
<PAGE>
FORM 10-K
COMMERCIAL SECURITY AGREEMENT
(continued)
GRANTOR ACKNOWLEDGES HAVING READ ALL PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY
23, 1996
GRANTOR:
LITCHFIELD FINANCIAL CORPORATION
By:
_______________________________
LENDER:
BSB BANK & TRUST COMPANY
By: _____________________________
Authorized Officer
67
<PAGE>
FORM 10-K
Exhibit 10.141
PROMISSORY NOTE
<TABLE>
<S> <C>
Principal Loan Date Maturity Loan # Call Collateral Account Officer Initials
$5,000,000.00 07-23-96 07-15-97 11077 032 NOTES 2958 LK576 ---------
</TABLE>
Borrower: Litchfield Financial Corporation Lender:BSB BANK & TRUST
Box 544 Commercial Loan Dept.
Williamstown, MA 01267 58-68Exchange St.
(P.O. Box 1056
Binghamton, NY 13902
Principal Amount: $5,000,000 Initial Rate: 9.500% Date of Note: July 23, 1996
PROMISE TO PAY. Litchfield Financial Corporation ("Borrower") promises to
pay to BSB Bank and Trust Co. ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Five Million & 00/100
Dollars (5,000,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance.
Interest shall be calculated from the date of each advance until repayment
of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on July 15, 1997. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning August 15, 1996, and all subsequent interest payments are due on
the same day of each month after that. Borrower will pay Lender at Lender's
address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments
will be applied first accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may
or may not be the lowest rate available from Lender ate any given time.
Lender will tell Borrower the current index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each day. The
Index currently is 8.250% per annum. The interest rate to be applied to
unpaid principal balance of this Note will be at a rate of 1.250 percentage
points over the Index, resulting in an initial rate of 9.500% per annum.
NOTICE: Under no circumstances will the interest rate on this Note be more
than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
68
<PAGE>
FORM 10-K
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
4.000% of the unpaid portion of the regularly scheduled payment or $10.00,
whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower fails to comply with or to
perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any
other agreement or loan Borrower has with Lender. (c) Any representation or
statement made or furnished to Lender or Borrower or on Borrower's behalf
is false or misleading in any material respect either now or at the time
made or furnished. (d) Borrower becomes insolvent, a receiver is appointed
for any part of Borrower's property, Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency
laws. (e) Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of
the other events described in this default section occurs with respect to
any guarantor of this Note. (g) A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect of payment
or performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice
from Lender demanding cure of such default: (a) cures the default within
(15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
LENDER RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon default,
including failure to pay upon final maturity, Lender, at its option, amy
also, if permitted under applicable law, increase the variable interest
rate on this Note to 2.250 percentage points over the Index. The interest
rate will not exceed the maximum rate permitted by applicable law. Borrower
agrees to pay all costs and expenses incurred by Lender to collect this
Note. This includes, subject to any limits under applicable law, Lender's
reasonable attorneys' fees and Lender's legal expenses whether or not there
is a lawsuit, including reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by law, Borrower also will pay any court costs,
in addition to all other sums provided by law. This Note has been delivered
to Lender and accepted by Lender in the State of New York. If there is a
lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of BROOME County, the State of New York. Lender
and Borrower hereby waive the right to any jury trial in any action,
proceeding. or counterclaim brought by either Lender or Borrower against
the other. This Note shall be governed by and construed in accordance with
the laws of the State of New York.
RIGHT OF SETOFF. In addition to Lender's right of setoff arising by
operation of law, Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account and whether evidenced by a certificate of deposit), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and
69
<PAGE>
FORM 10-K
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
COLLATERAL. This Note is secured by INDIVIDUAL NOTES ORIGINATED OR
PURCHASED BY LITCHFIELD, TOGETHER WITH ALL PROCEEDS OF COLLATERAL. If there
is any inconsistency between the terms and conditions of this Note and the
terms and conditions of the collateral documents, the terms and conditions
of this Note shall prevail.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested only in writing by Borrower or by an
authorized person. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office
shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their
authority: RICHARD A. STRATTON, PRESIDENT; HEATHER A. SICA, EXECUTIVE VICE
PRESIDENT; RONALD RABIDOU, CHIEF FINANCIAL OFFICER; NORAH BRESETT,
CONTROLLER; and JENNIFER FIELD, SENIOR ACCOUNTANT. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instruction
of an authorized person or (b) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligations to
advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
Guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing
business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note
or any other loan with Lender; or (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those authorized by Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE NOTE.
70
<PAGE>
FORM 10-K
Borrower:
LITCHFIELD FINANCIAL CORPORATION
By: ________________________________________
Richard A. Stratton, President
By: ________________________________________
Heather A. Sica, Exec Vice Pres/Treas.
By: ________________________________________
Ronald E. Rabidou, Chief Financial Officer
By: _________________________________________
Norah K. Bresett, Controller
71
<PAGE>
Exhibit 10.142
LOAN AGREEMENT
LOAN AGREEMENT dated as of September 13, 1996 between LITCHFIELD FINANCIAL
CORPORATION, a Massachusetts corporation ("Borrower") and BANK OF SCOTLAND
(the "Bank").
W I T N E S S E T H :
WHEREAS, the Borrower is a finance company principally engaged in the
business of providing financing for the purchase of rural land, vacation
properties and timeshare interests, and has requested that the Bank establish in
its favor a $15,000,000 revolving credit facility for general corporate
purposes;
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Bank is amenable to establishing such a facility;
NOW, THEREFORE, it is agreed:
Section 1. DEFINITIONS.
(a) Terms used in this Agreement which are defined in Annex I hereto shall
have the meanings specified in such Annex I (unless otherwise defined herein)
and shall include in the singular number the plural and in the plural number the
singular.
(b) Unless otherwise specified, each reference in this Agreement or in any
other Loan Document to a Loan Document shall mean such Loan Document as the same
may from time to time be amended, restated, supplemented or otherwise modified.
(c) All references to Sections in this Agreement or in Annex I hereto shall
be deemed references to Sections in this Agreement unless otherwise specified.
Section 2. THE LOAN FACILITIES.
2.1 The Loans. (a) Subject to the terms and conditions set forth herein,
the Bank agrees at any time and from time to time during the Commitment Period
(but excluding the last day thereof) to make loans to the Borrower (each a
"Revolving Credit Loan" and collectively, the "Revolving Credit Loans") up to
its Commitment, provided that in no event shall the aggregate principal amount
of Revolving Credit Loans outstanding at any time exceed the lesser of (x) the
Commitment then in effect and (y) the then current Borrowing Base. During the
Commitment Period, the Borrower may utilize the Commitment by borrowing,
<PAGE>
prepaying the Revolving Credit Loans in whole or in part without premium or
penalty, and reborrowing, all in accordance with the terms and conditions
hereof.
(b) The Bank shall not be required to make any Loans hereunder unless an
initial Revolving Credit Loan is made, in accordance with the provisions of this
Agreement, on or prior to October 30, 1996.
2.2 Notice of Borrowing. (a) Whenever the Borrower desires to utilize the
Commitment hereunder, the Borrower shall give at least one Business Day's (or
such shorter period of time as the Bank agrees to) prior telephonic notice to
the Bank (confirmed on the same day by telecopier); provided that any such
notice given on the Business Day preceding the requested date of such loan shall
(unless the Bank agrees otherwise) be given prior to 11:00 A.M. (New York time)
on that Business Day. Such notice shall specify (x) the date of the proposed
borrowing, which shall be a Business Day during the Commitment Period (each, a
"Borrowing Date") and (y) the total amount of such borrowing (which shall be in
a minimum amount of $500,000 and, if greater, in an integral multiple of
$100,000 in excess thereof (or, if less, equal to the Unutilized Commitment).
(b) Subject to the terms and conditions hereof (including without
limitation Section 6 hereof), the Bank will make the amount of its Loan
available to the Borrower in same day funds at the Closing Office on the date
specified in the notice for the proposed borrowing against delivery to the Bank
of such instruments, documents and papers as are provided for herein.
2.3 The Note. (a) The Borrower's obligation to pay the principal of, and
interest on, the Revolving Credit Loans shall be evidenced by the Revolving
Credit Note.
(b) (i) The Revolving Credit Note shall: (1) be dated the Closing Date; (2)
be in an original principal amount equal to $15,000,000; (3) be payable in an
amount equal to the outstanding principal amount of the Loans evidenced thereby
on the last day of the Commitment Period; (4) bear interest as provided in
Section 3; and (5) be entitled to the benefits of this Agreement and shall be
secured by the Security Documents.
(c) The principal amount of all Loans outstanding from time to time, and
interest accrued thereon, shall be recorded on the records of the Bank and,
prior to any transfer of, or any action to collect, any Note, the unpaid
principal amount of the Loans evidenced by such Note shall be endorsed on the
reverse side of such Note, together with the date of such endorsement and the
date to which the interest has been paid; any failure to make such endorsement
and provide such other information, however, shall not affect Borrower's
obligations hereunder or under the Revolving Credit Note.
2.4 Mandatory Prepayments of Revolving Credit Loans. (a) The Borrower shall
immediately prepay the Revolving Credit Loans to the extent that the aggregate
<PAGE>
outstanding principal amount thereof on any day shall exceed the amount of the
Commitment in effect on such day.
(b) The Borrower shall immediately prepay the Revolving Credit Loans to the
extent that the aggregate outstanding principal amount thereof on any day shall
exceed the amount of the Borrowing Base on such day.
(c) In the event that (A)(1) any Assignment Asset is sold, assigned,
transferred or otherwise conveyed (any such sale, assignment, transfer or other
conveyance, a "Transfer") by the Borrower to any Person or (2) the Borrower or
any other Person receives any payment or proceeds in respect of any Assignment
Asset and (B) at the time of such Transfer or receipt of payment or proceeds, a
Default or Event of Default has occurred and is continuing or would result from
such Transfer, payment or receipt of proceeds, the Borrower shall prepay the
Revolving Credit Loans in an amount equal to the full consideration received or
receivable in respect of such Transfer (in the case of a Transfer) or the full
amount of payments or proceeds received (if other than in respect of a Transfer)
on (x) in the case of a Transfer, the date of such Transfer or, if earlier, when
any such consideration is paid and (y) in the case of any other payment or
proceed, on the date when any such payment or proceed is received.
(d) Subject to the terms and conditions of this Agreement, amounts prepaid
under subsections 2.4(b) and 2.4(c) of this Section 2.4 may be reborrowed.
2.5 Voluntary Repayment of Revolving Credit Loans. The Borrower shall have
the right, at any time and from time to time, upon at least one Business Day's
prior notice to the Bank in writing or by telephone (confirmed as soon as
possible thereafter in writing) to prepay the Revolving Credit Loans, in whole,
or in part in amounts equal to $500,000 or, if greater, integral multiples of
$100,000 in excess thereof, or, if less, the aggregate outstanding principal
amount of the Revolving Credit Loan, and without premium or penalty, provided
that at the time of any such prepayment of the Revolving Credit Loans in full,
the Borrower shall pay all interest accrued on the amount of such prepayment.
Subject to the terms and conditions of this Agreement, amounts prepaid under
this Section 2.5 may be reborrowed.
2.6 Reduction of Commitments. (a) The Borrower shall have the right at any
time and from time to time upon at least 3 Business Days' prior written notice
to the Bank to reduce permanently in amounts equal to $1,000,000 or integral
multiples thereof or terminate the Unutilized Commitment (after giving effect to
all pending requests for Revolving Credit Loans).
(b) Subject to Sections 2.6(c) and 2.6(d), the Bank shall have the right
upon written notice to the Borrower at any time or from time to time whenever
the aggregate Book Value of the Assignment Assets (without giving effect to any
subsequent increase in the Assignment Assets pursuant to Section 11 hereof other
than increases consented to by the Bank in accordance with Section 11 hereof) is
less than $10,000,000 (a "Section 2.6(b) Commitment Reduction Event") to reduce
the Commitment (x) with respect to the first $500,000 by which such Book Value
is less than $10,000,000, by an amount equal to the difference between
<PAGE>
$10,000,000 and the aggregate Book Value of the Assignment Assets, and (y) with
respect to the amount by which $9,500,000 exceeds the aggregate Book Value of
the Assignment Assets, by 150% of the difference between $9,500,000 and such
aggregate Book Value. As to each such reduction, the amount by which the
Commitment is then reduced pursuant to this Section 2.6(b) is sometimes referred
to as the "Commitment Reduction Amount".
(c) (i) Notwithstanding the p rovisions of Section 2.6(b), the Bank shall
not have the right to reduce the Commitment pursuant thereto upon the occurrence
of a Section 2.6(b) Commitment Reduction Event for so long as:
(A) the sum of (1) the Security Value of the Borrowing Base
Collateral, and (2) the aggregate Book Value of the Assignment Assets
equals or exceeds $30,000,000; (B) the aggregate Book Value of the
Assignment Assets equals or exceeds $5,000,000; and (C) the Security
Value of the Borrowing Base Collateral equals or exceeds $20,000,000;
and
(ii) Notwithstanding the provisions of Section 2.6(b), if at the time a
Section 2.6(b) Commitment Reduction Event occurs the Security Value of the
Borrowing Base Collateral equals or exceeds $20,000,000 and the aggregate Book
Value of the Assignment Assets equals or exceeds $5,000,000, the amount of the
Commitment Reduction Amount shall not exceed the amount determined by the
following formula:
1.5X + $500,000,
where X= $30,000,000 minus the sum of (i) the Security Value of the
Borrowing Base Collateral, plus (ii) the aggregate Book Value of the
Assignment Assets, plus (iii) $500,000.
(d) If, within 15 days after the occurrence of a Section 2.6(b) Commitment
Reduction Event:
(1) the Bank shall have reduced the Commitment in accordance with Section
2.6(b), and
(2) either
(x) the aggregate Book Value of the Assignment Assets shall have increased
from its then-current amount as a result of the designation of (and the Bank's
acceptance of) new Assignment Assets pursuant to Section 11.2 hereof (such
increase, a "Book Value Increase"), or
<PAGE>
(y) the Security Value of the Borrowing Base Collateral shall exceed
$20,000,000 (the amount, if any, by which the Security Value of the Borrowing
Base Collateral exceeds $20,000,000 being sometimes referred to as the "Security
Value Excess"), and
(3) the Borrower shall have given written notice to the Bank stating:
(x) that such Book Value Increase has occurred or a Security Value Excess
exists, in each case (i) specifying the relevant amount and (ii) together with
such supporting and supplemental information as the Bank shall request, and
(y) that the Borrower wants all or a portion of the Commitment Reduction
Amount restored, and
(z) the amount of the Commitment Reduction Amount that the Borrower wants
restored, which amount (i) shall not be less than (A) $500,000 or an integral
multiple of $100,000 in excess thereof or (B) if the Commitment Reduction Amount
was less than $500,000, the Commitment Reduction Amount and (ii) shall in no
event exceed the amount described below,
then, if the Bank concurs that such Book Value Increase has occurred or a
Security Value Excess exists (as the case may be), the Bank shall promptly
thereafter by written notice to the Borrower confirm that the Commitment
has been increased by an amount equal to the lesser of
(A) the related Commitment Reduction Amount minus any such amount that has
been restored pursuant to this Section 2.6 (d) (or such lesser amount requested
by the Borrower), or
(B) (i) if the increase is being granted because a Book Value Increase has
occurred, the amount of such Book Value Increase, or
(ii) if the increase is being granted because a Security Value Excess
exists, the amount of such excess, or
(iii) if the increase is being granted because both a Book Value Increase
has occurred and a Security Value Excess exists, the sum of the amounts computed
in accordance with clauses (i) and (ii) immediately preceding; provided that if
the aggregate Book Value of the Assignment Assets is less than $9,500,000, the
amount of the increase or excess (as the case may be) resulting from the
operation of clauses B(i) and B(ii) above shall be 150% of the amount of the
Book Value Increase or the Security Value Excess, as the case may be, for that
portion of such Book Value Increase which brings the aggregate Book Value of the
Assignment Assets to $9,500,000 or (without duplication) that portion of the
<PAGE>
Security Value Excess which, if the amount thereof was the amount of a Book
Value Increase, would bring the aggregate Book Value of the Assignment Assets to
$9,500,000.
provided however, that, notwithstanding the foregoing,
(x) if during such 15-day period the Commitment has been terminated or
reduced for any reason other than a Section 2.6(b) Commitment Reduction Event,
the Commitment shall not be restored pursuant to this Section 2.6(d); and
(y) in no event shall any increase pursuant to this Section 2.6(d) occur if
the amount of such increase would be less than the lesser of:
(i) such Commitment Reduction Amount (net of any such amount that has been
restored pursuant to this Section 2.6(d)), and
(ii) $500,000 (or, if greater, an integral multiple of $100,000 in excess
thereof), all such increases being rounded down to the nearest $100,000.
Section 3. INTEREST.
3.1 Rate of Interest. The Borrower agrees to pay interest in respect of
the unpaid principal amount of the Revolving Credit Loans from time to time
outstanding from the date the proceeds thereof are made available to the
Borrower hereunder (whether by acceleration or otherwise) at a rate per annum
equal (subject to the provisions of Section 3.3) to the sum of (x) the Base
Rate, which interest rate shall change as and when the Base Rate changes, plus
(y) 1% per annum.
3.2 Interest Payment Dates. Accrued interest in respect of each Loan, on
and prior to maturity, shall be payable in arrears on each Quarterly Payment
Date, commencing with the quarter ending December 31, 1996, on the date of each
prepayment, at maturity (whether by acceleration or otherwise) and, after
maturity, upon demand.
3.3 Overdue Payment of Principal and Interest. Each Loan and each other
amount due under this Agreement or any other Loan Document shall bear interest
for each day on which an Event of Default exists under Section 9.1 or Section
9.7 hereof (after as well as before judgment), payable on demand, at a rate per
annum (the "Past-Due Rate") equal to the sum of (x) the rate of interest
otherwise payable on such date, plus (y) 2% per annum.
3.4 Capital Adequacy. If the Bank shall have determined that the
applicability after the date hereof of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or the
<PAGE>
adoption after the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
enforcement or interpretation or administration of any of the foregoing by any
court, Government Authority, central bank or comparable agency charged with the
enforcement or interpretation or administration thereof, or compliance by the
Bank (or any lending office of the Bank) or any holding company of the Bank with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on the Bank's capital or on
the capital of the Bank's holding company, if any, as a consequence of its
Loans, Commitments or other obligations hereunder to a level below that which
the Bank or the Bank's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration the
Bank's policies and the policies of the Bank's holding company with respect to
capital adequacy) by an amount deemed by the Bank to be material, then, upon
demand by the Bank, the Borrower shall pay to the Bank from time to time such
additional amount or amounts as will compensate the Bank or the Bank's holding
company for any such reduction suffered, together with interest on each such
amount from the date demanded until payment in full thereof (after as well as
before judgment) at the Base Rate. A certificate of the Bank to the Borrower as
to any such additional amount or amounts (including calculations thereof in
reasonable detail) shall be submitted by the Bank to the Borrower, which
certificate, in the absence of manifest error, shall be conclusive and binding
on the Borrower. In determining such amount or amounts, the Bank may use any
method of averaging and attribution as it (in its sole and absolute discretion)
shall deem applicable.
Section 4. FEES
4.1 Facility Fee. The Borrower agrees to pay to the Bank a facility fee
with respect to this Agreement for the period commencing on the Closing Date to
and including the Revolving Credit Maturity Date, computed at a rate per annum
equal to 3/8 of 1% of the average daily Commitment during the period for which
payment is made; provided, that for the purposes of this Section 4.1 only, any
reduction of the Commitment pursuant to Section 2.6(b) shall be disregarded
until 15 days after the related Section 2.6(b) Commitment Reduction Event and,
to the extent that any portion of such Commitment reduction is restored pursuant
to Section 2.6(d), shall not be deemed to have reduced the Commitment at any
time. Such facility fee shall be payable quarterly in arrears on each Quarterly
Payment Date commencing on the last day of the quarter ending December 31, 1996,
on each date that the Commitment is reduced or terminated, and on the Revolving
Credit Maturity Date.
4.2 Arrangement Fee. The Borrower agrees to pay to the Bank an arrangement
fee for establishing its Commitment, as follows: $25,000 on the Closing Date;
$25,000 on the first anniversary of the Closing Date; and $25,000 on the second
anniversary of the Closing Date; provided that if prior to either anniversary
date specified above the Commitment shall have been terminated and no Loans are
outstanding and all other obligations of the Borrower under this Assignment and
the other Loan Documents have been paid in full, the Borrower's obligation to
pay the arrangement fee on such anniversary date (and the succeeding anniversary
date, if any) shall be terminated.
<PAGE>
Section 5. PAYMENTS, ETC.
5.1 Payments on Non-Business Days; Calculations. Whenever any payment to
be made hereunder or under the Note shall be stated to be due on a day which is
not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest shall be payable at the applicable rate
during such extension. Interest and the facility fee hereunder and under the
other Loan Documents shall be calculated on the basis of actual number of days
elapsed in a year of 365 days; if for any reason a Loan is repaid on the same
day on which it is made, one day's interest (subject to the other provisions of
this Agreement) shall be paid on that Loan. The Borrower hereby authorizes and
directs the Bank to charge any account of the Borrower maintained at any office
of the Bank with the amount of any principal, interest or fee when the same
becomes due and payable under the terms hereof or of the Notes; provided,
however, that the Bank shall not be under any obligation to charge any such
account.
5.2 Net Payments; Application. (a) All payments hereunder and under the
other Loan Documents shall be made by the Borrower to the Bank in freely
transferable U.S. dollars and in same day funds at the Closing Office without
setoff or counterclaim and in such amounts as may be necessary in order that all
such payments (after (i) withholding for or on account of any present or future
taxes, levies, imposts, duties or other similar charges of whatsoever nature
imposed on the amounts described above by any government or political
subdivision or taxing authority thereof or therein, other than any tax (other
than such taxes referred to in clause (ii) below) imposed on the Bank pursuant
to the income tax laws of the jurisdiction where the Bank's principal or lending
office or offices are located, and (ii) deduction of an amount equal to any
taxes on or measured by the net income payable to the Bank with respect to the
amount by which the payments required to be made by this Section 5.2 exceed the
amount otherwise specified to be paid under this Agreement and the Note) shall
not be less than the amounts otherwise specified to be paid under this Agreement
and the Note. With respect to each such deduction or withholding, the Borrower
shall promptly (and in no event later than 30 days thereafter) furnish to the
Bank such certificates, receipts and other documents as may be required to
establish any tax credit, exemption or reduction in rate to which the Bank or
holder of the Note may be entitled. The Bank agrees to furnish the Borrower, as
soon as practicable after any written request of the Borrower to such effect,
any executed form reasonably requested by the Borrower such as Internal Revenue
Service Form 4224 or 1001, and any other applicable form as to the Bank's
entitlement, if any, to exemption from, or a reduced rate of, or its subjection
to, United States withholding tax on amounts payable to it hereunder or under
the Note and the Bank undertakes to use its best efforts promptly to notify the
Borrower of any material change in any information, statement or form so
furnished to the Borrower; provided, however, that any failure on the part of
the Bank to furnish any such information, statements or forms shall in no way
affect the obligations of the Borrower or the rights of the Bank under the terms
of this Agreement or of the Note.
(b) Unless otherwise specifically provided herein, all payments under or
pursuant to, or in satisfaction of, any of the Borrower's obligations under this
Agreement or under the Note (including any received in connection with the
foreclosure upon or other realization on any Collateral) will be applied in the
following order of priority: (i) to any amounts not otherwise listed in this
Section 5.2(b) then due and payable under this Agreement, the Note or the
<PAGE>
Security Documents, (ii) to any fees then due and payable pursuant to Section
4.1 or 4.2 of this Agreement (in such order as the Bank may elect), (iii) to any
interest on the Note then due and payable, (iv) to any principal amount of the
Revolving Credit Loans then due, and (v) to reduce the unpaid principal amount
of the Revolving Credit Loans.
Section 6. CONDITIONS PRECEDENT TO INITIAL LOAN.
The Bank shall not be obligated to make the initial Revolving Credit Loan
hereunder unless on the date of such Loan (unless otherwise specifically
indicated) the following conditions have been fulfilled to the satisfaction of
the Bank or waived:
6.1 Default, etc. On the date of such Loan (and after giving effect to all
Loans requested to be made on such date), there shall exist no Default or Event
of Default and all representations and warranties made by the Borrower herein or
in the other Loan Documents or otherwise made by the Borrower in writing in
connection herewith or therewith shall be true and correct in all material
respects with the same effect as though such representations and warranties have
been made at and as of such time.
6.2 Note. On the date of such Loan, the Bank shall have received the
Revolving Credit Note, duly executed and completed by the Borrower.
6.3 [intentionally deleted]
6.4 Supporting Documents of the Borrower. There shall have been delivered
to the Bank, such information and copies of documents, approvals (if any) and
records (certified where appropriate) of corporate and legal proceedings as the
Bank may have reasonably requested relating to the Borrower's entering into and
performance of the Loan Documents or the transactions contemplated by this
Agreement. Such documents shall, in any event, include:
(a) certified copies of the Charter Documents of each of the Borrower, LMSC
and LTSC;
(b) certificates of authorized officers of the Borrower, certifying the
corporate resolutions of the Borrower relating to the entering into and
performance of the Loan Documents by the Borrower and the transactions
contemplated thereby;
(c) certificates of authorized officers of the Borrower, with respect to
the incumbency and specimen signatures of its officers or representatives
authorized to execute such documents and any other documents and papers, and to
take any other action, in connection therewith; and
<PAGE>
(d) a certificate of an authorized officer of the Borrower certifying, as
of the Closing Date, compliance with the conditions of Section 6.1, 6.10,
6.12(b) and 6.18 and also the absence of any material adverse changes of the
type referred to in Section 6.8.
6.5 Security Documents. There shall have been delivered to the Bank:
(a) A Security Agreement executed by the Borrower, substantially in the
form of Exhibit B hereto (as amended, supplemented or otherwise modified from
time to time, the "Security Agreement"), covering all of the Borrowing Base
Collateral.
(b) A pledge agreement executed by the Borrower, substantially in the form
of Exhibit C hereto (as the same may from time to time be amended, restated,
supplemented or otherwise modified, the "Pledge Agreement") covering (1) all of
the present and future shares of LMSC, together with (x) certificates
representing such pledged shares and (y) undated stock powers for such
certificates, duly executed in blank by the Borrower, and (2) the Class B
Certificate, together with undated power of transfer, duly executed in blank.
(c) Copies of such consents of third parties as are required or as the Bank
may reasonably request, including, without limitation, with respect to the
conveyance to the Borrower of Certificate B.
6.6 UCC. The Borrower shall have delivered to the Bank evidence
satisfactory to the Bank of all filings of financing statements under the
applicable Uniform Commercial Code, satisfactory Lien search requests on Form
UCC-11 confirming the absence of any Liens (except those in favor of or
consented to by the Bank) on any Collateral or any Assignment Assets and
evidence satisfactory to the Bank of all other action with respect to the Liens
created by the Security Documents necessary or appropriate to perfect such
Liens.
6.7 Financial Statements. (a) The Borrower shall have delivered to the Bank
a copy of its consolidated audited financial statements for the year ending
December 31, 1995, and a copy of its quarterly report on Form 10-Q for the
fiscal quarter ended June 30, 1996, in each case satisfactory in form and
substance to the Bank and, with respect to the quarterly report on Form 10-Q,
certified by the CFO of the Borrower as having been prepared in accordance with
GAAP, consistently applied and as fairly presenting the financial condition and
results of operation as at the dates and for the periods indicated.
(b) The computations of the ratios required by Sections 8.18-8.22 for the
most recent applicable period shall have been delivered to the Bank, certified
by the Borrower's chief financial officer.
6.8 Adverse Change. There shall have been, in the Bank's opinion, no
Material Adverse Change since December31, 1995 with respect to the Consolidated
Group taken as a whole or the Borrower, LMSC or LTSC.
<PAGE>
6.9 Insurance. There shall have been delivered to the Bank a certificate of
an authorized officer of the Borrower that all insurance policies referred to in
Section 7.4 are in full force and effect and that all premiums required to be
paid thereon have been paid in full.
6.10 Approvals and Consents. All orders, permissions, consents, approvals,
licenses, authorizations and validations of, and filings, recordings and
registrations with, and exemptions by, any Government Authority, or any other
Person, required to authorize or required in connection with the execution,
delivery and performance of this Agreement or the other Loan Documents and the
transactions contemplated hereby and thereby by the Borrower, LTSC and LMSC
shall have been obtained (and, if so requested, furnished to the Bank).
6.11 Legal Opinions. The Bank shall have received legal opinions in form
and substance satisfactory to it, addressed to the Bank and dated the Closing
Date, of Battle Fowler LLP, counsel to the Borrower, and other counsel to the
Borrower acceptable to the Bank.
6.12 Change in Law. (a) On the date of such Loan, no change shall have
occurred in applicable law, or in applicable regulations thereunder or in
interpretations thereof by any Government Authority which, in the opinion of the
Bank, would make it illegal for the Bank to effect the Loan required to be made
on such date.
(b) No suit, action or proceeding shall be pending or threatened by or
before any Governmental Authority seeking to restrain or prohibit the
consummation of the transactions contemplated by this Agreement.
6.13 All Proceedings to be Satisfactory. All corporate, partnership (if
any) and legal proceedings and all instruments in connection with the
transactions contemplated by this Agreement and the other documents referred to
herein shall be satisfactory in form and substance to the Bank, and the Bank
shall have received all information and copies of all documents which the Bank
may reasonably have requested in connection herewith, such documents where
appropriate to be certified by proper corporate officials or governmental
authorities.
6.14 Fees and Expenses. The Bank's arrangement fee referred to in Section
4.2 and the legal fees and expenses (through the Closing Date) of the Bank's New
York counsel and (if any) local or special counsel in connection with the
transactions contemplated by this Agreement shall (to the extent demand for
payment thereof shall have been made) have been paid in full.
6.15 Other Agreements. The Borrower shall have delivered to the Bank copies
of the Receivables Purchase Agreement, Receivables Loan Agreement, the Class B
Certificate Agreements and such agreements and instruments ancillary thereto as
the Bank may request, certified by the Borrower as true, correct, complete and
in full force and effect.
6.16 Borrowing Base. The Bank shall have received (i) the most recent
Borrowing Base Certificate and other documentation required by Section 7.16, and
<PAGE>
(ii) a Borrowing Base Certificate dated the date of the Loans, in each case
together with such supplemental or supporting documentation as the Bank may
reasonably request, showing, in each case, that the aggregate amount of Loans
requested does not exceed the Borrowing Base as of August 31, 1996.
6.17 Assignment Assets. The Bank shall have received an Assignment Asset
Certificate dated the date of such Loans showing that the Book Value of the
Assignment Assets is at least $10,000,000.
6.18 Transfer of Class B Certificate. The Borrower shall have delivered to
the Bank evidence satisfactory to the Bank of the irrevocable and unconditional
sale to the Borrower by LTSC of the Class B Certificate in consideration of an
unsecured promissory note not in excess of $10,557,005.19, which note shall be
absolutely and fully subordinated to the Obligations and shall be satisfactory
to the Bank in all respects.
6.19 Borrowing Base Collateral. The terms of the Borrowing Base Collateral
shall be satisfactory to the Bank.
6.20 Troubled Loan Certificate. The Bank shall have received a Troubled
Loan Certificate as of August 31, 1996 evidencing compliance with Section 8.21.
6.21 Extraordinary Assets. The Bank shall have received an
Extraordinary Asset Certificate as of August 31, 1996 evidencing compliance
with Section 8.22.
All documents and papers required by this Section 6 shall be in form and
substance satisfactory to the Bank and delivered to the Bank at its Closing
Office or as the Bank may otherwise direct.
Section 6A. CONDITIONS PRECEDENT TO SUBSEQUENT LOANS
The Bank shall not be obligated to make any Loan after the Closing Date
unless, at the time of such Loan (except as hereinafter indicated) the following
conditions (unless waived in writing by the Bank) have been satisfied:
6A.1 Certain Conditions. At the time of such Loan, and immediately after
giving effect thereto, (a) all deficiencies, if any, with respect to conditions
precedent to any prior Loan or to the effectiveness of this Agreement shall have
been corrected, (b) all of the conditions specified in Sections 6.1, 6.12, 6.13,
6.14, 6.15 and 6.19 shall be satisfied in full (with any reference in any of
such Sections to Loans effected on the Closing Date to be deemed a reference to
the Loans then requested), (c) each of the documents specified in Section 6.2,
6.4, 6.5, 6.6, 6.9, 6.10 or 6.18 of this Agreement shall be in full force and
effect and no party thereto shall have failed to perform in any material respect
any of its obligations thereunder, (d) no issuer thereof shall have rescinded or
qualified any of the statements, certificates, letters, reports or opinions
referred to in Section 6 hereof, and (e) there shall have been, in the Bank's
opinion, no Material Adverse Change since the Closing Date in respect of the
Consolidated Group or the Borrower, LTSC or LMSC.
<PAGE>
6A.2 Subsequent Opinions of Counsel. If reasonably requested by the Bank,
the Bank shall have received from counsel referred to in Section 6.11 or other
counsel satisfactory to the Bank such favorable supplemental legal opinions
addressed to the Bank and dated the date of such Loan and covering such matters
incidental to the transactions contemplated by this Agreement as the Bank in its
reasonable judgment believes required to confirm, as of such Borrowing Date (and
after giving effect to the events occurring, and the passing of time since, the
Closing Date), any opinions given on the Closing Date, each of which opinions
shall be in form and substance satisfactory to the Bank.
6A.3 Officer's Certificate. (a) If requested by the Bank, the Bank shall
have received a certificate of authorized officers of the Borrower certifying,
as of the date of the Loan then being requested, compliance with the provisions
of Section 6.1 (with the reference therein to Loans being deemed a reference to
the Loans then being requested on the date of said certificate) and further to
the effect that the conditions specified in Section 6A.1 are satisfied at such
time.
(b) The making of each Loan subsequent to the Closing Date shall constitute
a representation and warranty by the Borrower to the Bank that, at the time of
said subsequent Loan (and after giving effect thereto), (i) all representations
and warranties contained herein or in the other Loan Documents or otherwise made
by the Borrower in connection herewith or therewith are true and correct in all
material respects with the same effect as though such representations and
warranties were being made at and as of such time, (ii) no Default or Event of
Default exists and (iii) the conditions specified in Section 6A.1 are satisfied
at such time.
6A.4 Borrowing Base. On the date of such Loan (and after giving effect
thereto), the Bank shall have received the Borrowing Base Certificate dated the
date of such Loan, together with such supplemental and supporting documentation
as the Bank may reasonably request, which Borrowing Base Certificate shall show
that (x) the aggregate amount of the Loans does not exceed the Borrowing Base as
of the date of the most recent certificate delivered (or required to have been
delivered) pursuant to Section 7.16 hereto (after giving effect to distributions
made with respect thereto through the date such certificate is delivered or was
required to have been delivered).
6A.5 Assignment Assets. On the date of such Loan, (i) the Bank shall have
received an Assignment Asset Certificate dated the date of such Loans, which
Assignment Asset Certificate shows that the Book Value of the Assignment Assets
is at least $5,000,000 as of the Current Date, and (ii) the outstanding
principal amount of Loans (after giving effect to such Loan) does not exceed the
Permitted Reduction Commitment.
6A.6 Fees and Expenses. To the extent demand therefor shall have been made,
all legal fees and expenses of the Bank's New York counsel and (if any) local or
special counsel in connection with the transactions contemplated by this
Agreement shall have been paid in full.
<PAGE>
All of the documents, agreements, certificates, financial statements, legal
opinions, analyses, reports and other papers referred to in this Section 6A
shall be in form and substance satisfactory to the Bank and shall be
delivered to the Bank at its Closing Office, or at such other office as the
Bank may from time to time specify to the Borrower.
Section 7. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees hereby that, so long as this Agreement is
in effect and until the Commitment is terminated and all of the Loans, together
with interest, commissions, fees and all other obligations incurred hereunder
are paid in full, it will perform, and will cause each of its Subsidiaries to
perform, the obligations set forth in this Section 7.
7.1 Financial Statements. Borrower will furnish to the Bank:
(a) As soon as practicable and in any event within 45 days after the
close of each quarter of each Fiscal Year, as at the end of and for the
period commencing at the end of the previous Fiscal Year and ending with
the end of such quarter, as the case may be, an unaudited consolidated
balance sheet of the Consolidated Group and a consolidated statement of
income and change in retained earnings of the Consolidated Group, together
with a quarterly cash flow statement, such statements to be accompanied by
separate balance sheets and income statements for each of LTSC and LMSC all
in reasonable detail and certified by the CFO subject to normal year-end
audit and adjustments and setting forth in comparative form the
corresponding figures as of one year prior thereto or for the appropriate
periods of the preceding fiscal year, as the case may be (which balance
sheet and statements may, if the Borrower wishes, be provided on quarterly
reporting Form 10-Q), each such delivery of financial statements to be
accompanied by a certificate of the CFO, in form and substance satisfactory
to the Bank, setting forth calculations (together with appropriate
supporting information) with respect to compliance with each of Sections
8.18-8.22;
(b) As soon as practicable and in any event within ninety (90) days
after the close of each Fiscal Year, as at the end of and for the Fiscal
Year just closed, a consolidated balance sheet of the Consolidated Group,
and a consolidated statement of income and retained earnings of the
Consolidated Group for such Fiscal Year, setting forth the corresponding
figures of the previous annual audit in comparative form, all in reasonable
detail and accompanied by the Auditors' opinion (without any qualification
unacceptable to the Bank) that such financial statements have been prepared
in accordance with GAAP consistently applied and fairly present the
financial condition and results of operations of the Consolidated Group at
Fiscal Year-End and for the Fiscal Year indicated, such financial
statements to be accompanied by separate balance sheets and income
statements for each of LTSC and LMSC, and further accompanied by a
certificate of the CFO or CEO that no Event of Default or Default exists
or, if in the opinion of the CFO or CEO, any Event of Default or Default
exists, specifying the nature thereof and the period of existence thereof,
and further accompanied by a certificate of the CFO, in form and substance
satisfactory to the Bank, setting forth the calculations (together with
appropriate supporting information) with respect to compliance with each of
Sections 8.18-8.22;
<PAGE>
(c) As soon as practicable and in any event within 25 days after the
end of each month, a certificate in form and substance satisfactory to the
Bank signed by the CEO or the CFO stating (i) that a review of the
activities of the Consolidated Group during such month has been made under
their supervision with a view to determining whether the Borrower has
observed, performed and fulfilled all of its obligations under this
Agreement and the other Loan Documents, and (ii) that there exists no Event
of Default or Default, or if any Event of Default or Default exists,
specifying the nature thereof, the period of existence thereof and what
action the Borrower proposes to take with respect thereto;
(d) Promptly upon receipt thereof, copies of all detailed financial
reports and management letters, if any, submitted to any member of the
Consolidated Group by the Auditors, in connection with each annual or
interim audit of their respective books by such Auditors;
(e) As soon as possible and in any event (A) within 30 days after the
Borrower or any of its ERISA Affiliates knows that any Termination Event
described in clause (i) of the definition of Termination Event with respect
to any Pension Plan has occurred or is expected to occur and (B) within 10
days after the Borrower or any of its ERISA Affiliates knows that any other
Termination Event with respect to any Pension Plan has occurred or is
expected to occur, a statement of the CFO describing such Termination Event
and the action, if any, which the Borrower or such ERISA Affiliate proposes
to take with respect thereto;
(f) Promptly and in any event within five Business Days after receipt
thereof by the Borrower or any of its ERISA Affiliates from the PBGC,
copies of each notice received by the Borrower or any such ERISA Affiliate
of the PBGC's intention to terminate any Pension Plan or to have a trustee
appointed to administer any Pension Plan, any notice of noncompliance
issued by the PBGC with respect to a proposed standard termination of a
Pension Plan, and any notice issued by the PBGC with respect to a proposed
distress termination of a Pension Plan;
(g) Promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each
Pension Plan;
(h) Promptly and in any event within five Business Days after receipt
thereof by the Borrower or any of its ERISA Affiliates from a Multiemployer
<PAGE>
Plan sponsor, a copy of each notice received by the Borrower or any of its
ERISA Affiliates concerning (x) the imposition or amount of withdrawal
liability under Subtitle E of Title IV of ERISA or (y) any determination by
a Multiemployer Plan sponsor that such Multiemployer Plan is, or is
expected to be, in "reorganization" (within the meaning of Section 4241 of
ERISA) or "insolvent" (within the meaning of Section 4245 of ERISA), or has
incurred or is expected to incur an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the Code);
and
(i) With reasonable promptness, such other information respecting the
business, properties, operations, prospects or condition (financial or
otherwise) of the Consolidated Group or any member thereof as the Bank may
from time to time reasonably request.
7.2 Notice of Litigation. Borrower will promptly give written notice
to the Bank of (i) any action or proceeding or, to the extent it may have
any notice thereof, any claim which may reasonably be expected to be
commenced or asserted against the Borrower or any Subsidiary, in which the
amount involved is $150,000 or more, or (ii) any dispute which may exist
between the Borrower or any Subsidiary and any Government Authority
(including, without limitation, any audit by the IRS) or (iii) any dispute
which may exist between the Borrower or any Subsidiary and any employees of
the Borrower or such Subsidiary or any union representing, claiming to
represent or seeking to represent any such employees, which dispute may
substantially affect the normal business operations of the Consolidated
Group or any member thereof, or any of their respective properties and
assets.
7.3 Payment of Charges. The Borrower will duly pay and discharge, and
will cause each of its Subsidiaries to duly pay and discharge (i) all
taxes, assessments and governmental charges or levies imposed upon or
against it or its property or assets, or upon any property leased by it,
prior to the date on which penalties attach thereto, unless and to the
extent only that such taxes, assessments and governmental charges or levies
are being contested in good faith and by appropriate proceedings diligently
conducted and the Borrower or such Subsidiary has set aside on its books
adequate reserves therefor in accordance with GAAP, and (ii) all lawful
claims, whether for labor, materials, supplies, services or anything else,
which might or could, if unpaid, become a lien or charge upon such property
or assets, unless and to the extent only that the validity thereof is being
contested in good faith and by appropriate proceedings diligently
conducted, and (iii) all its trade bills when due in accordance with their
original terms, including any applicable grace periods, unless and to the
extent only that such trade bills are being contested in good faith and by
appropriate proceedings diligently conducted.
7.4 Insurance. The Borrower will keep, and will cause each of its
Subsidiaries to keep, (i) its insurable property insured at all times with
financially sound and responsible insurance carriers against loss or damage
by fire and other risks, casualties and contingencies in such manner and to
the extent that like properties are customarily so insured by other
corporations engaged in the same or similar business similarly situated,
and (ii) adequate insurance at all times with financially sound and
responsible insurance carriers against liability on account of damage to
persons and properties and under all applicable workmen's compensation
laws, in such manner and to the extent that like properties are customarily
so insured by other corporations engaged in the same or similar business
similarly situated.
<PAGE>
7.5 Maintenance of Records. The Borrower will keep, and will cause
each of its Subsidiaries to keep, at all times books of record and account
in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs, and the Borrower will
provide, and will cause each of its Subsidiaries to provide, adequate
protection against loss or damage to such books of record and account.
7.6 Preservation of Corporate Existence. The Borrower will maintain
and preserve its corporate existence and right to carry on its business and
duly procure all necessary renewals and extensions thereof, and maintain,
preserve and renew all rights, powers, privileges and franchises which in
the opinion of the Board of Directors of the Borrower continue to be
advantageous to it and comply in all material respects with all applicable
Legal Requirements, and, in each such case, cause each of its Subsidiaries
so to do. Without limiting the generality of the foregoing, the Borrower
agrees to (and to cause each Subsidiary to) qualify to do business as a
foreign corporation in each jurisdiction where the nature of its business
and the operations conducted by it therein require it to be so qualified.
7.7 Preservation of Assets. The Borrower will keep and will cause each
of its Subsidiaries so to keep, its property in good repair, working order
and condition and from time to time make all needful and proper repairs,
renewals, replacements, extensions, additions, betterments and improvements
thereto, so that the business carried on by it may be properly and
advantageously conducted at all times in accordance with prudent business
management.
7.8 Inspection of Books and Assets. (a) Upon three Business Days'
notice, the Borrower will allow any representative, officer or accountant
of the Bank, during normal business hours, to visit and inspect any of its
property, to examine its books of record and account, and to discuss its
affairs, finances and accounts with its officers, and at such reasonable
time and as often as the Bank may request and, in each such case, cause
each of its Subsidiaries so to do.
(b) Upon three Business Days' notice and the prior submission by the
Bank to the Borrower of its proposed agenda therefor, the Borrower will
allow any representative, officer or accountant of the Bank from time to
time to discuss the Financial Statements, the other financial information
from time to time delivered hereunder and the financial condition of
members of the Consolidated Group (collectively, the "Financial
Information") with the Auditors; provided, however, that if no Default or
Event of Default then exists the Bank shall not have the right to require
such discussions more than once per year. The Borrower hereby irrevocably
authorizes the Auditors to discuss all of the foregoing with all such
Persons. The Borrower shall have the right to have one or more of its
officers present at any such discussions.
7.9 Payment of Indebtedness. The Borrower will duly and punctually
pay, or cause to be paid, the principal of and the interest on all
<PAGE>
Indebtedness for Borrowed Money heretofore or hereafter incurred or assumed
by the Borrower or any of its Subsidiaries, or in respect of which the
Borrower or any of its Subsidiaries shall otherwise be liable, when and as
the same shall become due and payable, unless such Indebtedness for
Borrowed Money shall be renewed or extended, and will (and will cause each
Subsidiary to) faithfully observe, perform and discharge all the covenants,
conditions and obligations which are imposed on the Borrower or any of its
Subsidiaries by any and all indentures and other agreements securing,
relating to, or evidencing such Indebtedness for Borrowed Money or pursuant
to which such Indebtedness for Borrowed Money is incurred, and the Borrower
will not permit (and will ensure that none of its Subsidiaries permit) any
act or omission to occur or exist which is or may be declared to be a
default thereunder.
7.10 Further Assurances. The Borrower will, and will cause each of its
Subsidiaries to, make, execute or endorse, and acknowledge and deliver or
file, all such vouchers, invoices, notices, and certifications and
additional agreements, undertakings, conveyances, transfers, assignments,
or further assurances, and take any and all such other action, as the Bank
may from time to time deem necessary or proper in connection with this
Agreement, the obligations of the Borrower hereunder or under the Note or
any of the other Loan Documents, or for the better assuring and confirming
unto the Bank all or any part of the security for the Loans.
7.11 Notice of Default. Forthwith upon any officer of the Borrower
obtaining knowledge of the existence of an Event of Default, the Borrower
will deliver to the Bank a certificate signed by an officer of the Borrower
specifying the nature thereof, the period of existence thereof, and what
action the Borrower proposes to take with respect thereto.
7.12 Reserves. The Borrower will set up, and will cause each of its
Subsidiaries to set up, on its books from its earnings, reserves for bad
debt in accordance with GAAP and in an aggregate amount deemed adequate in
the judgment of the Borrower and accepted by the Auditors in their annual
audits.
7.13 Arms-length Transactions. The Borrower will conduct, and cause
each of its Subsidiaries to conduct, all transactions with any of its
Affiliates on an arms-length basis.
7.14 Environmental Matters. With respect to any Property for which the
Borrower or any Subsidiary may be responsible, the Borrower will promptly
notify the Bank (with a description in reasonable detail) of:
(i) the receipt by the Borrower or any Subsidiary of any
material Environmental Claim;
(ii) the discovery of any Contaminant or Release on, in,
under or emanating from any Properties or operations of the
Borrower or any of its Subsidiaries liability for which might
have a Material Adverse Effect;
<PAGE>
(iii) (x) the material violation of, or any condition which
might result in a material violation of, any Environmental Law or
(y) any change in any Environmental Law or in the administration
or interpretation thereof, which in either case might subject any
member of the Consolidated Group material Environmental Costs;
(iv) the commencement of any judicial or administrative
proceeding or investigation alleging a violation of any
Environmental Law; or
(v) any material change in the representations and
warranties in Section 10.12;
and the Borrower will, and will cause each of its respective Subsidiaries
to, commence within 90 days after any such request, and diligently prosecute to
completion, such Remedial Action as the Bank may request in respect of any of
the matters addressed in such notice. As used in this Section 7.14 in relation
to any Environmental Claim or any violation of Environmental Law or any change
in the representations and warranties in Section 10.12 hereof, the term
"material" shall mean that such Environmental Claim, violation or change (i)
involves, or might reasonably be expected to involve Environmental Costs in
excess of $250,000, or (ii) occurs outside the ordinary course of business, or
(iii) gives rise, or might reasonably be expected to give rise, to a Default or
Event of Default, or (iv) would otherwise be of concern to a prudent lender.
7.15 Solvency. The Borrower will continue to be Solvent and ensure that
each Subsidiary will continue to be Solvent.
7.16 Borrowing Base Certificate. The Borrower will furnish the Bank (a)
within 25 days of the end of each month and, if a Default or Event of Default
then exists, from time to time upon the Bank's request, a Borrowing Base
Certificate as of the close of business on the last Business Day of such month
(or, if a Default or Event of Default exists, as of such date specified by the
Bank), (b) on or prior to the twenty-fifth (25th) day of each month (and, if a
Default or Event of Default then exists, from time to time upon the Bank's
request), computer print-outs as of the end of the immediately preceding month
(or, if a Default or Event of Default exists, as of such date specified by the
Bank) of all loans and other Receivables which support, underly or are
components of the Borrowing Base Collateral, in the same form required by
Section 6.10(a) and Section 6.10(b) of the Receivables Purchase Agreement and
Section 6.10(a) and Section 6.10(b) of the Receivables Loan Agreement (in the
case of Borrowing Base Collateral consisting of Uncertificated Residual Rights)
and by Section 3.1(b) of the Class B Servicing Agreement (in the case of
Borrowing Base Collateral consisting of the Class B Certificate), in each case,
without regard to any amendment of any such agreement not consented to by the
Bank or any termination of any such agreement, (c) on November 8, 1996 (or such
later date (if any) on or prior to November 22, 1996 requested by the Borrower
pursuant to the definition of "Transition Date" in Annex I hereto), unless prior
thereto the Transition Date has occurred, a Borrowing Base Certificate as of the
close of business on the second Business Day prior thereto and (d) within 25
days of the end of each month, a report in form and substance satisfactory to
the Bank as to the existence, aging of and payments made on the Assignment
Assets.
<PAGE>
7.17 Extraordinary Asset Certificate. The Borrower will furnish to the Bank
within 25 days after the end of each month (and, if a Default or Event of
Default exists, more frequently if the Bank so requests) an Extraordinary Asset
Certificate substantially in the form of Exhibit G hereto setting forth, as of
close of business on the last day of such month (or, if a Default or Event of
Default exists, as of such date specified by the Bank) (i) the Portfolio Amount;
and (ii) all Extraordinary Loans (specifying in reasonable detail each such
asset and the principal amount or, as appropriate, book value thereof).
7.18 Notification of Account Debtors. Upon request of the Bank made at any
time when a Default or Event of Default exists, promptly notify (in manner, form
and substance satisfactory to the Bank) all Persons who are at any time
obligated with respect to the Assignment Assets and, if any Receivables are
distributed to the Bank, all Persons who are obligated thereunder, that the Bank
possesses a security interest in (or assignment of the proceeds of) such
Assignment Assets or Receivables (as the case may be) and that all payments in
respect thereof are to be made to such account as the Bank directs.
7.19 Troubled Loan Certificate. The Borrower will furnish to the Bank (i)
within 15 days after the end of each fiscal quarter, (ii) whenever the amount
calculated pursuant to clause (A) of Section 8.21 hereof exceeds 9% of the
Borrower's consolidated Tangible Net Worth, within 15 days after the end of each
month, and (iii) if a Default or Event of Default exists, from time to time upon
the Bank's request, a Troubled Loan Certificate substantially in the form of
Exhibit H hereto setting forth, as of the last day of such quarter or month, as
the case may be (or, if a Default or Event of Default exists, as of such date
specified by the Bank), (x) the Borrower's consolidated Tangible Net Worth and
(y) the amount of Receivables specified in Sections 8.21 (A)(i), A(ii), and
A(iii), respectively, and the amount of Dealer Recourse and Dealer Reserve
specified in Section 8.21(A)(iv).
7.20 Receivable Delinquencies. The Borrower will furnish to the Bank,
within 10 days after the end of each month, a report in the form of Exhibit I
hereto showing delinquent Receivables.
Section 8. NEGATIVE COVENANTS.
The Borrower covenants and agrees that so long as this Agreement is in
effect and until the Commitment is terminated and all of the Loans, together
with interest, commissions, fees and all other obligations incurred hereunder,
are paid in full, the Borrower will perform, and will cause each of its
Subsidiaries to perform, the obligations set forth in this Section 8 (unless it
shall first have procured the written consent of the Bank to do otherwise).
8.1 Engage in Same Type of Business. The Borrower will not (i) enter into,
or permit any of its Subsidiaries to enter into, any business which is
substantially different from the business of the Borrower and its Subsidiaries
as set forth on Schedule 10.19, or (ii) make or acquire loans other than loans
<PAGE>
of the type and as otherwise described on Schedule 10.19; provided however, that
the Borrower and its Subsidiaries shall be permitted to make and acquire loans
which are different from those described on Schedule 10.19 (each such loan, a
"New Business Loan") so long as the aggregate outstanding principal amount of
New Business Loans held by the Borrower and its Subsidiaries does not at any
time exceed 25% of the Portfolio Amount.
8.2 Liens; Springing Liens. (a) The Borrower will not contract, create,
incur, assume or suffer to exist any Lien upon or with respect to, or by
transfer or otherwise subject to the prior payment of any indebtedness (other
than the Loans), any of the Collateral or Assignment Assets (or any proceeds of
any of the foregoing) whether now owned or hereafter acquired, or permit any of
its Subsidiaries so to do, other than Liens in favor of the Bank.
(b) In the event that (1) an Event of Default exists under Section 9.1 or
9.3, (2) any other Event of Default has existed for a period of thirty
consecutive days or (3) the Bank determines that a Material Adverse Change has
occurred (any such event, a "Covenant Springing Lien Event"), then forthwith
upon written request of the Bank the Borrower will make effective provision to
cause the Obligations to be secured by a first priority, perfected security
interest in all of the Assignment Assets, which Lien shall remain in effect
until all Loans are repaid, all other Obligations are paid in full and the
Commitment is terminated, and the Borrower shall, on demand of the Bank, execute
such agreements, financing statements, mortgages and other instruments as the
Bank shall reasonably request to give effect to such Lien and the perfection and
priority thereof, and deliver such Environmental Audits and appraisals as the
Bank shall request. In furtherance (but not in limitation) of the foregoing, the
Borrower hereby grants the Bank a lien on all Assignment Assets and proceeds
thereof, whether now or hereafter existing, arising or acquired and wherever
located, effective upon the occurrence of a Covenant Springing Lien Event.
Neither this Section 8.2(b) nor compliance herewith shall modify or waive any
provision of Section 9.
(c) If, notwithstanding the provisions of the foregoing clause (a), the
Borrower creates, assumes or suffers to exist any Lien on any Assignment Asset
(including any Assignment Asset which is acquired after the date hereof) the
Borrower will simultaneously therewith make effective provision (including the
execution of all agreements, financing statements, mortgages and other
instruments reasonably required by the Bank) to cause all of the Assignment
Assets to secure the Obligations equally and ratably with all other indebtedness
so secured (but shall not take any steps to secure such other indebtedness
equally and ratably with such Obligations), will deliver such Environmental
Audits and appraisals as the Bank shall reasonably request and will promptly
provide written notice thereof to the Bank and, by executing this Agreement, the
Borrower hereby grants an equal and ratable lien on, and security interest in,
such Assignment Assets and proceeds thereof, whether now or hereafter existing,
arising or acquired and wherever located, effective upon any such other Lien
existing upon any Assignment Asset. Nothing in this Section 8.2(c) shall relieve
the Borrower from its obligations set forth in said Section 8.2(a), the
violation of which shall be an Event of Default.
8.3 Other Indebtedness; Prepayment of Long Term Debt. (a) The Borrower will
not contract, create, incur, assume or suffer to exist any Indebtedness for
Borrowed Money or permit any of its Subsidiaries so to do; except
<PAGE>
(i) indebtedness of the Borrower represented by the Loans;
(ii) indebtedness existing on the Closing Date and indicated on
Schedule 8.3 to this Agreement;
(iii) trade payables incurred in the ordinary course of business;
provided that such trade payables (except to the extent being
contested in good faith by appropriate proceedings diligently
conducted and for which appropriate reserves have been established in
accordance with GAAP) are not more than 60 days past due; and
(iv) other indebtedness incurred after the Closing Date but only
if (x) no Default or Event of Default shall have occurred and is
continuing on the date such indebtedness is incurred or would result
therefrom and (y) had such indebtedness been incurred as of the first
day of any relevant Four Quarter Period and been outstanding for that
entire period, Borrower would have been in compliance with
Sections 8.18 through 8.20 hereof as at such fiscal quarter end.
(b) Borrower will not (i) amend the terms of any notes,
documents, instruments or agreements related to Long Term Debt that
would shorten the maturity date of any portion of principal at any
time payable thereunder to a date which is earlier than the date (the
"Post-Termination Date") which is 91 days after the Revolving Credit
Maturity Date, or (ii) make any payment on account of the principal of
or retire (by acquisition, purchase, payment, prepayment, redemption
or otherwise) all or any part of any Long Term Debt, other than (a)
the amounts specified in Section 10.17 with respect to the Long Term
Debt so specified therein on the dates specified therein, (b) in
addition to the amounts specified in clause (a) preceding and clause
(c) following, $4,700,000 in the aggregate of Long Term Debt and (c)
with the proceeds of any loan which refinances such Long Term Debt,
provided that no such refinancing loan shall require that any amount
of principal (other than principal to be repaid thereunder after the
Post- Termination Date) be repaid sooner (or in any greater amount)
than was required under the Long Term Debt which it refinances.
8.4 Activity of the Borrower. The Borrower shall remain the
primary operating company as among the Borrower, its Subsidiaries and
other Affiliates and shall remain the sole primary servicer, purchaser
and originator of Receivables owned, directly or indirectly, by the
Borrower, any Subsidiary, or any trust, pool or similar entity created
or capitalized by the Borrower, any Subsidiary or any Affiliate of the
Borrower (it being understood that the Borrower shall be permitted to
retain sub-servicers consistent with past practice).
8.5 Servicing and Originating. The Borrower shall service the
Receivables included in the Portfolio Amount in accordance with each
<PAGE>
agreement relating thereto to which it is a party and in accordance
with customary and normal standards of practice for the prudent
servicing of assets of such type.
(b) Without the prior written consent of the Bank (such consent
not to be unreasonably withheld), the Borrower will not make or permit
any of its Subsidiaries to make any material change in any of its or
their credit or lending policies or procedures as in effect on the
date hereof.
8.6 [intentionally deleted]
8.7 Accounting Changes. (a) The Borrower will not make or permit
any of its Subsidiaries to make any significant change in accounting
treatment and reporting practices, except as permitted or required by
GAAP.
(b) The Borrower will not change its Fiscal Year or permit any of
its Subsidiaries to change its Fiscal Year.
8.8 Consolidation and Merger. The Borrower will not wind up, liquidate or
dissolve its affairs or enter into any transaction of merger or consolidation or
permit any of its Subsidiaries so to do (or agree to do any of the foregoing at
any future time) except that (i) any wholly-owned Subsidiary of the Borrower may
merge into the Borrower if both before and after giving effect thereto no
Default or Event of Default has occurred or would result therefrom; provided
that the Borrower shall at all times be the continuing corporation, and (ii) any
wholly-owned Subsidiary of the Borrower may merge into any other wholly-owned
Subsidiary of the Borrower (other than the Borrower); provided that unless the
conditions to the release of the Pledged Shares (as defined in the Pledge
Agreement) shall have been fulfilled to the Bank's satisfaction, LMSC may not
merge with or into any other wholly owned Subsidiary of the Borrower. Written
notice of any merger permitted by this Section 8.8, however, shall be given by
the Borrower to the Bank before the effective date of such merger or within five
Business Days thereafter.
8.9 Sale of Assets. The Borrower will not convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) or permit
any of its Subsidiaries so to do, (i) all or a substantial part of its property
or assets or any part of such property or assets material to the conduct of its
business substantially as now conducted or as conducted after the Closing Date,
or (ii) any of its assets (other than equipment which is obsolete or no longer
used or useful in the conduct of its business)), except in the ordinary course
of business (including, without limitation, in securitization or whole loan sale
transactions).
8.10 [intentionally deleted]
8.11 Compliance with ERISA. The Borrower will not (i) terminate, or permit
any of its Subsidiaries to terminate, any Pension Plan so as to result in any
<PAGE>
material (in the opinion of the Bank) liability of the Borrower or any such
Subsidiary to the PBGC, (ii) permit to exist the occurrence of any Reportable
Event (as defined in Section 4043 of ERISA), or any other event or condition,
which presents a material (in the opinion of the Bank) risk of such a
termination by the PBGC of any Pension Plan, (iii) allow, or permit any such
Subsidiary to allow, the aggregate amount of "benefit liabilities" (within the
meaning of Section 4001(a)(16) of ERISA) under all Pension Plans of which the
Borrower or any ERISA Affiliate is a "contributing sponsor" (within the meaning
of Section 4001(a)(13) of ERISA) to exceed $100,000, (iv) allow, or permit any
such Subsidiary to allow, any Plan to incur an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived, (v) engage, or permit any such Subsidiary or any Plan to engage,
in any "prohibited transaction" (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) resulting in any material (in the opinion of the Bank
and considered by itself or together with all other such liabilities of the
Borrower and all ERISA Affiliates) liability to the Borrower or any ERISA
Affiliate, (vi) allow, or permit any such Subsidiary to allow, any Plan to fail
to comply with the applicable provisions of ERISA and the Code in any material
respect, (vii) fail, or permit any such Subsidiary to fail, to make any required
contribution to any Multiemployer Plan, or (viii) completely or partially
withdraw, or permit any such Subsidiary to completely or partially withdraw,
from a Multiemployer Plan, if such complete or partial withdrawal will result in
any material (in the opinion of the Bank) withdrawal liability under Title IV of
ERISA.
8.12 Related Transactions. (a) The Borrower will not enter into any
transaction with any Subsidiary or other member of the Consolidated Group or any
Affiliate of any Subsidiary or other member of the Consolidated Group (or with
any relative of such Affiliate) or any Person with which any officer or director
of any Subsidiary or other member of the Consolidated Group has a financial
interest on more favorable terms than if such Person was totally unrelated, or
permit any of its Subsidiaries so to do.
(b) The Borrower will not make, or cause any of its Subsidiaries to make,
any payments, directly or indirectly, to any Subsidiary or Affiliate or any
officer, director or principal stockholder of the Borrower or any Affiliate,
except as permitted by Sections 8.12(a) and 8.16.
8.13 Subsidiaries. The Borrower will not sell, assign, transfer or
otherwise dispose of, or in any way part with control of, any shares of capital
stock of LTSC or LMSC or any indebtedness or obligations of any character of any
of its Subsidiaries, or permit LTSC or LMSC so to do with respect to any shares
of capital stock of any other Subsidiary or any indebtedness or obligations of
any character of the Borrower or any of its other Subsidiaries, or issue, or
permit LTSC or LMSC to issue, any additional shares of capital stock.
8.14 Borrowing Base. The Borrower will not permit the aggregate principal
amount of outstanding Loans to exceed the amount of the Borrowing Base at any
time.
8.15 Investments. The Borrower will not invest in (by capital contribution
or otherwise), or acquire for investment or purchase or make any commitment to
<PAGE>
purchase the obligations or stock of, any Person or permit any of its
Subsidiaries so to do, if at the time of such investment (both before and after
giving effect thereto) a Default or Event of Default has occurred or would have
occurred had such investment been made on the last day of the most recently
ended fiscal quarter. The Bank hereby acknowledges and agrees that the foregoing
provisions of this Section 8.15 shall not legally prohibit the Borrower or any
Subsidiary from taking any of the actions required pursuant to a binding
agreement relating to a securitization or whole loan transaction of the Borrower
or such Subsidiary entered into by the Borrower or such Subsidiary; however, the
Borrower acknowledges that, notwithstanding the foregoing provisions of this
sentence, if the Borrower or any Subsidiary takes any such action or makes any
investment in violation of the first sentence of this Section 8.15, same shall
nonetheless be an Event of Default for all purposes of this Agreement and the
other Loan Documents.
8.16 Dividends, Distributions and Purchases of Capital Stock. The Borrower
will not declare or pay any dividends (other than dividends payable in shares of
its common stock), or return any capital to its stockholders as such or
authorize or make any other distribution, payment or delivery of property or
cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for a consideration (otherwise than in exchange
for, or from the proceeds of the substantially concurrent sale of, other shares
of the same type of capital stock or of common stock of the Borrower), any
shares of any class of its capital stock now or hereafter outstanding, or any
warrants or other securities (now or hereafter outstanding) convertible into or
exercisable for any equity or other securities of the Borrower or a Subsidiary,
or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a
consideration, any subordinated debt or make any payments on account of the
principal thereof, or set aside any funds for any of the foregoing purposes;
provided, however, that the Borrower may (x) pay dividends on its common stock
and (y) make payments to repurchase up to an aggregate amount of 5% of its
common stock from the date hereof until the Revolving Credit Termination Date
if, at the time of each such payment referred to in clause (x) and (y) above
(both before and after giving effect thereto), no Default or Event of Default
(i) has occurred and is continuing or (ii) would have occurred had such dividend
been paid or such repurchase payment been made (as the case may be) on the last
day of the most recently ended fiscal quarter.
8.17 Leasebacks. The Borrower will not enter into, or permit any of its
Subsidiaries to enter into, any arrangement with any bank, insurance company or
other lender or investor providing for the leasing to the Borrower or any of its
Subsidiaries of real property (i) which at the time has been or is to be sold or
transferred by the Borrower or any of its Subsidiaries to such lender or
investor, or (ii) which has been or is being acquired from another person by
such lender or investor or on which one or more buildings or facilities have
been or are to be constructed by such lender or investor for the purpose of
leasing such property to the Borrower or any such Subsidiary.
8.18 Tangible Net Worth. The Borrower will not permit the consolidated
Tangible Net Worth of the Borrower, at any time to be less than $30,000,000 plus
50% of the cumulative amount of the Borrower's consolidated positive net income
(determined in accordance with GAAP) for each fiscal year commencing with the
Fiscal Year ending December 31, 1996.
<PAGE>
8.19 Debt: Net Worth Ratio. The Borrower will not permit the ratio
(expressed as a percentage) of (x) the sum of all liabilities of the
Consolidated Group (including, without limitation, all Indebtedness for Money
Borrowed of the Consolidated Group other than any such indebtedness consisting
of recourse made available by the Borrower or any Subsidiary consistent with
past practices to Persons to which the Borrower or such Subsidiary conveyed
Receivables pursuant to a securitization or whole loan sale transaction) to (y)
the Borrower's consolidated Tangible Net Worth at any time to be more than 300%
as at the end of any fiscal quarter of the Borrower.
8.20 Interest Coverage Ratio. (a) The Borrower will not permit the Interest
Coverage Ratio of the Consolidated Group for any Four Quarter Period to be less
than 1.8:1.0.
(b) In the event that Borrower does not deliver any financial statement or
certificate required to be delivered after the end of any month or fiscal
quarter pursuant to Section 7.1(a), 7.1(c), 7.16 or 7.17 within 10 days after
the date required therefor pursuant to said clause, the Borrower shall be deemed
to be in default of Sections 8.18-8.22 (inclusive) for purposes of Section 9.3
hereof.
8.21 Limit on Troubled Loans. The Borrower will not permit at any time the
sum of (A) (i) the aggregate principal amount of Receivables which are 90 or
more days past due from their Due Date in payment of any amount payable with
respect thereto plus (without duplication) (ii) the aggregate principal amount
of all Receivables which are on non-accrual status or which pursuant to the
Servicing Standards should be on non-accrual status plus (without duplication)
(iii) the aggregate book value of all REO Properties minus (iv) the amount at
such time of Dealer Recourse and Dealer Reserve in respect of any such
Receivables to exceed (B) 10% of the Borrower's consolidated Tangible Net Worth
at such time.
8.22 Exposure to Extraordinary Transactions. The Borrower will not permit,
at anytime, (x) the aggregate principal amount of Extraordinary Loans that the
Borrower or any Subsidiary holds or services, or in respect of which any Person
has recourse (contingent or otherwise) to the Borrower or any Subsidiary to
exceed (y) 15% of the Portfolio Amount at such time.
8.23 Amendments to Documents. The Borrower will not (A) amend, supplement,
or otherwise modify, directly or indirectly, (i) any of its Charter Documents
(or permit LMSC to amend, supplement or otherwise modify, directly or
indirectly, its Charter Documents) or (ii) any agreement or provision which
subordinates any obligation to any of the Obligations or (B) amend, supplement,
otherwise modify, waive, or terminate, or agree to, consent to or otherwise
permit there to be (or permit LTSC, LMSC or any other Subsidiary of the Borrower
to agree to consent to or otherwise permit there to be) any amendment,
modification, supplement, waiver or termination of any provision of, the
Receivables Purchase Agreement, the Receivables Loan agreement, the Class B
<PAGE>
Certificate Agreements, any agreement relating to any Assignment Assets, or any
agreement or other instrument relating to any of the foregoing except for, in
the case of any such amendment, supplement, modification or waiver, any such
amendment, modification, supplement or waiver of any agreement referred to in
this clause (B) which does not and will not, directly or indirectly reduce,
delay or otherwise have any adverse effect upon (and does not and will not have
the direct or indirect effect of reducing, delaying or otherwise adversely
affecting) any payment required in respect of the Uncertificated Residual Rights
or Class B Certificate or any Assignment Asset or any other right of the
Borrower or the Bank with respect to any such agreement, Uncertificated Residual
Right, Class B Certificate or Assignment Asset.
Section 9. EVENTS OF DEFAULT.
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
9.1 Principal and Interest. The Borrower shall default in the due and
punctual payment of (i) any principal due on any Loan; or (ii) any interest on
any Loan or in the due and punctual payment of the facility fee, arrangement fee
or any other amount due hereunder; provided that failure to duly and punctually
make an interest payment shall not be an Event of Default under this Section 9.1
if such interest payment is paid within five days after the date it is due and
Borrower has not been late in making an interest payment on the Note more than
once in the preceding 12 months; or
9.2 Representations and Warranties. Any representation, warranty or
statement made by the Borrower in any Loan Document or otherwise in writing by
the Borrower in connection with any of the foregoing, or in any certificate or
other statement furnished pursuant to or in connection with any of the
foregoing, shall be breached or shall prove to be untrue in any material respect
on the date as of which made; or
9.3 Certain Covenants - The Borrower or any Subsidiary shall default in the
due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to Section 7.1, Section 7.11, Section 7.16,
Section 7.17, Section 7.18, Section 7.19 or Section 8; or
9.4 Other Covenants. The Borrower or any Subsidiary shall default in the
due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to any of the provisions of this Agreement
(other than those referred to in Sections 9.1, 9.2 or 9.3) and such default (if
capable of cure) shall continue unremedied for a period of 30 days after the
earlier of the date on which the Bank gives the Borrower notice of such default
or the date an officer of the Borrower or any Subsidiary becomes aware thereof;
or
9.5 Other Obligations. (i) Any indebtedness of the Borrower or any
Subsidiary in aggregate principal amount in excess of $500,000 shall be duly
<PAGE>
declared to be or shall become due and payable prior to the stated maturity
thereof, or (ii) any obligation of the Borrower or any Subsidiary in respect of
indebtedness in excess of $500,000 in aggregate principal amount shall not be
paid as and when the same becomes due and payable including any applicable grace
period, or there shall occur and be continuing any event which constitutes an
event of default under any instrument, agreement or evidence of indebtedness
relating to any indebtedness of the Borrower or any Subsidiary in excess of
$500,000 in aggregate principal amount, the effect of which is to permit (with
or without the giving of notice, the passage of time or both) the holder or
holders of such instrument, agreement or evidence of indebtedness, or a trustee,
agent or other representative on behalf of such holder or holders, to cause the
indebtedness evidenced thereby to become due prior to its stated maturity; or
9.6 Change of Control. A Change of Control Event shall occur; or
9.7 Insolvency. The Borrower or any Subsidiary shall dissolve or suspend
or discontinue its business, or shall make an assignment for the benefit of
creditors or a composition with creditors, shall be unable or admit in writing
its inability to pay its debts as they mature, shall file a petition in
bankruptcy, shall become insolvent (howsoever such insolvency may be evidenced),
shall be adjudicated insolvent or bankrupt, shall petition or apply to any
tribunal for the appointment of (or there shall be appointed pursuant to
contract) any administrator, receiver, liquidator or trustee of or for it or any
substantial part of its property or assets, shall commence any proceedings
relating to it under any bankruptcy, reorganization, arrangement, readjustment
of debt, receivership, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or there shall be commenced
against the Borrower or any Subsidiary any such proceeding which shall remain
undismissed for a period of 60 days or more, or any order, judgment or decree
approving the petition in any such proceeding shall be entered; or the Borrower
or any Subsidiary shall by any act or failure to act indicate its consent to,
approval of or acquiescence in, any such proceeding or in the appointment of any
receiver, liquidator or trustee of or for it or any substantial part of its
property or assets, or shall suffer any such appointment to continue
undischarged or unstayed for a period of 60 days or more; or the Borrower or any
Subsidiary shall take any action for the purpose of effecting any of the
foregoing; or any court of competent jurisdiction shall assume jurisdiction with
respect to any such proceeding or a receiver or trustee or other officer or
representative of a court or of creditors, or any court, governmental officer or
agency, shall under color of legal authority, take and hold possession of any
substantial part of the property or assets of the Borrower or any Subsidiary; or
there shall happen or exist under the laws of any applicable jurisdiction, with
respect to any member of the Consolidated Group, any event analogous to and
having a substantially similar effect to any of the foregoing events; or
9.8 Security Documents. The breach by the Borrower of any term or provision
of any Security Document, which default in the judgment of the Bank is material;
or any Security Document is at any time not in full force and effect; or any of
the Security Documents shall fail to grant to the Bank the Lien and security
interest purported to be created thereby; or
9.9 Judgments. (a) Any final non-appealable judgment for the payment of
money in excess of $500,000 shall be rendered against the Borrower or any
Subsidiary; or
<PAGE>
(b) Final judgment for the payment of money in excess of $500,000 shall be
rendered against the Borrower or any Subsidiary, and the same shall remain
undischarged for a period of 30 days during which execution shall not be
effectively stayed or contested in good faith; or
9.10 Change in Management. Any two of the following individuals shall cease
to be senior officers of the Borrower with an active management role: Richard
Stratton, Heather Sica, James Shippee, and Ron Rabidou; or
9.11 Environmental Problems. The Borrower or any Subsidiary incurs or (in
the opinion of the Bank) is reasonably likely to incur, Environmental Costs in
excess of $500,000 in the aggregate during any 18-month period; then, and in any
such event, and at any time thereafter, if any Event of Default shall then be
continuing the Bank may by written notice to the Borrower: (i) declare the
principal of and accrued interest on the Loans to be, whereupon the same shall
forthwith become, due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; and/or (ii)
declare the Commitment of the Bank terminated, whereupon the Commitment of the
Bank shall forthwith terminate immediately; provided that if any Event of
Default described in Section 9.7 shall occur with respect to the Borrower, the
result which would otherwise occur only upon the giving of written notice by the
Bank to the Borrower as herein described shall occur automatically, without the
giving of any such notice.
Section 10. REPRESENTATIONS AND WARRANTIES.
In order to induce the Bank to enter into this Agreement and to make the
Loans provided for herein, the Borrower makes the following representations,
covenants and warranties, both as of the date hereof and (after giving effect to
the transactions contemplated hereby to occur on the Closing Date) as of the
Closing Date (unless such representation, covenant or warranty is expressly made
as of a specified date, in which case the same shall be made as of such date),
which representations, covenants and warranties shall survive the execution and
delivery of this Agreement and the other documents and instruments referred to
herein:
10.1 Status; Validity. (a) The Borrower is a duly organized and validly
existing corporation in good standing under the laws of Massachusetts and has
the corporate power and authority to own or hold under lease its property and
assets, to transact the business in which it is engaged, to enter into and
perform this Agreement and the other Loan Documents and to borrow hereunder. The
Borrower is duly qualified or licensed as a foreign corporation in good standing
in Vermont and in each other jurisdiction where failure to so qualify would have
a Material Adverse Effect. The chief executive office of each of the Borrower,
LTSC and LMSC is located in Stamford, Vermont.
<PAGE>
(b) LMSC is a duly organized and validly existing corporation in good
standing under the laws of Delaware and has the corporate power and authority to
own or hold under lease its property and assets, and to transact the business in
which it is engaged, and is duly qualified or licensed as a foreign corporation
in good standing in Vermont and in each other jurisdiction where failure so to
qualify would have a Material Adverse Effect.
(c) The execution, delivery and performance by the Borrower of this
Agreement and the other Loan Documents and the other documents, agreements or
instruments provided for therein, the consummation of the transactions
contemplated thereunder and the use of the proceeds of the Loans have been duly
authorized by all necessary corporate and stockholder action on the part of the
Borrower and each relevant Subsidiary. This Agreement and the other Loan
Documents and the other documents, agreements or instruments provided for
therein are the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms subject, as to
enforceability, to applicable bankruptcy, insolvency, reorganization and similar
laws affecting the enforcement of creditors' rights generally and to general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law)
.
(d) The Borrower is the primary operating company as among the Borrower,
its Subsidiaries and any other Affiliate of the Borrower, and is the sole
primary servicer, purchaser and originator of Receivables owned, directly or
indirectly, by the Borrower, any Subsidiary, any Affiliate of the Borrower or
any trust or pool or similar entity created or capitalized by the Borrower, any
Subsidiary or any Affiliate of the Borrower, it being understood that the
Borrower shall be permitted to retain subservicers consistent with past
practice.
10.2 Compliance with Other Instruments. Neither the Borrower nor any
Subsidiary is in material default under any Material Agreement to which it is a
party, and neither the execution, delivery or performance of this Agreement and
the other Loan Documents nor the consummation of the transactions herein or
therein contemplated, nor compliance with the terms and provisions hereof or
thereof, will contravene any provision of any Legal Requirement or will conflict
with or will result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or, except as provided by the
Security Documents, result in the creation or imposition of (or the obligation
to create or impose) any Lien upon any of the property or assets of such Person
pursuant to the terms of any indenture, mortgage, deed of trust or Material
Agreement to which such Person is a signatory or by which such Person is bound
or to which such Person may be subject or violate any provision of the Charter
Documents of such Person.
10.3 Litigation. Except as disclosed on Schedule 10.3 to this Agreement,
as of the date hereof and as of the Closing Date, there are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened, against or
affecting the Borrower or any Subsidiary before any Government Authority, which,
if adversely determined, would have a Material Adverse Effect on the Borrower or
any Subsidiary, or on the Consolidated Group.
10.4 Compliance with Law. Except for matters which could not result in a
<PAGE>
Material Adverse Change in respect of the Borrower or any Subsidiary or the
Consolidated Group (a) all business and operations of the Borrower and each
Subsidiary have been and are being conducted in accordance with all applicable
Legal Requirements; (b) the Borrower and each Subsidiary has obtained all
permits, licenses and authorizations, or consents which are otherwise necessary,
for such Person to conduct its business as it is conducted; and (c) neither the
Borrower nor any Subsidiary is a party to, has been threatened with, and there
are no facts existing as a basis for any governmental or other proceeding which
might result in a suspension, limitation or revocation of any such permit,
license or authorization.
10.5 Capitalization of LMSC. (a) Schedule 10.5 to this Agreement is a
true, correct and complete list of LMSC's authorized capital stock, the par
value of same, and the number of such shares issued and outstanding. All of the
shares of LMSC listed on said schedule as outstanding have been duly and validly
issued, are fully paid and nonassessable, are now outstanding, are owned
beneficially and of record as indicated on said schedule, and are owned free and
clear of all Liens (other than Liens in favor of the Bank).
(b) Other than as disclosed in the Financial Statements referred to in
Section 10.11, no member of the Consolidated Group has outstanding any option,
warrant, bonds, debentures or other right, put, call or commitment to issue, or
any obligation or commitment to purchase any of its authorized capital stock, or
any securities convertible into or exchangeable for any of its authorized
capital stock.
(c) LMSC has no (and so long as shares of LMSC are pledged to the Bank as
Collateral, will not have) outstanding any option, warrant, bonds, debentures or
other right, put, call or commitment to issue, or any obligation or commitment
to purchase any of its authorized capital stock, or any securities convertible
into or exchangeable for any of its authorized capital stock.
10.6 Governmental Approvals. No order, permission, consent, approval,
license, authorization, registration or validation of, or filing with, or
exemption by, any Government Authority is required to authorize, or is required
in connection with the execution, delivery and performance of this Agreement or
the other Loan Documents by the Borrower or any Subsidiary, or the taking of any
action hereby or thereby contemplated.
10.7 Federal Reserve Margin Regulations; Proceeds. (a) No member of the
Consolidated Group is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System). No part of the proceeds of any Loans
will be used to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying any such margin stock.
(b) The proceeds of the Loans shall be used solely for the Borrower's
working capital needs.
<PAGE>
10.8 Taxes. (a) All tax returns of any nature whatsoever, including but not
limited to, all US income, payroll, stock transfer, and excise tax returns and
all appropriate state and local income, sales, excise, payroll, franchise and
real and personal property tax returns, and corresponding returns under the laws
of any jurisdiction, which are required to be filed by the Borrower or any
Subsidiary have been or will be filed by the due date or extended due date of
such returns.
(b) Except for amounts which in the aggregate do not exceed $100,000, all
taxes due and payable with respect to each member of the Consolidated Group have
been paid, and there are no liabilities, interest or penalties payable with
respect to any taxes which remain unpaid.
10.9 Investment Company Act. Neither the Borrower nor any Subsidiary nor
the entering into of the Loan Documents nor the issuance of the Note, is subject
to any of the provisions of the Investment Company Act of 1940, as amended.
Neither the Borrower nor any Subsidiary is a "holding company" as defined in the
Public Utility Holding Company Act of 1935, as amended, or subject to any other
federal or state statute or regulation limiting its ability to incur
Indebtedness for Money Borrowed.
10.10 Properties of the Borrower. (a) The Borrower and its Subsidiaries
have good and marketable title to, or valid leasehold interests in, all of their
material properties and assets.
(b) The Borrower has full, valid and exclusive right, title and interest
(in fee simple where applicable) to all of the following: the Class B
Certificate, the Pledged Shares (as defined in the Pledge Agreement), the
Assignment Assets, and (from and after the Transition Date, if the Transition
Date occurs) the Uncertificated Residual Rights. The Borrower's ownership rights
in and to all of the foregoing are subject to no Liens, burdens or defects.
(c) The Receivables Purchase Agreement, Receivables Loan Agreement and the
Class B Certificate Agreements are in full force and effect; there have been no
amendments to, or waivers of any provisions of, any of the foregoing since the
date each was originally executed except for the following amendments, true,
complete and accurate copies of which have been provided to the Bank: (i)
Amendment No. 1 dated as of December 18, 1995 to Receivables Purchase Agreement,
(ii) Amendment No. 1 dated as of December 18, 1995 to Receivables Loan
Agreement, (iii) Amendment No. 2 dated as of September 27, 1996 to Receivables
Purchase Agreement, (iv) Amendment No. 2 dated as of September 27, 1996 to
Receivables Loan Agreement, and (v) Amendment No. One to Trust Agreement dated
as of September, 1996 (in the form previously delivered to the Bank).
10.11 Financial Condition. (a) The audited consolidated Financial
Statements of the Consolidated Group for its Fiscal Years ended December 31,
1994 and December 31, 1995, and the financial statements for the six months
ended June 30, 1995 and June 30, 1996 contained in the Borrower's quarterly
report on Form 10-Q for the quarter ended June 30, 1996 have been delivered to
the Bank, have been prepared in accordance with GAAP and fairly present the
<PAGE>
financial condition and the results of operations of the Consolidated Group as
of the dates and for the periods covered thereby (subject, in the case of such
unaudited statements, to normal year-end audit and adjustment). There are no
contingent obligations, material liabilities or any material unrealized or
anticipated losses from unfavorable commitments which are not disclosed in such
Financial Statements.
(b) There has been no Material Adverse Change in respect of the
Consolidated Group, or any member thereof, since December 31, 1995.
(c) At the time of, and after giving effect to, each Loan, the Borrower,
(i) is Solvent, and (ii) possesses, in the opinion of the Borrower, sufficient
capital to conduct the business in which it is engaged or presently proposes to
engage.
10.12 Environmental Matters. (a) The Borrower and each Subsidiary (and any
predecessor in interest of any of them) has been and continues to be in material
compliance with all applicable Environmental Laws;
(b) The Borrower and each Subsidiary have obtained all material permits and
approvals required under Environmental Laws, including all material
environmental, health and safety permits, licenses, approvals, authorization,
variances, agreements, and waivers of Government Authorities ("Environmental
Permits") necessary for the conduct of its business and the operation of its
facility, and all such Environmental Permits are in good standing and the
Borrower and each Subsidiary is in compliance with all material terms and
conditions of such Environmental Permits;
(c) Neither the Borrower nor any Subsidiary nor any of their respective
Properties or operations is subject to any outstanding written order from or
agreement with any Government Authority or other Person or is subject to any
judicial or docketed administrative proceeding respecting any (x) Environmental
Law, (y) Remedial Action or (z) Environmental Claim or Environmental Costs;
(d) To the Borrower's knowledge, there are no conditions or circumstances
now or formerly associated with any Property or operations by the Borrower or
any Subsidiary (or any predecessor in interest of any of them) which may prevent
or interfere with material compliance by the Borrower or any Subsidiary with any
applicable Environmental Laws or form the basis of any material Environmental
Claim or give rise to any material Environmental Costs;
(e) No Environmental Claim (including, without limitation, in respect of
any alleged violation of any Environmental Laws) is pending or threatened
against, or has been received by, the Borrower or any Subsidiary;
(f) No Environmental Lien and no unrecorded Environmental Lien has attached
<PAGE>
to any Property of the Borrower or any Subsidiary and to the Borrower's
knowledge, no action has been taken by any Person which could subject any such
Property to any Environmental Lien;
(g) Neither the Borrower nor any Subsidiary (nor any predecessor in
interest of any of them) has transported or arranged for the transportation of
any Contaminant to any location which is (i) listed on the National Priorities
List under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) listed for possible inclusion on the National
Priorities List by the United States Environmental Protection Agency, or (iii)
listed on any similar state list or (iv) to the Borrower's knowledge, the
subject of federal, state or local enforcement actions or other investigations
which may lead to Environmental Claims against the Borrower or any Subsidiary or
the imposition of Environmental Costs on the Borrower or any Subsidiary; and
(h) Except as complies with all Environmental Laws, no Property is located
in, and no operations by the Borrower or any Subsidiary (or any predecessor in
interest of any of them) affect, any Environmentally Sensitive Area.
10.13 Disclosure. Neither this Agreement or any other Loan Document nor
any statement, list, certificate or other document or information, or any
schedules to this Agreement or any other Loan Document delivered or to be
delivered to the Bank contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
10.14 Compliance with ERISA. The Borrower and each ERISA Affiliate and
each Plan and the trusts maintained pursuant to such plans are in compliance in
all material respects with the presently applicable provisions of Sections 401
through and including 417 of the Code, and of ERISA and (i) no event which
constitutes a Reportable Event as defined in Section 4043 of ERISA has occurred
and is continuing with respect to any Plan which is or was covered by Title IV
of ERISA, (ii) no Plan which is subject to Part 3 of Subtitle B of Title 1 of
ERISA has incurred any "accumulated funding deficiency" (within the meaning of
Section 302 of ERISA or Section 412 of the Code) whether or not waived, and
(iii) no written notice of liability has been received with respect to the
Borrower or any Subsidiary for any "prohibited transaction" (within the meaning
of Section 4975 of the Code or Section 406 of ERISA), nor has any such
prohibited transaction resulting in liability to the Borrower or any ERISA
Affiliate occurred.
Neither the Borrower nor any ERISA Affiliate (i) has incurred any liability
to the PBGC (or any successor thereto under ERISA), or to any trustee of a trust
established under Section 4049 of ERISA, in connection with any Plan (other than
liability for premiums under Section 4007 or ERISA), (ii) has incurred any
withdrawal liability under Subtitle E of Title IV of ERISA in connection with
any Plan which is a Multiemployer Plan, nor (iii) has contributed or has been
obligated to contribute on or after September 26, 1980, to any "multiemployer
plan" (within the meaning of Section 3(37) of ERISA) which is subject to Title
IV of ERISA.
<PAGE>
The consummation of the transactions contemplated by this Agreement (i)
will not give rise to any liability on behalf of the Borrower or any of its
ERISA Affiliates under Title IV of ERISA to the PBGC (other than ordinary and
usual PBGC premium liability), to the trustee of a trust established pursuant to
Section 4049 of ERISA, or to any Multiemployer Plan, and (ii) will not
constitute a "prohibited transaction" under Section 406 of ERISA or Section 4975
of the Code.
10.15 The Security Documents. (a) Each Security Document when delivered
will grant a Lien in the properties or rights intended to be covered thereby
(the "Collateral") which (i) will constitute a valid and enforceable security
interest under the Uniform Commercial Code of the State (x) in which the
Collateral is located and (y) by which any Security Document is governed (as
applicable, the "UCC"), (ii) will be entitled to all of the rights, benefits and
priorities provided by the UCC, and (iii) when such Security Documents or
financing statements with respect thereto are filed and recorded as required by
the UCC, will be superior and prior to the rights of all third Persons now
existing or hereafter arising whether by way of mortgage, pledge, lien, security
interest, encumbrance or otherwise, except for Permitted Liens. All such action
as is necessary in law has been taken, or prior to the Closing Date (or, in the
case of Liens to be granted subsequent to the Closing Date, prior to the date
required therefor in accordance with the terms hereof) will have been taken, to
establish and perfect the security interest of the Bank in the Collateral and to
entitle the Bank to exercise the rights and remedies provided in each of the
Security Documents and the UCC, and no filing, recording, registration or giving
of notice or other action is required in connection therewith except such as has
been made or given or will have been made or given prior to such date(s). All
filing and other fees and all recording or other tax payable with respect to the
recording of any of the Security Documents and UCC financing statements have
been paid or provided for.
10.16 The Assignment Asset s. (i) All information provided and that will be
provided to the Bank with respect to the Assignment Assets and the Book Value of
Assignment Assets is and will be true and correct in all respects, (ii) the
Borrower has good and marketable title to each Assignment Asset set forth on
Schedule 11.1 on date hereof and will have good and marketable title to each
asset which subsequently becomes an Assignment Asset, in each case free and
clear of Liens; and (iii) no Assignment Asset is or will constitute "chattel
paper" or an "instrument" (in each case, as defined in the UCC).
10.17 Long Term Debt. No principal amount of any Long Term Debt is payable
on or prior to the Revolving Credit Maturity Date other than:
(a) On April 1 of each year, up to $920,000 in respect of the Borrower's
10% Notes due 2004;
(b) On June 1 of each year, up to $878,000 in respect of Borrower's 8 7/8%
Notes due 2003;
<PAGE>
(c) On November 1 of each year, up to $753,253 in respect of the Borrower's
10% Notes due 2002; and
(d) regularly scheduled amortization payments in respect of the four notes
(in the original principal amounts of $3,173,076.92, $3,173,076.92,
$3,076,923.08 and $3,076,923.08, respectively), each dated January 9, 1995,
issued by Litchfield Residual Securities Corp., a Massachusetts corporation
("LRSC"), in favor of CIG & CO. pursuant to an Indenture dated as of January 9,
1995 between LRSC and The Chase Manhattan Bank, N.A., as Trustee (true, correct
and complete copies of which notes and Indenture have been delivered by the
Borrower to the Bank).
10.18 Qualification. (a) Solely by reason of (and without regard to any
other activities of the Bank in any state in which Collateral is located) the
entering into, performance and enforcement of this Agreement, the Note, the
Security Documents and the other Loan Documents by the Bank will not constitute
doing business by the Bank in Vermont or any such other state or result in any
liability of the Bank for taxes or other governmental charges in any such state;
and qualification by the Bank to do business in such jurisdiction is not
necessary in connection with, and the failure to so qualify will not affect, the
enforcement of, or exercise of any rights or remedies under, any of such
documents.
(b) No "business activity," "doing business" or similar report or notice is
required to be filed by the Bank in any such jurisdiction in connection with the
Loans or the transactions contemplated by this Agreement, and the failure to
file any such report or notice will not affect the enforcement of, or the
exercise of any rights or remedies under, this Agreement, the Security Documents
or any of the other Loan Documents.
10.19 Business of Consolidated Group. Schedule 10.19 hereto sets forth a
complete and accurate description of the business of the Borrower and its
Subsidiaries as of the date hereof including a full description of the types of
loans made and acquired by the Borrower and its Subsidiaries.
10.20 Dealer Recourse. Schedule 10.20 sets forth a complete and accurate
description of the Borrower's policies for determining when Dealer Recourse
should no longer be treated as available to the Borrower or its Subsidiaries and
when the amount of Dealer Recourse which the Borrower treats as available from a
Dealer should be reduced. The Borrower has treated and will treat Dealer
Recourse as described in Schedule 10.20 in each statement, report and
calculation furnished and which will be furnished to the Bank.
10.21 Identity of Spread Account; Excess Servicing Assets. The "Custody
Receivables Account" specified in each Borrowing Base Certificate is the "Spread
Account" (as defined in each of the Receivables Purchase Agreement and the
Receivables Loan Agreement). The only Persons other than the Borrower, the Bank
(on and after the Transition Date) and, until the Transition Date, LMSC, with an
interest in the Spread Account are the Agent and the Lender in their capacity as
such under the Receivables Loan Agreement and the Agent and the Purchaser in
their capacity as such under the Receivables Loan Agreement. All rights of the
<PAGE>
Borrower (and, until the Transition Date, LMSC) to receive remittances from the
Spread Account are set forth in Sections 2.06(b) and 2.06(c) of (i) the
Receivables Loan Agreement and (ii) the Receivables Purchase Agreement. The
rights under Sections 2.06(c)(vii) and 2.05(c)(viii) of (i) the Receivables Loan
Agreement and (ii) the Receivables Purchase Agreement constitute the entirety of
the "Excess Servicing Asset" specified in the Borrowing Base Certificate. No
Person other than the Borrower, the Bank (on and after the Transition Date) and,
prior to the Transition Date, LMSC, has any interest in the Excess Servicing
Asset.
Section 11. ASSIGNMENT ASSETS.
11.1 Initial Assignment Assets. The Assignment Assets and the Book Value
thereof on the date hereof are set forth on Schedule 11.1 hereto.
11.2 Change Assignment Assets. No asset may be designated as an Assignment
Asset after the Closing Date unless the Bank shall agree to its designation (and
to the book value therefor) in writing. If the Borrower desires to have
additional assets so designated as Assignment Assets, it shall so notify the
Bank in writing, identifying the additional assets requested for inclusion with
particularity satisfactory to the Bank, and setting forth a proposed book value
for such assets, and upon request of the Bank, execute any UCC financing
statements with respect to such assets as the Bank may request. The Borrower
shall provide the Bank with all information requested with respect to such
assets. If the Bank agrees (in its reasonable discretion) that such assets
should constitute Assignment Assets and that the proposed book values are
appropriate, the Bank shall so notify the Borrower and promptly thereafter send
to the Borrower a revised Schedule 11.1 which includes such assets as Assignment
Assets with the Book Values as have been so agreed.
11.3 Deletion of Assignment Assets. No Assignment Asset may be redesignated
as an asset which is not an Assignment Asset unless the Bank shall agree to such
redesignation in writing. If the Borrower desires to so redesignate an
Assignment Asset, it shall so notify the Bank, identifying such asset,
requesting that such specified asset no longer be designated as an Assignment
Asset and certifying the Book Value as of the date of such request of the other
Assignment Assets. If no Default or Event of Default exists, and the conditions
set forth in the provision to this Section 11.3 are satisfied, such asset shall
be removed from Schedule 11.1 and such asset will then cease to constitute an
Assignment Asset upon the Bank's sending to the Borrower a revised Schedule 11.1
giving effect to such deletion, which revised schedule the Bank agrees to send
promptly following the Borrower's request therefor and the satisfaction of such
conditions; provided however that (i) no such deletion shall occur if, after
giving effect to such deletion, the Book Value of Assignment Assets would be
less than $5,000,000; and (ii) if, as a result of such deletion, the aggregate
principal amount of outstanding Loans would exceed the amount (the "Permitted
Reduction Commitment") to which, pursuant to Section 2.6(b), the Bank is
entitled to reduce the Commitment as a result of such deletion, it shall be a
condition precedent to such deletion that the Loans be prepaid in an amount
equal to the amount by which the outstanding principal amount of the Loans
exceeds the Permitted Reduction Commitment.
11.4 Notice of Payments. Within five days of any payment of principal being
<PAGE>
made on any Assignment Asset, or of the Book Value of any Assignment Asset
becoming zero pursuant to the proviso to the definition of "Book Value", the
Borrower shall give notice thereof to the Bank in writing.
Section 12. MISCELLANEOUS.
12.1 Calculations and Financial Data. Calculations hereunder (including,
without limitation, calculations used in determining, or in any certificate of
the Borrower reflecting, compliance by the Borrower with the provisions of this
Agreement) shall be made and financial data required hereby shall be prepared
both as to classification of items and as to amount in accordance with GAAP
consistent with the audited Financial Statements described in Section 10.11(a);
provided that for purposes of Sections 8.18 through 8.22 (inclusive) no effect
shall be given to any change in GAAP from those in effect on December 31, 1995.
12.2 Amendment and Waiver. Except as otherwise provided, no provision of
any of the Loan Documents may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the Bank and the
Borrower, except that waivers of provisions relating to the Borrower's
performance or non-performance of its obligations hereunder or thereunder need
not be signed by the Borrower. Any such change, waiver, discharge or termination
shall be effective only in the specific instance and for the specific purposes
for which made or given.
12.3 Expenses; Indemnification. (a) Whether or not the transactions hereby
contemplated shall be consummated, the Borrower shall pay all reasonable
out-of-pocket costs and expenses of the Bank incurred in connection with (x) the
preparation, execution, delivery, administration, filing and recording of, and
(y) the amendment (including any waiver or consent) or modification of
(including any amendment, waiver, consent or modification at any time requested
by the Borrower, whether or not the same is finalized or executed), and
enforcement of or preservation of any rights under, this Agreement and the other
Loan Documents, including, without limitation, (A) the reasonable fees and
expenses of Sullivan & Worcester LLP, counsel for the Bank and any special or
local counsel retained by the Bank, (B) the reasonable fees and expenses of any
appraisers retained by the Bank if applicable with respect to any collateral
granted to the Bank after the date hereof, and (c) travel, title insurance,
mortgage recording and filing costs.
(b) The Borrower agrees to pay, and to save the Bank harmless from (x) all
present and future stamp, filing and other similar taxes, fees or charges
(including interest and penalties, if any), which may be payable in connection
with the Loan Documents or the issuance of the Note or any modification of any
of the foregoing, and (y) all finder's and broker's fees in connection with the
transactions contemplated by this Agreement and the other Loan Documents.
(c) The Borrower agrees to indemnify, pay and hold harmless the Bank, any
Bank Assignee and each holder of a Note and their respective present and future
officers, directors, employees and agents (collectively, the "Indemnified
Parties") from and against all liability, losses, damages and expenses
(including, without limitation, legal fees and expenses) arising out of, or in
<PAGE>
any way connected with, or as a result of (i) the execution and delivery of the
Letter Agreement, of this Agreement and the other Loan Documents or the
documents or transactions contemplated hereby and thereby or the performance by
the parties hereto or thereto of their respective obligations hereunder and
thereunder or relating thereto; or (ii) any claim, action, suit, investigation
or proceeding (in each case, regardless of whether or not the Indemnified Party
is a party thereto or target thereof) in any way relating to any Collateral, the
Borrower, any Subsidiary or any Affiliate of any of the foregoing; or (iii) any
actual or alleged violation by the Borrower, any Affiliate or Subsidiary (or any
predecessor in interest of any of them) of any Environmental Law; provided that
the Borrower shall not be liable to any Indemnified Party for any portion of
such liabilities, losses, damages and expenses sustained or incurred as a direct
result of the gross negligence or willful misconduct of the Bank or such
Indemnified Party if such gross negligence or willful misconduct is determined
to have occurred by a final and non- appealable decision of a court of competent
jurisdiction. No Indemnified Party shall be entitled to any indirect or
consequential damages.
(d) All obligations provided for in this Section 12.3 and Sections 3.4,
4.1, 4.2 and 5.2 shall survive any termination of this Agreement and the
Commitment, and the payment in full of the Loans.
12.4 Benefits of Agreement; Descriptive Headings. (a) This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns, and, in particular, shall
inure to the benefit of the holders from time to time of the Note; provided,
however, that the Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Bank and any such
purported assignment or transfer shall be void. In furtherance of the foregoing,
the Bank shall be entitled at any time to grant participations in or assign,
sell or otherwise transfer the whole or any part of its rights and/or
obligations under this Agreement, the Loan Documents or any Loan or the Note to
any Person. No such participation shall relieve the Bank from its obligations
hereunder and the Borrower need deal solely with the Bank with respect to
waivers, modifications and consents to this Agreement, the Loan Documents or the
Note. Any such participant, assignee, purchaser or transferee is referred to in
this Agreement as a "Bank Assignee". The Borrower agrees that the provisions of
Sections 3.4, 5.2 and 12.3 shall run to the benefit of each Bank Assignee and
its participations or interests herein, and the Bank may enforce such provisions
on behalf of any such Bank Assignee; provided, however, that if the Bank grants
a participation in the whole or any part of its rights and/or obligations
pursuant to this Section 12.4, then the amounts that the Borrower is required to
pay pursuant to this Agreement (including, without limitation, additional
amounts made pursuant to Section 5.2) shall not exceed the amounts that the
Borrower would have been required to pay to the Bank pursuant to this Agreement
had the Bank not granted such participation. The Borrower hereby further agrees
that any such Bank Assignee may, to the fullest extent permitted by applicable
law, exercise the right of set off with respect to such participation (and in an
amount up to the amount of such participation) as fully as if such Bank Assignee
were the direct creditor of the Borrower. Upon a participation, assignment, sale
or transfer in accordance with the foregoing, the Borrower shall execute such
documents and do such acts as the Bank may reasonably request to effect same.
The Bank may furnish any information concerning the Borrower or any Subsidiary
in its possession from time to time to Bank Assignees (including prospective
Bank Assignees). The Bank shall notify Borrower of any participation,
<PAGE>
assignment, sale or transfer granted by it pursuant to this Section 12.4 but the
Borrower's approval shall not be required for any such participation,
assignment, sale or transfer. The Borrower shall not be responsible for any due
diligence costs or legal expenses of such Bank Assignees in connection with
their entering into such participation, assignment, sale or transfer.
(b) The descriptive headings of the various provisions of this Agreement
and the other Loan Documents are inserted for convenience of reference only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
(c) Notwithstanding anything to the contrary contained herein or in any of
the Loan Documents, unless the Bank or the Borrower otherwise request with
respect to any specific exhibit, exhibits to this Agreement shall not be
required to be attached to the execution or any other copy of this Agreement,
and any references in this Agreement or the other Loan Documents to such
exhibits as "Exhibits hereto," "Exhibits to this Agreement" or words of similar
effect shall be deemed to refer to such document as executed by the parties
thereto and delivered on the Closing Date.
12.5 Notices, Requests, Demands, etc . Except as otherwise expressly
provided herein, all notices, requests, demands or other communications to or
upon the respective parties hereto shall be deemed to have been duly given or
made when delivered (if sent by Federal Express or other similar overnight
delivery service), or three Business Days after mailing (when mailed, postage
prepaid, by registered or certified mail, return receipt requested), or (in the
case of telex, telegraphic, telecopier or cable notice) when delivered to the
telex, telegraph, telecopier or cable company, or (in the case of telex or
telecopier notice sent over a telex or telecopier owned or operated by a party
hereto) when sent; in each case addressed as follows, except that notices and
communications to the Bank pursuant to Sections 2 and 9 shall not be effective
until received by the Bank: (i) if to the Bank, at the Closing Office, and (ii)
if to the Borrower, at its address specified with its signature below
(Attention: President), or to such other addresses as any of the parties hereto
may hereafter specify to the others in writing, provided that communications
with respect to a change of address shall be deemed to be effective when
actually received.
12.6 Governing Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND UNDER THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY WITHIN
THE STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THIS AGREEMENT IS
EXECUTED); except (as to any other Loan Document) to the extent specifically set
forth otherwise in that Loan Document.
12.7 Counterparts; Telecopies. This Agreement and the other Loan Documents
may be executed in any number of counterparts by the different parties hereto
and thereto on separate counterparts, each of which when so executed and
delivered shall be deemed to be an original, but all the counterparts for each
<PAGE>
such Loan Document shall together constitute one and the same instrument.
Telecopied signatures hereto and to the other Loan Documents shall be of the
same force and effect as an original of a manually signed copy.
12.8 Waivers. No failure or delay on the part of the Bank in exercising
any right, power or privilege under this Agreement or any other Loan Document,
and no course of dealing between the Borrower or any Subsidiary and the Bank
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Bank would otherwise have pursuant to such
documents or at law or equity. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the right of the Bank
to any other or further action in any circumstances without notice or demand.
12.9 Recoveries. Any Recoveries (after deduction and payment of all
expenses and costs permitted by this Agreement, the Security Documents or
applicable law), shall be applied against the Loans.
12.10 Jurisdiction. THE BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST IT WITH RESPECT TO THIS AGREEMENT, THE NOTE OR ANY OF THE
OTHER LOAN DOCUMENTS OR THE DOCUMENTS DELIVERED IN CONNECTION THEREWITH MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS THE BANK MAY ELECT, and, by
execution and delivery hereof, the Borrower accepts and consents for itself and
in respect to its property, generally and unconditionally, the jurisdiction of
the aforesaid courts and agrees that such jurisdiction shall be exclusive,
unless waived by the Bank in writing, with respect to any action or proceeding
brought by it against the Bank and any questions relating to usury. Each of the
Bank and the Borrower agrees that Sections 5-1401 and 5-1402 of the General
Obligations Law of the State of New York shall apply to the Loan Documents and
waives any right to stay or to dismiss any action or proceeding brought before
said courts on the basis of forum non conveniens. In furtherance of the
foregoing, the Borrower hereby irrevocably designates and appoints Battle Fowler
LLP, 75 East 55th Street, New York, New York 10022, as agent of the Borrower to
receive service of all process brought against the Borrower with respect to any
such proceeding in any such court in New York, such service being hereby
acknowledged by the Borrower to be effective and binding service in every
respect. The Borrower hereby irrevocably consents that all process served or
brought against it or its agent for service of process with respect to any such
proceeding in any such court in New York shall be effective and binding service
in every respect if sent by registered mail, or (if permitted by law) by Federal
Express or other similar overnight delivery service, to the Borrower at its
address set forth next to its signature below or to such other address as the
Bank is notified of in accordance with the provisions of Section 12.5 or to its
agent as aforesaid. Nothing herein shall affect the right of the Bank to serve
process in any other manner permitted by law or shall limit the right of the
Bank to bring proceedings against the Borrower in the courts of any other court
or tribunal otherwise having jurisdiction.
<PAGE>
12.11 Severability. If any provision of this Agreement shall be held or
deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the
same shall not affect any other provision or provisions herein contained or
render the same invalid, inoperative or unenforceable to any extent whatever.
12.12 Right of Set-off. In addition to any rights now or hereafter granted
under applicable law or otherwise and not by way of limitation of any such
rights, upon the occurrence of an Event of Default the Bank is hereby authorized
at any time or from time to time, without notice to the Borrower or to any other
Person, any such notice being hereby expressly waived, to set-off and to
appropriate and apply any and all deposits (general or special, time or demand,
provisional or final) and any other indebtedness at any time held or owing by
the Bank to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower now or hereafter
existing under any of the Loan Documents irrespective of whether or not any
demand shall have been made thereunder and although said obligations,
liabilities or claims, or any of them, shall be contingent or unmatured. The
Bank, if it exercises any rights granted under this Section 12.12, shall
thereafter notify the Borrower of such action; provided that the failure to give
such notice shall not affect the validity of such set-off and application.
12.13 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the Bank, the Borrower and their respective successors and assigns
(except as otherwise expressly provided herein) and nothing contained herein
shall be deemed to confer upon anyone other than the Bank, the Borrower and
their respective successors and assigns any right to insist on or to enforce the
performance or observance of any of the obligations contained herein. All
conditions to the obligations of the Bank to effect the Loans provided for
herein are imposed solely and exclusively for the benefit of the Bank and its
successors and assigns and no other Person shall have standing to require
satisfaction of such conditions in accordance with their terms and no other
Person shall under any circumstances be deemed to be beneficiary of such
conditions.
12.14 Effectiveness. This Agreement shall become effective when and as of
the date (the "Effective Date") that all of the parties hereto shall have signed
a copy hereof (whether the same or different counterparts) and the Borrower
shall have delivered it to the Bank at the Closing Office.
12.15 Survival; Integration. (a) Each of the representations, warranties,
terms, covenants, agreements and conditions contained in this Agreement shall
specifically survive the execution and delivery of this Agreement and the other
Loan Documents and the making of the Loans and shall, unless otherwise expressly
provided, continue in full force and effect until the Commitment has been
terminated and the Loans together with interest thereon, the Commitment
commissions, the fees and compensation of the Bank, and all other sums payable
hereunder or thereunder have been indefeasibly paid in full.
<PAGE>
(b) This Agreement, together with the other Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and thereof and supersedes the Letter Agreement and all other prior agreements,
written or oral, on the subject matter hereof and thereof. In the event of any
direct conflict between the provisions of this Agreement and those of any other
Loan Document, the provisions of this Agreement shall control and govern;
provided that the inclusion of supplemental rights or remedies in favor of the
Bank in any other Loan Document shall not be deemed a conflict with this
Agreement. Each Loan Document was drafted with the joint participation of the
respective parties thereto and shall be construed neither against nor in favor
of any party, but rather in accordance with the fair meaning thereof.
12.16 Domicile of Loans. The Bank may make, maintain or transfer any of its
Loans hereunder to, or for the account of, any branch office, subsidiary or
affiliate of the Bank.
12.17 Waiver of Jury Trial. EACH OF THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF THE BORROWER OR SUBSIDIARY OR THE BANK. THISPROVISION IS A MATERIAL
INDUCEMENT FOR THE BANK ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.
LITCHFIELD FINANCIAL CORPORATION
789 Main Road
Stamford, Vermont 05352
fax: 802/694-1552 By /s/
------------------------------
Name: Heather A. Sica
Title: Executive Vice President
BANK OF SCOTLAND
565 Fifth Avenue
New York, New York 10017
fax: 212/557-9460 By /s/
------------------------------
Name: Catherine M. Oniffrey
Title: Vice President
<PAGE>
Exhibit 10.143
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of September 13, 1996 between Litchfield
Financial Corporation (the "Pledgor"), and BANK OF SCOTLAND (the "Pledgee").
WHEREAS, the Pledgor and the Pledgee are parties to a Loan Agreement
(herein, as at any time amended, extended, restated, renewed or modified, the
"Loan Agreement") dated as of the date hereof, pursuant to which the Bank (as
defined therein) has agreed, subject to the terms and conditions set forth
therein, to extend loans to the Pledgor in accordance with the terms thereof;
and
WHEREAS, it is a condition to the extension of credit by the Bank pursuant
to the Loan Agreement that the Pledgor enter into this Agreement and grant to
the Pledgee the security interest provided for herein;
NOW, THEREFORE, it is agreed:
For good and valuable consideration, the receipt of which is hereby
acknowledged, as collateral security for the due and punctual payment and
performance of all the Secured Obligations (as defined below), the Pledgor
hereby deposits and pledges with Pledgee the shares of stock indicated on Annex
1 hereto (all such shares, together with all other shares of stock required to
be deposited hereunder, the "Pledged Shares") and the certificates indicated on
Annex 1 hereto under the heading "Pledged Interests" (all such certificates,
together with all other securities or other instruments of any kind relating
thereto or arising thereunder required to be deposited hereunder, the "Pledged
Interests"; the Pledged Shares and the Pledged Interests being sometimes
referred to herein as the "Pledged Securities") and hereby grants to the Pledgee
a security interest in and a lien upon, and hereby assigns, transfers, pledges
and sets over to the Pledgee, all of Pledgor's right, title and interest in and
to the following (the "Collateral"):
(a) the Pledged Securities;
(b) all dividends, interest and other payments made on or in respect of the
Pledged Securities;
(c) all proceeds of the Pledged Securities and any of the other Collateral;
(d) all other securities, money and other property required to be pledged
hereunder, and all rights related thereto;
(e) all collateral, liens and security interests securing the obligations
of any issuer of any of the Pledged Securities;
<PAGE>
(f) all other rights of the Pledgor with respect to the foregoing
Collateral. Unless otherwise specified, all terms used in this Pledge Agreement
shall have the meaning specified therefor as used in the Loan Agreement. As used
herein, the term "Secured Obligations" shall mean (i) all obligations of the
Pledgor under this Pledge Agreement; and (ii) all obligations of the Borrower
for principal, interest, fees or otherwise, incurred under or in connection with
the Loan Agreement, the Note and the other Loan Documents, all other Obligations
under the Loan Agreement, and all other obligations of Pledgor now or hereafter
arising (including future advances) under of in connection with any of the
foregoing.
Section 1. Representations. The Pledgor represents, warrants and covenants,
which representations, warranties and covenants shall survive the execution and
delivery hereof, as follows:
(a) The Pledged Securities are duly and validly issued, fully paid and
non-assessable, and the Pledged Interests are the valid and binding obligations
of the issuer thereof, enforceable against such issuer in accordance with their
respective terms. No offsets, defenses or counterclaims by any issuer of the
Pledged Interests exist against the Pledgor or any Affiliate of the Pledgor.
(b) When deposited with the Pledgee, the Pledged Securities will be duly
and validly pledged hereunder in accordance with applicable law, and the Pledgor
warrants and covenants and agrees to defend the Pledgee's rights and title in
and to the Pledged Securities against the claims and demands of all persons and
entities.
(c) The Pledgor is the sole legal and equitable owner of, and has good
title to, all of the Pledged Securities listed on Annex 1 hereto, free and clear
of all claims, security interests, mortgages, pledges, liens and other
encumbrances of every nature whatsoever except in favor of the Pledgee. The
Pledgor has full power, authority and legal right to pledge the Pledged
Securities being pledged by the Pledgor as herein provided.
(d) Each certificate evidencing the Pledged Shares and the Pledged
Interests is issued in the name of the Pledgor as provided in Annex 1 hereto,
and each such certificate has been duly executed in blank by the Pledgor or has
attached thereto an instrument of transfer or assignment duly executed in blank
by the Pledgor, with signatures appropriately guaranteed (if required by the
Pledgee) and accompanied in each case by any required transfer tax stamps, all
in form and substance satisfactory to the Pledgee.
(e) The security interest described in this Pledge Agreement represents a
valid first lien on and security interest in the Collateral superior and prior
to the rights of all third persons or entities.
(f) No filings or recordings (including, without limitation, under the
<PAGE>
Uniform Commercial Code) are necessary to be made in order to perfect, protect
and preserve the lien on and security interest in the Collateral created by this
Pledge Agreement.
(g) The Pledgor will not (i) sell, assign, transfer or otherwise dispose of
any of the Collateral, or any rights pertaining thereto, or (ii) create, or
suffer to be created or to exist, any mortgage, pledge, lien, security interest,
charge or encumbrance upon the Collateral or any part thereof, or upon the
income or profits thereof or any other rights related thereto, other than
pursuant to (or as permitted by) this Pledge Agreement, or (iii) subordinate its
right to receive any payment in respect of, or any of its other rights in
connection with, any Pledged Interests to that of any other Person or
obligation, or (iv) directly or indirectly amend, modify, surrender, compromise,
accept prepayment of, or waive any of its rights under, any of the Pledged
Securities (or agree to any of the foregoing) or take any action to enforce same
without the prior written consent of Pledgee. Each of LMSC, as issuer of the
Pledged Shares, and LTSC, as Depositor with respect to the Class B Certificate
Agreements, by its acknowledgment and consent hereto agrees that such will not
be done without such consent. The Pledgor will, from time to time, promptly pay
and discharge all taxes, assessments and other governmental charges, the lien of
which would or might be prior or equal to the lien of this Pledge Agreement,
imposed upon the Collateral or any part thereof or upon the income or profits
therefrom, and also all taxes, assessments and other governmental charges
imposed upon the lien or interest of the Pledgee under this Pledge Agreement or
in respect of the Collateral, and at its expense will take all such other action
as from time to time may be necessary or appropriate to preserve the lien of
this Pledge Agreement on the Collateral as a first lien thereon.
(h) This Pledge Agreement has been duly authorized by all necessary action
(corporate or otherwise) on the part of the Pledgor and the Pledgor has obtained
all consents and approvals (governmental, third party or otherwise) necessary in
connection therewith, including without limitation all such consents and
approvals necessary for the Pledgee to sell, assign or otherwise transfer any or
all of the Pledged Securities to a third party as provided in Section 6 hereof
(except to the extent that any such sale may require compliance with the
Securities Act of 1933 (the "1933 Act") or comparable provisions of any
applicable state securities laws). This Pledge Agreement is the Pledgor's valid
and binding obligation, enforceable against the Pledgor in accordance with its
terms.
(i) The Pledged Shares now constitute and shall at all times in the future
constitute 100% of the issued and outstanding shares of the issuer thereof.
(j) The Pledgor hereby agrees to immediately, upon receipt thereof, deliver
to the Pledgee all certificates representing any additional shares of stock or
other equity securities of the issuer of Pledged Shares that are hereafter
acquired by Pledgor and all certificates issued in respect of the Pledged
Interests, each such certificate to be duly executed in blank or have attached
thereto a stock power (or other appropriate transfer power, in the case of the
Pledged Interests) duly signed in blank by the Pledgor.
(k) There is no shareholders or other agreement which would affect the
right or ability of the Pledgee (or any transferee of the Pledgee or any
<PAGE>
subsequent transferee) to freely transfer the Pledged Securities in accordance
with the terms of this Pledge Agreement or subsequently.
Section 2. Transfer of Shares and Interest. At any time when a Default or
Event of Default exists, the Pledgee may cause all or any of the Pledged
Securities to be transferred into its name or that of a nominee or nominees (to
the extent that any of the Pledged Securities are not already so transferred).
Section 3. Voting Rights and Rights to Distributions Prior to Event of
Default. So long as an Event of Default shall not have occurred and be
continuing, the Pledgor shall be entitled, to the extent not inconsistent with
this Pledge Agreement and the Loan Agreement:
(a) To exercise the voting power with respect to the Pledged Securities and
for that purpose the Pledgee shall execute or cause to be executed from time to
time (at the expense of the Pledgor) such proxies or other instruments in favor
of the Pledgor or its nominee, in such form and for such purposes as shall be
reasonably required by the Pledgor and as shall be specified in a written
request therefor, to enable it to exercise such voting power with respect to the
Pledged Securities; provided that such voting power shall not, without the
Pledgee's prior written consent, be exercised by the Pledgor to (i) adversely
affect the maturity, interest rate, principal amount, any other amount or timing
of any distribution on account of, or any other right of the owner or Pledgee
with respect to, any of the Pledged Interests, (ii) subordinate or terminate any
of the Pledged Interests, (iii) commence any foreclosure action or exercise any
other remedy under any of the Pledged Interests, (iv) otherwise adversely affect
the interests of the Pledgee in connection with any of the Pledged Securities;
or (v) in any manner that is inconsistent with the terms of the Loan Agreement
or any other Loan Document;
(b) To receive and retain for its own account any and all dividends (other
than stock dividends and liquidating dividends) paid or declared on the Pledged
Shares and, subject to the Pledgor's obligations under Section 2.4(b) of the
Loan Agreement, distributions with respect to the Pledged Interests pursuant to
the terms of the Class B Certificate Agreements as in effect on the date hereof.
(c) To exercise any conversion, option or similar right permitted by the
terms of any of the Pledged Securities (subject, however, to Section 4 hereof),
but only with the prior written consent of the Pledgee.
Section 4. Dissolution of Issuer; Stock Dividends. If, upon the dissolution
or liquidation (in whole or in part) of the issuer of any of the Pledged
Securities, any sum shall be paid upon or with respect to any of the Pledged
Securities, such sum shall be promptly paid over to the Pledgee, to be held by
the Pledgee as collateral security for the Secured Obligations. In case any
stock or similar dividend, debt security or trust or other interest shall be
declared on or issued in respect of any of the Pledged Securities, or any shares
of stock or other debt or equity securities or trust or other interests shall be
issued upon conversion of any of the Pledged Securities (or the exercise of any
option or similar right) or otherwise in respect thereof, or any shares of stock
or fractions thereof shall be issued pursuant to any stock split or merger
<PAGE>
involving any of the Pledged Securities, or any distribution of capital or trust
or other interests shall be made on any of the Pledged Securities, or any
property shall be distributed upon or with respect to the Pledged Securities
pursuant to the recapitalization or reclassification of the capital stock or
other equity, trust or other instrument of the issuer of any of the Pledged
Securities or the merger or reorganization thereof or otherwise (including
without limitation as a result of any default by the issuer of any of the
Pledged Interests and any resultant realization upon any collateral therefore),
the shares or other property so distributed shall be delivered promptly to the
Pledgee (accompanied, where applicable, by proper instruments of assignment
and/or stock powers executed by Pledgor in accordance with the Pledgee's
instructions) to be held by it as collateral security for the Secured
Obligations.
Section 5. Voting Rights and Rights to Distributions After Event of
Default. If any Event of Default shall have occurred and be continuing:
(a) the Pledgee shall thereafter be entitled (i) to exercise the voting
power with respect to the Pledged Securities, (ii) to receive and retain, as
collateral security for the Secured Obligations, any and all dividends,
principal, interest and other payments and distributions at any time and from
time to time declared or paid upon any of the Pledged Securities, and (iii) to
exercise any conversion, option or similar right permitted by the terms of any
of the Pledged Securities; and
(b) any dividends, principal, interest or other payments, distributions or
sums paid to the Pledgor upon or with respect to any of the Pledged Securities
shall be received by the Pledgor on behalf of and in trust for the Pledgee and
shall be paid over promptly to the Pledgee, to be held by the Pledgee as
collateral security for the Secured Obligations.
Section 6. Certain Rights of Pledgee After Event of Default. (a) If any
Event of Default shall have occurred and be continuing, the Pledgee may exercise
all rights of a secured party under the Uniform Commercial Code and, without
obligation to resort to other security, may at any time and from time to time:
(i) sell, resell, assign and deliver, in its discretion, all or any of the
Pledged Securities, in one or more parcels at the same or different times, and
all right, title and interest, claim and demand therein and right of redemption
thereof, on any securities exchange on which the Pledged Securities or any of
them may then be listed, or at public or private sale, for cash, upon credit or
for future delivery, and at such price or prices and on such terms as the
Pledgee may determine, the Pledgor hereby agreeing that, upon such sale, any and
all equity or right of redemption of the Pledgor shall be automatically waived
and released without any further action on the part of the Pledgor, and in
connection therewith the Pledgee may grant options, all without either demand,
advertisement or notice (except as required by law), all of which (to the extent
permitted by law) are hereby expressly waived. In the event of any such sale,
the Pledgee shall give the Pledgor ten days prior written notice of its
intention to sell except that, if the Pledgee shall determine, in its reasonable
discretion, that any of the Pledged Securities threatens to decline speedily in
value, any such sale may be made upon three days' prior written notice to the
Pledgor. Upon each such sale, the Pledgee may purchase all or any of the Pledged
<PAGE>
Securities being sold, free from any equity or right of redemption, which, upon
each such sale, shall be waived and released. Any such sale or other disposition
shall be made in a commercially reasonable manner. The proceeds of each such
sale shall be applied as provided in Section 7 hereof, and the Pledgor will
continue to be liable for any deficiency with respect to any of the Secured
Obligations remaining unpaid. The balance, if any, remaining after indefeasible
cash payment in full of the Secured Obligations shall be paid over to the
Pledgor or its designee. For the purposes of this Section 6, an agreement to
sell any or all the Pledged Securities entered into after the applicable notice
period specified above shall be treated as a sale thereof, and the Pledgee shall
be entitled to carry out such sale pursuant to such agreement and the Pledgor
shall not be entitled to the return of any of the Pledged Securities subject
thereto notwithstanding the fact that after the Pledgee shall have entered into
any such agreement the Pledgor or another Affiliate of Pledgor shall have
tendered payment in full of the Secured Obligations; and
(ii) appropriate and apply all money held as part of the Collateral to the
Secured Obligations.
(b) Pledgor recognizes that, by reason of certain prohibitions contained in
the 1933 Act and applicable state securities laws, the Pledgee may be compelled,
with respect to any sale of all or any part of the Collateral, to limit
purchasers to those who will agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any such private sale
may be at prices and on terms less favorable to the Pledgee than those
obtainable through a public sale without such restrictions, and, notwithstanding
such circumstances, agrees that any such private sale shall be deemed to have
been made in a commercially reasonable manner and that the Pledgee shall have no
obligation to engage in public sales and no obligation to delay the sale of any
Collateral for the period of time necessary to permit the respective issuer
thereof to register it for public sale.
Section 7. Distribution of Proceeds. Except as otherwise provided herein,
all money that the Pledgee shall receive, in accordance with the provisions
hereof, whether by sale of the Pledged Securities or otherwise, shall be applied
in the following manner: First, to the payment of all costs and expenses
incurred in connection with the administration and enforcement of, or the
preservation of any rights under, this Pledge Agreement or any of the reasonable
expenses and disbursements of the Pledgee (including without limitation the fees
and disbursements of its counsel and agents); and Second, to the payment of the
Secured Obligations in such order as the Pledgee may determine.
Section 8. Cumulative Remedies; Standard of Care. The rights, powers and
remedies (collectively, the "Rights") provided herein in favor of the Pledgee
shall not be deemed exclusive, but shall be cumulative, and shall be in addition
to all other Rights in favor of the Pledgee existing at law or in equity,
including (without limitation) all of the Rights available to a secured party
under the provisions of the Uniform Commercial Code as adopted in any
appropriate jurisdiction. The Pledgee shall exercise the same care and diligence
in holding the Pledged Securities that the Pledgee would devote to the custody
of securities and certificates owned by the Pledgee.
<PAGE>
Section 9. Sale of Pledged Securities. If any Event of Default shall have
occurred, the Pledgee shall have the right, for and in the name, place and stead
of the Pledgor, to execute endorsements, assignments or other instruments of
conveyance or transfer with respect to all or any of the Pledged Securities and
the other Collateral.
Section 10. Delay; Amendment. No delay on the part of the Pledgee in
exercising any of its rights, or partial or single exercise thereof, shall
constitute a waiver thereof. No provision of this Pledge Agreement shall be
waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Pledgor and the Pledgee.
Section 11. Survival of Obligations. The obligations of the Pledgor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by: (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of the Pledgor or any issuer
of the Pledged Securities; (b) any exercise or non-exercise, or any waiver, by
the Pledgee of any Right under or in respect of the Secured Obligations or any
security for any of the Secured Obligations (other than this Pledge Agreement);
or (c) any amendment to or modification of the Loan Agreement, the Note, the
Loan Documents, the Secured Obligations or any security for any of the Secured
Obligations (other than this Pledge Agreement), whether or not the Pledgor shall
have notice or knowledge of any of the foregoing.
Section 12. Return of Pledged Securities. After the indefeasible cash
payment in full of all of the Secured Obligations, the Pledgor (except to the
extent otherwise contemplated by this Pledge Agreement) shall be entitled to the
return of all of the Pledged Securities and of all Collateral which have not
been used or applied toward the payment in full of the Secured Obligations,
without representation or warranty of any kind by the Pledgee.
(b) The Pledged Shares shall cease to constitute Collateral hereunder if
(i) (x) the Transition Date shall have occurred on or prior to November 8, 1996
or such later date, if any, on or prior to November 22, 1996 requested by
Pledgor pursuant to the definition of "Transition Date" in Annex I to the Loan
Agreement, and (y) no Default or Event of Default shall exist on such date; or
(ii) on November 22, 1996 (x) the outstanding principal amount of the Loans does
not exceed the Borrowing Base determined solely on the basis of the Security
Value of the Class B Certificate and (y) no Default or Event of Default exists.
In the event that the Pledged Shares cease to constitute Collateral hereunder
pursuant to the immediately preceding sentence, the Pledgee shall within a
reasonable time after such cessation and following receipt of a written request
from Pledgor, return the Pledged Shares to the Pledgor, without representation
or warranty of any kind by the Pledgee.
Section 13. Assignment. This Pledge Agreement is binding upon the Pledgor,
the Pledgee and their respective executors, administrators, successors and
assigns and shall inure to the benefit of the Pledgee and its successors and
assigns. The Pledgor may not assign its rights or obligations hereunder without
the prior written consent of the Pledgee.
<PAGE>
Section 14. Governing Law. THIS PLEDGE AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
EXECUTED WHOLLY WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THIS
PLEDGE AGREEMENT IS EXECUTED).
Section 15. Further Assurances. The Pledgor hereby agrees, at its own
expense, to execute and deliver, from time to time, any and all further, or
other, instruments, and to perform such acts, as the Pledgee may reasonably
request to effect the purposes of this Pledge Agreement and to secure to the
Pledgee the benefits of all rights, authorities and remedies conferred upon the
Pledgee by the terms of this Pledge Agreement. In the event that at any time
hereafter, due to any change in circumstances, including without limitation, any
change in any applicable law, or any decision hereafter made by a court
construing any applicable law, it is, in the opinion of counsel for the Pledgee,
necessary or desirable to file or record this Pledge Agreement or any financing
statement or other instrument or document respecting this Pledge Agreement or
the pledge made hereunder, the Pledgor agrees to pay all fees, costs and
expenses of such recording or filing and to execute and deliver any instruments
that may be necessary or appropriate to make such filing or recording effective.
The Pledgee shall have the right to file any such financing statements without
the signature of the Pledgor to the extent permitted by applicable law.
Section 16. Attorney-in-Fact. The Pledgee is hereby appointed the
attorney-in-fact of the Pledgor for the purpose of carrying out the provisions
hereof and taking any action and executing any instruments which the Pledgee may
deem necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, if any Event of Default shall have
occurred, the Pledgee shall have the right and power to receive, endorse and
collect all checks made payable to the order of the Pledgor representing any
distribution in respect of the Pledged Securities or the other Collateral or any
part thereof and to give full discharge for the same.
Section 17. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction.
Section 18. Indemnification. (a) The Pledgor agrees to indemnify the
Pledgee from and against any and all claims, damages, losses, liabilities and
expenses arising out of or in connection with or resulting from this Pledge
Agreement (including without limitation, enforcement of this Pledge Agreement),
unless and to the extent that such claims, damages, losses, liabilities or
expenses are attributable to the Pledgee's gross negligence or willful
misconduct as determined by a final, non-appealable judgment of a court of
competent jurisdiction.
<PAGE>
(b) The Pledgor will upon demand promptly pay to the Pledgee the amount of
any and all costs and expenses incurred in connection with the preparation,
administration and enforcement of, or the preservation of any rights under, this
Pledge Agreement and the reasonable expenses and disbursements of the Pledgee
(including without limitation the fees and disbursements of its counsel and
agents).
(c) The foregoing provisions of this Section 18 are in furtherance and not
in limitation of Pledgor's obligations under Section 12.3 of the Loan Agreement.
Section 19. Waiver of Jury Trial. EACH OF THE PLEDGEE AND THE PLEDGOR
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS EITHER
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT, THE NOTES OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PLEDGEE, THE PLEDGOR, ANY OTHER
PLEDGOR, OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PLEDGEE ENTERING INTO THIS PLEDGE AGREEMENT, THE LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
Section 20. Notices; Headings. (a) Any notice or demand upon the Pledgor
under this Pledge Agreement shall be deemed to have been sufficiently given or
served for all purposes hereof when mailed, postage prepaid, by registered or
certified mail, return receipt requested, or when telegraphed, telecopied or
telexed or delivered by hand (or by Federal Express or similar courier service),
to the Pledgor at its address set forth below or at such other address as the
Pledgor may designate in a writing mailed, delivered, telegraphed, telecopied or
telexed to the Pledgee, provided that in the case where the Pledgee is required
to give only three days' notice of a proposed sale of the Collateral such notice
if delivered by mail shall not be deemed given until delivered. All notices to
the Pledgee provided for herein shall be deemed to have been given when
delivered by mail or by hand, or telegraphed, telecopied or telexed, to the
Pledgee at its address set forth below or at such other address as the Pledgee
may designate in a writing mailed, delivered, telegraphed, telecopied or telexed
to the Pledgor.
(b) The descriptive headings of the various provisions of this Pledge
Agreement are inserted for convenience of reference only and shall not affect
the meaning or construction of any of the provisions of this Pledge Agreement.
(c) As used in this Pledge Agreement, "written," "writing" and variations
thereof shall refer to any form of written communication or a communication by
means of telex, telecopier, telegraph or cable.
Section 21. Jurisdiction. The Pledgor hereby agrees that any legal action
or proceeding against the Pledgor with respect to this Pledge Agreement or the
other documents contemplated hereby or referred to herein may be brought in any
court in the State of New York or of the United States of America for the
<PAGE>
Southern District of New York, as the Pledgee may elect, and by execution and
delivery of this Pledge Agreement the Pledgor generally and unconditionally
accepts for itself and in respect to its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The Pledgor waives
any right to stay or to dismiss any action or proceeding brought before any of
said courts on the basis of forum non conveniens. Pledgor agrees that process
against the Pledgor in any such action or proceeding may be served against the
Pledgor by registered or certified mail sent to the Pledgor at its address set
forth below (or such other address as Pledgee is notified of pursuant to Section
20 hereof), or to Pledgor's agent for service of process as set forth in Section
12.10 of the Loan Agreement, any and each such service being hereby acknowledged
by the Pledgor as being effective and binding service in every respect. Nothing
herein shall affect the right of the Pledgee to serve process in any other
manner permitted by applicable law or shall limit the right of the Pledgee to
bring actions and proceedings against the Pledgor in the courts of any other
jurisdiction.
Section 22. Counterparts; Joint and Several Obligations. (a) This Pledge
Agreement may be executed in any number of counterparts, and by the different
parties hereto on the same or separate counterparts, each of which shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement. Telecopied signatures hereto shall be of the same force
and effect as an original of a manually signed copy.
(b) If there is more than one Pledgor signing this Pledge Agreement, the
obligations of the Pledgors hereunder are joint and several.
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Pledgee have duly executed and
delivered this Pledge Agreement as of the date first above written.
789 Main Road LITCHFIELD FINANCIAL
Stamford, Vermont 05352 CORPORATION, Pledgor
Telecopier No: 802-694-1552
By/s/
--------------------------------
Name: Heather A. Sica
Title: Executive Vice President
565 Fifth Avenue BANK OF SCOTLAND, Pledgee
New York, New York 10017
Telecopier No: 212-682-5720
By /s/
-------------------------------
Name: Catherine M. Oniffrey
Title: Vice President
Acknowledged and Consented to:
Litchfield Timeshare Securities Corporation 1995-1
By
----------------------------------
Name: Heather A. Sica
Title: Executive Vice President
Litchfield Mortgage Securities Corporation 1994
By
---------------------------------
Name: Heather A. Sica
Title:
<PAGE>
Annex 1 to
Pledge Agreement
Pledged Securities
Pledged Shares
No. of
Pledgor Issuer Class Shares Cert. No.
- ---------- ----------- ------ ------ --------
Litchfield Litchfield common 100 2
Financial Mortgage
Corporation Securities
Corporation
1994
[Borrower to complete]
Pledged Interests
Original
Name of Certificate
Pledgor Issuer Security Balance Cert. No.
- ---------- ---------- ---------- ----------- --------
Litchfield Litchfield Class B $6,719,499.88 B-3
Financial Timeshare Certificate
Corporation Trust 1995-1
Litchfield Litchfield Class B $2,181,992.30 B1-3
Financial Timeshare Certificate
Corporation Trust 1995-1
[Borrower to complete]
<PAGE>
Exhibit 10.144
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of September 13, 1996, between Litchfield
Financial Corporation, a corporation incorporated under the laws of
Massachusetts (the "Debtor"), and the Bank of Scotland (the "Secured Party");
W I T N E S S E T H :
WHEREAS, the Debtor and the Secured Party are parties to a Loan Agreement
(herein, as at any time amended, extended, restated, renewed or modified, the
"Loan Agreement") dated as of the date hereof, pursuant to which the Bank (as
defined therein) has agreed, subject to the terms and conditions set forth
therein, to extend loans to the Debtor in accordance with the terms thereof; and
WHEREAS, it is a condition to the extension of credit by the Bank pursuant
to the Loan Agreement that the Debtor enter into this Agreement and grant to the
Secured Party the security interest provided for herein;
NOW, THEREFORE, FOR VALUE RECEIVED, IT IS AGREED:
Section 1. Terms. Unless otherwise defined herein, capitalized terms used
in this Agreement shall have the meaning specified therefor in the Loan
Agreement. As used herein the following terms shall have the meanings specified
and shall include in the singular number the plural and in the plural number the
singular:
"Assignment Asset Agreement" shall mean any agreement relating to any
Assignment Asset.
"Class B Certificateholder" means the Debtor in its capacity as the
registered holder of the Class B Certificate.
"Class B Rights" has the meaning specified therefor in clause (i) of the
definition of Collateral.
"Collateral" means all of the Debtor's right, title and interest in and
under or arising out of each and all of the following:
All of the following wherever located, whether now owned or existing or
hereafter arising or acquired:
<PAGE>
(i) all of the Debtor's present and future rights under the Trust Agreement, as
amended, supplemented, restated or otherwise modified from time to time,
which arise from Debtor's status as a Class B Certificateholder thereunder
(herein sometimes referred to as the "Class B Rights"), including, without
limitation, all such rights evidenced by the Class B Certificate and all
rights under Sections 8.1 and 4.3 of the Trust Agreement (and any
comparable sections in any amendment, supplement, restatement or other
modification of the Trust Agreement), including without limitation Section
4.3(a)(x) and (xi), Section 4.3(b)(ix), (x), (xi) and (xii), Section 4.3(c)
(viii), (ix), (x) and (xi) and Section 4.3(d) thereof, together with
(a) all claims, rights, powers or privileges and remedies of the
Debtor relating thereto or arising in connection with any of the
foregoing including, without limitation, all rights of the Debtor in
its capacity as a Class B Certificateholder to make determinations, to
exercise any election (including, but not limited to, election of
remedies) or option or to give or receive any notice, consent, waiver
or approval, together with full power and authority to demand,
receive, enforce, collect or receipt for any of the foregoing or any
property which is the subject of the Class B Rights, to enforce or
execute any checks, or other instruments or orders, to file any claims
and to take any other action in connection with any of the foregoing,
(b) all liens, security, guaranties, endorsements, warranties and
indemnities and all insurance and claims for insurance relating
thereto or arising in connection therewith to which Debtor has right,
title or interest as a Class B Certificateholder,
(c) all other rights to property to which Debtor has right, title or
interest as a Class B Certificateholder,
(d) all writings relating to the Class B Rights or arising in
connection therewith including without limitation, all notes,
contracts, security agreements, guaranties, chattel paper and other
evidence of indebtedness or security, all powers-of-attorney, all
books, records, ledger cards and invoices, all credit information,
reports or memorandums and all evidence of filings or registrations
relating thereto, in each case to which Debtor has right, title or
<PAGE>
interest as a Class B Certificateholder, and all property from time to
time described in any financing statement (UCC-1) signed by the Debtor
naming the Secured Party as secured party;
(e) all accounts, contract rights, general intangibles and other
property rights of any nature whatsoever arising out of or in
connection with the foregoing, including without limitation,
interest, payments and other distributions thereon and rights to
interest, payments and other distributions due and to become due,
whether as repayments, reimbursements, contractual obligations,
indemnities, damages or otherwise; and
(ii) all proceeds of, and other payments made on and rights to amounts payable
in respect of, each and every Assignment Asset, and all other proceeds of
each and every Assignment Asset; and
(iii) all additions, accessions, replacements, substitutions or
improvements and all products and proceeds including, without limitation,
proceeds of insurance, of any and all of the Collateral described in clauses (i)
or (ii) above.
"Secured Obligations" means the principal of, and interest on, the Loans
and the Note, all Obligations under the Loan Agreement and all other obligations
of the Debtor, now existing or hereafter arising (including future advances)
under this Agreement, the Loan Agreement, the other Loan Documents and any other
document executed by Debtor in connection with any of the foregoing.
Section 2. Security Interests. As security for the payment and performance
of all Secured Obligations the Debtor does hereby grant and assign to the
Secured Party a continuing security interest in all of the Collateral, whether
now owned or existing or hereafter arising or acquired and wherever located.
Section 3. General Representations, Warranties and Covenants. The Debtor
represents, warrants and covenants, which representations, warranties and
covenants shall survive execution and delivery of this Agreement, as follows:
(a) This Agreement is made with full recourse to the Debtor and pursuant to
and upon all the warranties, representations, covenants, and agreements on the
part of the Debtor contained herein, in the Loan Agreement and otherwise made in
writing in connection herewith or therewith.
<PAGE>
(b) Except for the security interest of the Secured Party therein, the
Debtor is, and as to Collateral acquired from time to time after the date hereof
the Debtor will be, the owner of all the Collateral free from any lien, security
interest, encumbrance or other right, title or interest of any Person, and the
Debtor shall defend the Collateral against all claims and demands of all Persons
at any time claiming the same or any interest therein adverse to the Secured
Party.
(c) There is no financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) now on file or registered in any
public office covering any interest of any kind in the Collateral, or intended
so to be, which has not been terminated or released by the secured party named
therein and so long as the Loan Agreement remains in effect or any of the
Secured Obligations of the Debtor remain unpaid, the Debtor will not execute and
there will not be on file in any public office any financing statement (or
similar statement or instrument of registration under the law of any
jurisdiction) or statements relating to the Collateral, except financing
statements filed or to be filed in respect of and covering the security interest
of the Secured Party hereby granted and provided for and except with respect to
Permitted Liens.
(d) The chief executive office and chief place of business of the Debtor is
located at the address of the Debtor listed on the signature page hereof, and
the Debtor will not move its chief executive office and chief place of business
except to such new location as the Debtor may establish in accordance with the
last sentence of this Section 3(d). The originals of all Class B Certificate
Agreements and all documents (as well as all duplicates thereof) evidencing all
accounts and all other contract rights and other property of the Debtor and the
only original books of account and records of the Debtor relating thereto are,
and will continue to be, kept at such chief executive office or at such new
location as the Debtor may establish in accordance with the last sentence of
this Section 3(d). The Debtor shall establish no such new location until (i) it
shall have given to the Secured Party not less than 45 days' prior written
notice of its intention so to do, clearly describing such new location and
providing such other information in connection therewith as the Secured Party
may reasonably request, and (ii) with respect to such new location, it shall
have taken such action, satisfactory to the Secured Party (including, without
limitation, all action required by Section 7 hereof), to maintain the security
interest of the Secured Party in the Collateral intended to be granted at all
times fully perfected and in full force and effect.
(e) The name of the Debtor is as set forth on the signature page hereto and
the Debtor shall not change such name, conduct its business in any other name or
take title to the Collateral in any other name while this Agreement remains in
effect. The Debtor has never had any name, or conducted business under any name
in any jurisdiction, other than its name set forth on the signature page hereto,
during the past six years other than as set forth in Schedule 1 annexed hereto.
(f) The Debtor hereby assigns to the Secured Party all of Debtor's right,
title and interest in and to any and all moneys which may become due and payable
with respect to the Collateral under any policy insuring the Collateral,
including return of unearned premium, and, subject to the Loan Agreement,
directs any such insurance company to make payment directly to the Secured
Party; and authorizes the Secured Party to apply such moneys in payment on
<PAGE>
account of the indebtedness secured hereby, whether or not due, or toward
replacement of the Collateral and to remit any surplus to the Debtor subject
however to the terms of the Loan Agreement.
(g) The Debtor will not use the Collateral in violation of any statute or
ordinance or applicable insurance policy and will promptly pay all taxes and
assessments levied against the Collateral.
(h) The Debtor will not sell, transfer, change the registration, if any,
dispose of, attempt to dispose of, or abandon the Collateral or any material
part thereof without the prior written consent of the Secured Party.
(i) The Debtor will not assert against the Secured Party any claim or
defense which the Debtor may have against any seller of the Collateral or any
part thereof or against any other Person with respect to the Collateral or any
part thereof.
(j) The Debtor will indemnify and hold the Secured Party harmless from and
against any loss, liability, damage, costs and expenses whatsoever arising from
the Debtor's use, operation, ownership or possession of the Collateral or any
part thereof.
(k) The Debtor will not enter into any agreement that is inconsistent with
the Debtor's obligations under this Agreement, without the prior written consent
of the Secured Party.
Section 4. Special Provisions Concerning Class B Certificate Agreements and
Assignment Asset Agreements. The Debtor represents, warrants and agrees as
follows:
(a) The Debtor will faithfully abide by, perform and discharge each and
every obligation, covenant and agreement to be performed by the Debtor under the
Class B Certificate Agreements and Assignment Assets Agreements.
(b) At the request of the Secured Party, and at the sole cost and expense
of the Debtor, the Debtor will enforce or secure the performance of each and
every obligation, covenant, condition and agreement contained in the Class B
Certificate Agreements and Assignment Assets Agreements to be performed by the
other parties thereto.
(c) The Debtor will not modify (and will not permit any Subsidiary to),
amend or agree to vary any of the Class B Certificate Agreements or Assignment
Asset Agreements in any material respect or otherwise act (or permit any
Subsidiary to act) in a manner likely (directly or indirectly) to entitle any
party thereto to claim that the Debtor (or any Subsidiary) is in default under
the terms thereof or to claim a defense to payment of, or right of set-off
against, the Debtor or any Subsidiary of Debtor.
(d) Without the prior written consent of the Secured Party, the Debtor will
<PAGE>
not (and will not permit any Subsidiary to) waive or in any manner release or
discharge any party to any Class B Certificate Agreement or any Assignment Asset
Agreement from any of the material obligations, covenants, conditions and
agreements to be performed by it under such Class B Certificate Agreement or any
Assignment Asset Agreement including, without limitation, the obligation to make
all payments in the manner, at the time, in the amounts and at the places
specified.
(e) Unless an Event of Default shall have occurred and the Secured Party
otherwise instructs, the Debtor will (and will cause each applicable Subsidiary
to) appear in and defend every action or proceeding arising under, growing out
of or in any manner connected with any Class B Certificate Agreement or any
Assignment Asset Agreement or the obligations, duties or liabilities of the
Debtor (or any Subsidiary) and any assignee thereunder.
(f) Upon the request of the Secured Party, the Debtor will send to the
Secured Party copies of all notices, documents and other papers furnished or
received by it with respect to any of the Class B Certificate Agreements or
Assignment Asset Agreements.
(g) The Debtor represents and warrants to the Secured Party that each Class
B Certificate represents the interests in and to the Trust Estate created by the
Trust Agreement that such Certificate purports to evidence and that upon
delivery thereof to the Bank, the Bank will have all rights arising therefrom as
are set forth in the Trust Agreement. No portion of the Collateral consists of
the GP Interest (as defined in the Trust Agreement) or any part thereof.
Section 5. Special Provisions Concerning Assignment Assets. (a) As of the
time when any asset becomes an Assignment Asset, the Debtor shall be deemed to
have warranted as to each such Assignment Asset that: such Assignment Asset and
all papers and documents relating thereto are genuine and in all respects what
they purport to be; all information provided to the Secured Party with respect
to the Book Value thereof is true and accurate and calculated in accordance with
Debtor's customary procedures; such asset was not designated as an Assignment
Asset pursuant to any adverse selection process; no such asset was or would
qualify as a non-qualifying asset under any securitization or similar program of
Debtor or its Subsidiaries; and all papers and documents relating thereto:
(i) were signed by the obligor named therein (or such obligor's duly
authorized agent) and are otherwise binding on the obligor;
(ii) represent the genuine, legal, valid and binding obligation of the
obligor evidencing indebtedness unpaid and owed by such obligor;
(iii) evidence true and undisputed obligations enforceable in
accordance with their respective terms and not subject to the fulfillment
of any contract or condition whatsoever or to any defenses, set-offs or
counterclaims, or stamp or other taxes; and
<PAGE>
(iv) are in compliance and will conform with all applicable federal,
state and local laws (including applicable usury laws) and applicable laws
of any relevant foreign jurisdiction.
(b) The Debtor will keep and maintain at the Debtor's own cost and
expense satisfactory and complete records of the Assignment Assets,
including, but not limited to, records of all payments received, and the
Debtor will make the same available to the Secured Party, at the Debtor's
own cost and expense, at any and all reasonable times upon demand of the
Secured Party. The Debtor shall, at the Debtor's own cost and expense,
deliver copies of all Assignment Asset Agreements (including, without
limitation, all documents evidencing the Assignment Assets) and such books
and records to the Secured Party or to its representatives upon its
request. If the Secured Party shall so request, the Debtor shall legend, in
form and manner satisfactory to the Secured Party, the Assignment Assets
and other books, records and documents of the Debtor evidencing or
pertaining to the Assignment Assets with an appropriate reference to the
fact that the proceeds thereof have been assigned to the Secured Party and
that the Secured Party has a security interest therein, and that Debtor and
its Subsidiaries are prohibited from granting a security interest or other
lien on or with respect to such assets to any other Person.
(c) The Debtor will not rescind or cancel any indebtedness evidenced
by any Assignment Asset or modify any term thereof or make any adjustment
with respect thereto, or extend or renew the same, or compromise or settle
any dispute, claim, suit or legal proceeding relating thereto, or sell any
Assignment Asset or interest therein, without the prior written consent of
the Secured Party.
(d) The Debtor will duly fulfill all obligations on its part to be
fulfilled under or in connection with the Assignment Assets and will do
nothing to impair the rights of the Secured Party in the proceeds thereof.
(e) The Debtor shall endeavor to collect or cause to be collected from
the obligor of each Assignment Asset, as and when due (including, without
limitation, Assignment Assets which are delinquent, such Assignment Assets
to be collected in accordance with generally accepted lawful collection
procedures) any and all amounts owing under or on account of such
Assignment Asset. The costs and expenses (including attorney's fees) of
collection, whether incurred by the Debtor or the Secured Party, shall be
borne by the Debtor.
(f) If any Assignment Asset becomes evidenced by an instrument or
chattel paper (in each case, as defined in the UCC), the Debtor will notify
the Secured Party thereof, and upon request by the Secured Party legend
such instrument or chattel paper to the effect that the Secured Party has a
security interest in the proceeds thereof and that the pledge or transfer
of such instrument or chattel paper to any other Person is prohibited.
(g) Upon request of the Secured Party, the Debtor shall promptly
notify (in manner, form and substance satisfactory to the Secured Party)
all Persons who are at any time obligated under any Assignment Assets that
<PAGE>
the Secured Party possesses a security interest in the proceeds of such
Assignment Asset and that all payments in respect thereof are to be made to
such account as the Secured Party directs.
Section 6. Right to Distributions After Event of Default. In addition
to any other rights and remedies now or hereafter granted under applicable
law or elsewhere in this Agreement or the other Loan Documents and not by
way of limitation of any such rights and remedies, if an Event of Default
shall have occurred and be continuing, all principal, interest, other
payments, distributions and other sums paid to Debtor upon, with respect
to, arising out of or consisting of the Collateral shall be received by
Debtor on behalf of and in trust for the Secured Party and shall be paid
over promptly to the Secured Party, to be held as collateral security for
the Secured Obligations.
Section 7. Special Provisions Concerning Remedies and Sale. In
addition to any rights and remedies now or hereafter granted under
applicable law and not by way of limitation of any such rights and
remedies, upon the occurrence of an Event of Default the Secured Party
shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code as enacted in any applicable jurisdiction in
addition to the rights and remedies provided herein, in the Loan Agreement
and in any other agreement executed in connection with the Loan Agreement
whereby the Debtor has granted any lien to the Secured Party. Without in
any way limiting the foregoing, upon the giving of notice to the Debtor of
Secured Party's intent to pursue any one or all of the following or any
other remedies:
(a) The Secured Party shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as enacted in any
applicable jurisdiction in addition to the rights and remedies provided
herein, in the Loan Agreement and any other document whereby the Debtor has
granted any Lien to the Secured Party. The Secured Party shall have the
right, without further notice to, or assent by, the Debtor, in the name of
the Debtor or in the name of the Secured Party or otherwise:
(i) to ask for, demand, collect, receive, compound and give
acquittance for the Collateral or any part thereof;
(ii) to extend the time of payment of, compromise or settle for cash,
credit or otherwise, and upon any terms and conditions, any of the
Collateral;
(iii) to endorse the name of the Debtor on any checks, drafts or other
orders or instruments for the payment of moneys payable to the Debtor which
shall be issued in respect of any Account;
(iv) to file any claims, commence, maintain or discontinue any
actions, suits or other proceedings deemed by the Secured Party necessary
or advisable for the purpose of collecting or enforcing payment of any
Collateral;
<PAGE>
(v) to make test verifications of the Collateral or any portion
thereof;
(vi) to notify any or all account debtors or other obligor under any
or all of the Collateral to make payment thereof directly to the Secured
Party for the account of the Secured Party and to require the Debtor to
forthwith give similar notice to the account debtors;
(vii) to require the Debtor forthwith to account for and transmit to
the Secured Party in the same form as received all proceeds (other than
physical property) of collection of Collateral received by the Debtor and,
until so transmitted, to hold the same in trust for the Secured Party and
not commingle such proceeds with any other funds of the Debtor;
(viii) to take possession of any or all of the Collateral and, for
that purpose, to enter, with the aid and assistance of any Person or
Persons and with or without legal process, any premises where the
Collateral, or any part thereof, are, or may be, placed or assembled, and
to remove any of such Collateral;
(ix) to execute any instrument and do all other things necessary and
proper to protect and preserve and realize upon the Collateral and the
other rights contemplated hereby;
(x) upon notice to such effect, to require the Debtor to deliver, at
the Debtor's expense, any or all Collateral to the Secured Party at a place
designated by the Secured Party and after delivery thereof the Debtor shall
have no further claim to or interest in the Collateral; and
(xi) without obligation to resort to other security, at any time and
from time to time, to sell, re-sell, assign and deliver all or any of the
Collateral, in one or more parcels at the same or different times, and all
right, title and interest, claim and demand therein and right of redemption
thereof, at public or private sale, for cash, upon credit or for future
delivery, and at such price or prices and on such terms as the Secured
Party may determine, with the amounts realized from any such sale to be
applied to the Secured Obligations in the manner determined by the Secured
Party.
The Debtor hereby agrees that all of the foregoing may be effected
without demand, advertisement or notice (except as otherwise provided
herein or as may be required by law), all of which (except as otherwise
provided) are hereby expressly waived, to the extent permitted by law. The
Secured Party shall not be obligated to do any of the acts hereinabove
authorized, but in the event that the Secured Party elects to do any such
act, the Secured Party shall not be responsible to the Debtor except for
its gross negligence or willful misconduct.
(b) The Secured Party may take legal proceedings for the appointment
of a receiver or receivers (to which the Secured Party shall be entitled as
a matter of right) to take possession of the Collateral pending the sale
<PAGE>
thereof pursuant either to the powers of sale granted by this Agreement or
to a judgment, order or decree made in any judicial proceeding for the
foreclosure or involving the enforcement of this Agreement. If, after the
exercise of any or all of such rights and remedies, any of the Secured
Obligations shall remain unpaid, the Debtor shall remain liable for any
deficiency. After termination of this Agreement and the Loan Agreement and
the indefeasible payment in full of the Secured Obligations, any proceeds
of the Collateral received or held by the Secured Party shall be turned
over to the Debtor and the Collateral shall be reassigned to the Debtor by
the Secured Party without recourse to the Secured Party and without any
representations, warranties or agreements of any kind.
(c) Upon any sale of any of the Collateral, whether made under the
power of sale hereby given or under judgment, order or decree in any
judicial proceeding for the foreclosure or involving the enforcement of
this Agreement:
(i) the Secured Party may bid for and purchase the property being
sold, and upon compliance with the terms of sale may hold, retain and
possess and dispose of such property in its own absolute right without
further accountability, and may, in paying the purchase money therefor,
deliver the Note or claims for interest thereon and any other instruments
evidencing the Secured Obligations or agree to the satisfaction of all or a
portion of the Secured Obligations in lieu of cash in payment of the amount
which shall be payable thereon, and the Note and such instruments, in case
the amounts so payable thereon shall be less than the amount due thereon,
shall be returned to the Secured Party after being appropriately stamped to
show partial payment;
(ii) the Secured Party may make and deliver to the purchaser or
purchasers a good and sufficient deed, bill of sale and instrument of
assignment and transfer of the property sold;
(iii) the Secured Party is hereby irrevocably appointed the true and
lawful attorney-in-fact of the Debtor in its name and stead, to make all
necessary deeds, bills of sale and instruments of assignment and transfer
of the property thus sold and for such other purposes as are necessary or
desirable to effectuate the provisions (including, without limitation, this
Section 7) of this Agreement, and for that purpose it may execute and
deliver all necessary deeds, bills of sale and instruments of assignment
and transfer, and may substitute one or more Persons with like power, the
Debtor hereby ratifying and confirming all that its said attorney, or such
substitute or substitutes, shall lawfully do by virtue hereof; but if so
requested by the Secured Party or by any purchaser, the Debtor shall ratify
and confirm any such sale or transfer by executing and delivering to the
Secured Party or to such purchaser all property, deeds, bills of sale,
instruments or assignment and transfer and releases as may be designated in
any such request;
(iv) all right, title, interest, claim and demand whatsoever, either
at law or in equity or otherwise, of the Debtor of, in and to the property
so sold shall be divested; such sale shall be a perpetual bar both at law
and in equity against the Debtor, its successors and assigns, and against
any and all Persons claiming or who may claim the property sold or any part
thereof from, through or under the Debtor, its successors or assigns;
<PAGE>
(v) the receipt of the Secured Party or of the officer thereof making
such sale shall be a sufficient discharge to the purchaser or purchasers at
such sale for his or their purchase money, and such purchaser or
purchasers, and his or their assigns or personal representatives, shall
not, after paying such purchase money and receiving such receipt of the
Secured Party or of such officer therefor, be obliged to see to the
application of such purchase money or be in any way answerable for any
loss, misapplication or nonapplication thereof; and
(vi) to the extent that it may lawfully do so, and subject to any
legal requirement that the Secured Party act in a commercially reasonable
manner, the Debtor agrees that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage
of, any appraisement, valuation, stay, extension or redemption laws, or any
law permitting it to direct the order in which the Collateral or any part
thereof shall be sold, now or at any time hereafter in force, which may
delay, prevent or otherwise affect the performance or enforcement of this
Agreement, the Loan Agreement, the Note, the Loan Documents, or any other
agreement executed in connection with the Loan Agreement whereby the Debtor
has granted any Lien to the Secured Party, and the Debtor hereby expressly
waives all benefit or advantage of any such laws and covenants that it will
not hinder, delay or impede the execution of any power granted or delegated
to the Secured Party in this Agreement, but will suffer and permit the
execution of every such power as though no such laws were in force. In the
event of any sale of Collateral pursuant to this Section, the Secured Party
shall, at least 10 days before such sale, give the Debtor written,
telegraphic or telex notice of its intention to sell, except that, if the
Secured Party shall determine in its sole discretion that any of the
Collateral threatens to decline speedily in value, any such sale may be
made upon 3 days' written, telegraphic or telex notice to the Debtor.
Section 8. Application of Moneys. (a) Except as otherwise provided
herein or in the Loan Agreement, all moneys which the Secured Party shall
receive, in accordance with the provisions hereof, shall be applied (to the
extent thereof) in the following manner: First, to the payment of all costs
and expenses incurred in connection with the administration and enforcement
of, or the preservation of any rights under, this Agreement or any of the
reasonable expenses and disbursements of the Secured Party (including,
without limitation, the fees and disbursements of its counsel and agents);
Second, to the payment of all Secured Obligations arising out of the Loan
Agreement and the Note and, if not therein provided, in such order as the
Secured Party may determine; and Third, to the payment of all other Secured
Obligations in such order as the Secured Party may determine.
(b) If after applying any amounts which the Secured Party has received
in respect of the Collateral any of the Secured Obligations remain unpaid,
the Debtor shall continue to be liable for any deficiency, together with
interest.
Section 9. Financing Statements; Documentary Stamp Taxes. (a) The
Debtor will, at its own expense, make, execute, endorse, acknowledge, file
and/or deliver to the Secured Party from time to time such lists,
<PAGE>
schedules, confirmatory assignments, conveyances, financing statements,
transfer endorsements, powers of attorney, certificates, reports and other
assurances or instruments and take such further steps relating to the
Collateral and other property or rights covered by the security interest
hereby granted, which the Secured Party deems appropriate or advisable to
perfect, preserve or protect its security interest in the Collateral. The
Debtor hereby constitutes the Secured Party its attorney-in-fact to execute
and file in the name and on behalf of the Debtor such additional financing
statements as the Secured Party may request, such acts of such attorney
being hereby ratified and confirmed; such power, being coupled with an
interest, is irrevocable until the Secured Obligations are paid in full.
Further, to the extent permitted by applicable law, the Debtor authorizes
the Secured Party to file any such financing statements without the
signature of the Debtor. The Debtor will pay all applicable filing fees and
related expenses in connection with any such financing statements.
(b) The Debtor agrees to procure, pay for, affix to any and all
documents and cancel any documentary tax stamps required by and in
accordance with, applicable law and the Debtor will indemnify and hold the
Secured Party harmless against any liability (including interest and
penalties) in respect of such documentary stamp taxes.
Section 10. Fees and Expenses, etc. Any and all fees, costs and
expenses of whatever kind or nature, including but not limited to the
reasonable attorneys' fees and legal expenses incurred by the Secured Party
in connection with this Agreement, the filing or recording of any documents
(including all taxes in connection therewith) in public offices, the
payment or discharge of any taxes, counsel fees, maintenance fees, fees and
other costs relating to the encumbrances or otherwise protecting,
maintaining, preserving the Collateral, or in defending or prosecuting any
actions or proceedings arising out of or related to the Collateral, shall
be borne and paid by the Debtor on demand by the Secured Party and until so
paid shall be added to the principal amount of the Secured Obligations and
shall bear interest at the highest pre-maturity fluctuating rate provided
for in the Loan Agreement for the Loans. In addition, the Debtor will pay,
and indemnify and hold the Secured Party harmless from and against, any and
all liabilities, obligations, losses, damages penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the Collateral, including (without limitation)
claims of patent or trademark infringement and any claim of unfair
competition or anti-trust violation.
Section 11. Miscellaneous. (a) Any notice or demand upon the Debtor
shall be deemed to have been sufficiently given or served for all purposes
thereof when mailed, postage prepaid, by registered or certified mail,
return receipt requested, or when telegraphed, telecopied, telexed or sent
by messenger or by Federal Express (or similar overnight express or courier
service), to the Debtor at its address set forth below or at such other
address as the Debtor may designate in a writing delivered to the Secured
Party, provided that in the case where the Secured Party is required to
give only three days' notice of a proposed sale of the Collateral such
notice shall not be deemed given until delivered to the chief executive
office of the Debtor provided for herein. All notices to the Secured Party
shall be deemed to have been given when delivered by mail, telegraph,
telecopy, telex, messenger or Federal Express (or similar overnight express
or courier service) to the Secured Party at its address set forth below or
at such other address as the Secured Party may designate in a writing
delivered to the Debtor.
<PAGE>
(b) No delay on the part of the Secured Party in exercising any of its
rights, remedies, powers and privileges hereunder or partial or single exercise
thereof, shall constitute a waiver thereof. None of the terms and conditions of
this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by the Debtor and the Secured Party. No
notice to or demand on the Debtor in any case shall entitle the Debtor to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Secured Party to any other or
further action in any circumstances without notice or demand.
(c) The obligations of the Debtor hereunder shall remain in full force and
effect without regard to, and shall not be impaired by, (i) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation
or the like of the Debtor; (ii) any exercise or non-exercise, or any waiver of,
any right, remedy, power or privilege under or in respect of the Loan Agreement,
the Note, this Agreement, the other Loan Documents, any other agreement executed
in connection with the Loan Agreement whereby the Debtor has granted any Lien to
the Secured Party or any other agreement executed in connection with any of the
foregoing, the Secured Obligations or any security for any of the Secured
Obligations; or (iii) any amendment to or modification of any of the foregoing;
whether or not the Debtor shall have notice or knowledge of any of the
foregoing. The rights and remedies of the Secured Party herein provided are
cumulative and not exclusive of any rights or remedies which the Secured Party
would otherwise have.
(d) This Agreement shall be binding upon the Debtor and its successors and
assigns and shall inure to the benefit of the Secured Party and its successors
and assigns, except that the Debtor may not transfer or assign any of its
obligations, rights or interest hereunder without the prior written consent of
the Secured Party and any such purported assignment by the Debtor shall be void.
All agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement.
(e) The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
(f) Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(g) All rights, remedies and powers provided by this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and the provisions hereof are intended to be
subject to all applicable mandatory provisions of law that may be controlling
and to be limited to the extent necessary so that they will not render this
<PAGE>
Agreement invalid, unenforceable in whole or in part or not entitled to be
recorded, registered or filed under the provisions of any applicable law.
(h) This Agreement and the rights and obligations of the parties hereunder
shall be construed in accordance with and be governed by the laws of the State
of New York except to the extent that matters of title, or creation, perfection
and priority of the security interests created hereby, or procedural issues of
foreclosure are required to be governed by the laws of the state in which the
Collateral, or part thereof, is located.
(i) It is expressly agreed, anything herein, in the Loan Documents or in
any other agreement or instrument executed in connection with the Loans to the
contrary notwithstanding, that the Debtor shall remain liable to perform all of
the obligations, if any, assumed by it with respect to the Collateral and the
Secured Party shall not have any obligations or liabilities with respect to any
Collateral by reason of or arising out of this Agreement, nor shall the Secured
Party be required or obligated in any manner to perform or fulfill any of the
obligations of the Debtor under or pursuant to any or in respect of any
Collateral.
(j) This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which counterparts taken
together shall be deemed to constitute one and the same instrument.
(k) EACH OF THE SECURED PARTY AND THE DEBTOR HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS EITHER MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE
BANKS, THE SECURED PARTY OR THE DEBTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE SECURED PARTY ENTERING INTO THIS AGREEMENT AND FOR THE BANKS AND THE
SECURED PARTY ENTERING INTO THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
789 Main Road LITCHFIELD FINANCIAL
Stamford, Vermont 05352 CORPORATION, Pledgor
Telecopier No: 802-694-1552
By/s/
--------------------------------
Name: Heather A. Sica
Title: Executive Vice President
565 Fifth Avenue BANK OF SCOTLAND, Pledgee
New York, New York 10017
Telecopier No: 212-682-5720
By/s/
--------------------------------
Name: Catherine M. Oniffrey
Title: Vice President
<PAGE>
Schedule 1
OTHER NAMES UNDER WHICH DEBTOR HAS CONDUCTED BUSINESS
None
<PAGE>
Exhibit 10.145
AMENDMENT NO. 1
Dated as of December 18, 1995
to
Receivables Purchase Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 1 dated as of December 18, 1995 ("Amendment") is entered
into by and among LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994, a Delaware
corporation (the "Seller"), LITCHFIELD FINANCIAL CORPORATION, a Massachusetts
corporation ("Litchfield"), HOLLAND LIMITED SECURITIZATION, INC., a Delaware
corporation ("HLS") and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL MARKETS, INC.,
as agent (the "Agent"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the "Agreement"
referred to below.
PRELIMINARY STATEMENT
A. The Seller, Litchfield, HLS and the Agent are parties to that certain
Receivables Purchase Agreement dated as of September 29, 1995 (as amended from
time to time prior to the date hereof, the "Agreement"), pursuant to which the
HLS has agreed to purchase certain assets and to make certain other financial
accommodations to the Seller.
B. The Seller, Litchfield, HLS and the Agent have agreed to amend the
Agreement on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Seller, Litchfield, HLS and the Agent agree as follows:
SECTION 1. Amendment of the Agreement. Effective as of the date first above
written, subject to the fulfillment of the conditions precedent set forth in
Section 2 below, the Agreement is hereby amended as follows:
1.1. The defined term "Purchase Limit" contained in Section 1.01 of the
Agreement is amended to delete the amount $50,000,000 set forth therein and to
substitute $75,000,000 therefor.
SECTION 2. Conditions Precedent. This Amendment shall become effective and
shall be deemed effective as of date first above written upon the satisfaction
of the following conditions precedent: (a) no event has occurred and is
continuing which constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or both; and
<PAGE>
(b) the Agent shall have received (i) five (5) copies of this Amendment duly
executed by the Seller, Litchfield, HLS and the Agent and (ii) written
confirmation from each of S&P and Fitch that this Amendment will not adversely
affect the rating of the commercial paper notes issued by HLS to fund its
acquisition of "Purchased Assets" (as defined in the Agreement) from the Seller;
SECTION 3. Representations and Warranties of the Seller and Litchfield.
3.1 Each of the Seller and Litchfield hereby represents and warrants that
this Amendment constitutes a legal, valid and binding obligation of the such
Person enforceable against it in accordance with its terms.
3.2 Upon the effectiveness of this Amendment, each of the Seller and
Litchfield reaffirms all covenants, representations and warranties made in the
Agreement by such Person to the extent the same are not amended hereby and
agrees that all such covenants, representations and warranties shall be deemed
to have been remade as of the effective date of this Amendment.
SECTION 4. Reference to and Effect on the Agreement.
4.1. Upon the effectiveness of this Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like
import shall mean and be a reference to the Agreement as amended hereby, and
each reference to the Agreement in any other document, instrument or agreement
executed and/or delivered in reference to the Agreement as amended hereby.
4.2. Except as specifically amended hereby, the Agreement and other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3. The execution, delivery and effectiveness of this Amendment shall not
(a) operate as a waiver of any right, power or remedy of the Agent or the Seller
under the Agreement or any other document, instrument or agreement executed in
connection therewith, (b) constitute a waiver of any provision contained
therein, nor (c) be deemed to be a consent to any other or further actions or
occurrences, except as specifically set forth herein.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Paragraph Headings. The paragraph headings contained in this
Amendment are and shall be without substance, meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
<PAGE>
SECTION 7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LITCHFIELD MORTGAGE SECURITIES
CORPORATION 1994
By_________________________________
Title:
LITCHFIELD FINANCIAL CORPORATION
By_________________________________
Title:
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
MARKETS, INC.
By_________________________________
Title:
HOLLAND LIMITED SECURITIZATION, INC.
By Internationale Nederlanden (U.S.)
Capital Markets, Inc., as
attorney-in-fact
By_________________________________
Title:
<PAGE>
Exhibit 10.146
AMENDMENT NO. 1
Dated as of December 18, 1995
to
Receivables Loan and Security Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 1 dated as of December 18, 1995 ("Amendment") is entered
into by and among LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994, a Delaware
corporation (the "Borrower"), LITCHFIELD FINANCIAL CORPORATION, a Massachusetts
corporation ("Litchfield"), HOLLAND LIMITED SECURITIZATION, INC., a Delaware
corporation ("HLS") and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL MARKETS, INC.,
as agent (the "Agent"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the "Agreement"
referred to below.
PRELIMINARY STATEMENT
A. The Borrower, Litchfield, HLS and the Agent are parties to that certain
Receivables Loan and Security Agreement dated as of September 29, 1995 (as
amended from time to time prior to the date hereof, the "Agreement"), pursuant
to which the HLS has agreed to make certain loans and other financial
accommodations to the Borrower.
B. The Borrower, Litchfield, HLS and the Agent have agreed to amend the
Agreement on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Borrower, Litchfield, HLS and the Agent agree as
follows:
SECTION 1. Amendment of the Agreement. Effective as of the date first above
written, subject to the fulfillment of the conditions precedent set forth in
Section 2 below, the Agreement is hereby amended as follows:
1.1. The defined term "Borrowing Limit" contained in Section 1.01 of the
Agreement is amended to delete the amount $50,000,000 set forth therein and to
substitute $75,000,000 therefor.
SECTION 2. Conditions Precedent. This Amendment shall become effective and
shall be deemed effective as of date first above written upon the satisfaction
of the following conditions precedent: (a) no event has occurred and is
<PAGE>
continuing which constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or both; and
(b) the Agent shall have received (i) five (5) copies of this Amendment duly
executed by the Borrower, Litchfield, HLS and the Agent and (ii) written
confirmation from each of S&P and Fitch that this Amendment will not adversely
affect the rating of the commercial paper notes issued by HLS to fund "Loans"
secured by interests in "Pledged Assets" (as such quoted terms are defined in
the Agreement) to the Borrower;
SECTION 3. Representations and Warranties of the Borrower and Litchfield.
3.1 Each of the Borrower and Litchfield hereby represents and warrants that
this Amendment constitutes a legal, valid and binding obligation of the
such Person enforceable against it in accordance with its terms.
3.2 Upon the effectiveness of this Amendment, each of the Borrower and
Litchfield reaffirms all covenants, representations and warranties made in the
Agreement by such Person to the extent the same are not amended hereby and
agrees that all such covenants, representations and warranties shall be deemed
to have been remade as of the effective date of this Amendment.
SECTION 4. Reference to and Effect on the Agreement.
4.1. Upon the effectiveness of this Amendment, each reference in
the Agreement to "this Agreement", "hereunder", "hereof", "herein", or words
of like import shall mean and be a reference to the Agreement as amended
hereby, and each reference to the Agreement in any other document, instrument
or agreement executed and/or delivered in reference to the Agreement as
amended hereby.
4.2. Except as specifically amended hereby, the Agreement and other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3. The execution, delivery and effectiveness of this Amendment shall not
(a) operate as a waiver of any right, power or remedy of the Agent or the
Borrower under the Agreement or any other document, instrument or agreement
executed in connection therewith, (b) constitute a waiver of any provision
contained therein, nor (c) be deemed to be a consent to any other or further
actions or occurrences, except as specifically set forth herein.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Paragraph Headings. The paragraph headings contained in this
Amendment are and shall be without substance, meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
<PAGE>
SECTION 7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LITCHFIELD MORTGAGE SECURITIES
CORPORATION 1994
By_________________________________
Title:
LITCHFIELD FINANCIAL CORPORATION
By_________________________________
Title:
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
MARKETS, INC.
By_________________________________
Title:
HOLLAND LIMITED SECURITIZATION, INC.
By Internationale Nederlanden (U.S.)
Capital Markets, Inc., as
attorney-in-fact
By_________________________________
Title:
<PAGE>
Exhibit 10.147
AMENDMENT NO. 2
Dated as of September 27, 1996
to
Receivables Purchase Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 2 dated as of September 27, 1996 ("Amendment") is
entered into by and among LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994, a
Delaware corporation (the "Seller"), LITCHFIELD FINANCIAL CORPORATION, a
Massachusetts corporation ("Litchfield"), HOLLAND LIMITED SECURITIZATION, INC.,
a Delaware corporation ("HLS") and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
MARKETS, INC., as agent (the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
"Agreement" referred to below.
PRELIMINARY STATEMENT
A. The Seller, Litchfield, HLS and the Agent are parties to that certain
Receivables Purchase Agreement dated as of September 29, 1995 (as amended from
time to time prior to the date hereof, the "Agreement"), pursuant to which the
HLS has agreed to purchase certain assets and to make other financial
accommodations to the Seller.
B. The Seller, Litchfield, HLS and the Agent have agreed to amend the
Agreement on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Seller, Litchfield, HLS and the Agent agree as follows:
SECTION 1. Amendment of the Agreement. Effective as of the date first above
written, subject to the fulfillment of the conditions precedent set forth in
Section 2 below, the Agreement is hereby amended as follows:
<PAGE>
1.1. The defined term "Aggregate Originator Concentration Limit" contained
in Section 1.01 of the Agreement is amended to delete "10%" from clause (a)(i)
thereof and to substitute "25%" therefor.
1.2. The defined term "Minimum Overcollateralization Percentage" contained
in Section 1.01 of the Agreement is amended to delete "nineteen percent (19%)%"
from clause (i) thereof and to substitute "seventeen percent (17%)" therefor.
1.3. The defined term "Originator Purchase Overcollateralization Amount"
contained in Section 1.01 of the Agreement is amended to delete such term in its
entirety and to substitute the following therefor:
"Originator Purchase Overcollateralization Amount" means, at any time, the
remainder of (a) the quotient of (i) the aggregate Stated Principal Balance of
Approved Acquired Receivables which constitute Purchased Receivables, divided by
(ii) 1.20 minus (b) the lesser of (i) the product of (A) the aggregate Stated
Principal Balance of Approved Acquired Receivables which constitute Purchased
Receivables multiplied by (B) 83.33% and (ii) the product of (A) the aggregate
Stated Principal Balance of Approved Acquired Receivables which constitute
Purchased Receivables multiplied by (B) 89% multiplied by (C) a fraction, (x)
the numerator of which is the aggregate purchase price paid by the Originator
for such Approved Acquired Receivables which constitute Purchased Receivables
and (y) the denominator of which is the aggregate Stated Principal Balance of
such Approved Acquired Receivables at the time the Originator purchased such
Approved Acquired Receivables.
1.4. The defined term "Purchase Limit" contained in Section 1.01 of the
Agreement is amended to delete the amount "$75,000,000" set forth therein and to
substitute "$100,000,000" therefor.
1.5. The defined term "Required Overcollateralization Percentage" contained
in Section 1.01 of the Agreement is amended to delete "twenty-five percent
(25%)" from clause (i) thereof and to substitute "twenty percent (20%)"
therefor.
<PAGE>
1.6. Section 1.01 of the Agreement is amended to add the following terms
"Originator Note" and "Required Amount" to such Section in proper alphabetical
order:
"Originator Note" means a promissory note made by the Originator in favor
of the Seller evidencing indebtedness of the Originator to the Seller for
borrowed money substantially in the form of Exhibit H hereto.
"Required Amount" means, as of any date of determination, an amount equal
to the aggregate Stated Principal Balance of that portion of the Purchased
Receivables Balance at such time that is represented by Eligible Receivables
that are Direct Originations in excess of ten percent (10%) of the Purchased
Receivables Balance at such time.
1.7. Section 2.02(a) of the Agreement is amended to delete the last
sentence of such Section in its entirety and to substitute the following
therefor:
After the Collection Date has occurred, the Purchaser and the Agent, in
accordance with their respective interests, shall assign and transfer to the
Seller, for no consideration, their respective remaining interests in the
Purchased Assets and the Originator Notes to the Seller free and clear of any
Adverse Claim resulting solely from an act by the Purchaser or the Agent, but
without any other representation or warranty, express or implied.
1.8. Section 4.02 of the Agreement is amended to add the following clause
(mm) thereto:
(mm) The maker of the Mortgage Note in respect of any Purchased Receivable
that is a Direct Origination has made at least twenty four (24) monthly payments
thereon prior to the date the Receivable became a Purchased Receivable; provided
that this clause (mm) shall be applicable only to such Purchased Receivables in
excess of 10% of the Purchased Receivables Balance.
<PAGE>
1.9. Section 6.10 of the Agreement is amended to add the following clause
(f) thereto:
(f) Together with each Monthly Remittance Report and Purchase Date/Spread
Account Surplus Remittance Report required to be delivered to the Agent pursuant
to Section 6.10 hereof, the Originator and the Seller shall prepare and forward
to the Agent for the Purchaser, a report setting forth the aggregate outstanding
principal balance of the Originator Notes and a calculation of the Required
Amount, in each case, as of the date of each such Monthly Remittance Report or
Purchase Date/Spread Account Surplus Remittance Report (as applicable).
1.10. Section 7.01 is amended to delete clause (n) thereof in its entirety
and to substitute the following therefor:
(n) the Originator has a tangible net worth of less than $25,000,000;
1.11. Section 7.01 is further amended to add the following clauses (r) and
(s) thereto:
(r) any two of Ronald Rabidou, Richard A. Stratton, Heather A. Sica and
James H. Shippee shall cease to be employees of the Originator; or (
s) the aggregate outstanding principal balance of the Originator Notes is
less than the Required Amount at any time,
1.12. The Agreement is further amended to add the following Section 8.03
thereto:
SECTION 8.03. Assignment of Originator Notes; Seller's Demand Obligation
under Originator Notes. To secure the prompt recovery in full of all Capital,
whether now or hereafter existing, applicable to Purchased Receivables that are
Direct Originations in excess of 10% of the Gross Eligible Receivables Balance,
the Seller hereby grants to the Agent for the benefit of each Purchaser a
security interest in all of the Seller's right, title and interest, now or
hereafter existing in, to and under all of the Originator Notes and hereby
assigns to the Agent, for the benefit of the Purchaser hereunder, all of the
Seller's right and title and interest therein. Upon the receipt by the Seller of
<PAGE>
any Originator Note, the Seller shall deliver such Originator Note to the
Custodian within one Business Day after the Seller's receipt thereof, in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Agent and the Custodian. From time to time on and after the
Termination Date, subject to the limitations set forth herein, the Seller
covenants and agrees to make demand for payment on the Originator under the
Originator Notes in respect of each Purchased Receivable that is a Direct
Origination that becomes a Defaulted Receivable on or after the Termination
Date. The amount of each such demand for payment shall be equal to the aggregate
of the Accelerated Payment Amounts of such Defaulted Receivables that have not
previously been the subject of a payment demand under this Section 8.03. The
Seller shall or shall cause the Originator to remit the amount of each such
demand directly to the Agent's Account to be applied in accordance with Section
2.05 hereof. The Seller's obligation to make such demands for payment under the
Originator Notes shall be limited to an aggregate amount equal to the Required
Amount as of the close of business on the Business Day immediately preceding the
Termination Date. The parties hereto agree that if the Seller shall fail to
comply with this Section 8.03, the Agent shall have the right, directly and as
attorney-in-fact of the Seller, to enforce the Seller's rights under the
Originator Notes.
SECTION 2. Conditions Precedent. This Amendment shall become effective and
shall be deemed effective as of date first above written upon the satisfaction
of the following conditions precedent: (a) no event has occurred and is
continuing which constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or both; and
(b) the Agent shall have received (i) five (5) copies of this Amendment duly
executed by the Seller, Litchfield, HLS and the Agent and (ii) written
confirmation from each of S&P and Fitch that this Amendment will not adversely
affect the rating of the commercial paper notes issued by HLS to fund the
acquisition of "Purchased Assets" (as such quoted terms are defined in the
Agreement) to the Seller;
SECTION 3. Representations and Warranties of the Seller and Litchfield.
<PAGE>
3.1 Each of the Seller and Litchfield hereby represents and warrants that
this Amendment constitutes a legal, valid and binding obligation of the such
Person enforceable against it in accordance with its terms.
3.2 Upon the effectiveness of this Amendment, each of the Seller and
Litchfield reaffirms all covenants, representations and warranties made in the
Agreement by such Person to the extent the same are not amended hereby and
agrees that all such covenants, representations and warranties shall be deemed
to have been remade as of the effective date of this Amendment.
SECTION 4. Reference to and Effect on the Agreement.
4.1. Upon the effectiveness of this Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like
import shall mean and be a reference to the Agreement as amended hereby, and
each reference to the Agreement in any other document, instrument or agreement
executed and/or delivered in reference to the Agreement as amended hereby.
4.2. Except as specifically amended hereby, the Agreement and other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3. The execution, delivery and effectiveness of this Amendment shall not
(a) operate as a waiver of any right, power or remedy of the Agent or the Seller
under the Agreement or any other document, instrument or agreement executed in
connection therewith, (b) constitute a waiver of any provision contained
therein, nor (c) be deemed to be a consent to any other or further actions or
occurrences, except as specifically set forth herein.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Paragraph Headings. The paragraph headings contained in this
<PAGE>
Amendment are and shall be without substance, meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
SECTION 7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LITCHFIELD MORTGAGE SECURITIES
CORPORATION 1994
By_________________________________
Title:
LITCHFIELD FINANCIAL CORPORATION
By_________________________________
Title:
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL MARKETS, INC.
By_________________________________
Title:
HOLLAND LIMITED SECURITIZATION, INC.
By Internationale Nederlanden (U.S.)
Capital Markets, Inc., as
attorney-in-fact
By_________________________________
Title:
<PAGE>
Exhibit 10.148
AMENDMENT NO. 2
Dated as of September 27, 1996
to
Receivables Loan and Security Agreement
Dated as of September 29, 1995
THIS AMENDMENT NO. 2 dated as of September 27, 1996 ("Amendment") is
entered into by and among LITCHFIELD MORTGAGE SECURITIES CORPORATION 1994, a
Delaware corporation (the "Borrower"), LITCHFIELD FINANCIAL CORPORATION, a
Massachusetts corporation ("Litchfield"), HOLLAND LIMITED SECURITIZATION, INC.,
a Delaware corporation ("HLS") and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
MARKETS, INC., as agent (the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
"Agreement" referred to below.
PRELIMINARY STATEMENT
A. The Borrower, Litchfield, HLS and the Agent are parties to that certain
Receivables Loan and Security Agreement dated as of September 29, 1995 (as
amended from time to time prior to the date hereof, the "Agreement"), pursuant
to which the HLS has agreed to make certain loans and other financial
accommodations to the Borrower.
B. The Borrower, Litchfield, HLS and the Agent have agreed to amend the
Agreement on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Borrower, Litchfield, HLS and the Agent agree as
follows:
SECTION 1. Amendment of the Agreement. Effective as of the date first above
written, subject to the fulfillment of the conditions precedent set forth in
Section 2 below, the Agreement is hereby amended as follows:
<PAGE>
1.1. The defined term "Aggregate Originator Concentration Limit" contained
in Section 1.01 of the Agreement is amended to delete "10%" from clause (a)(i)
thereof and to substitute "25%" therefor.
1.2. The defined term "Borrowing Limit" contained in Section 1.01 of the
Agreement is amended to delete the amount "$75,000,000" set forth therein and to
substitute "$100,000,000" therefor.
1.3. The defined term "Minimum Overcollateralization Percentage" contained
in Section 1.01 of the Agreement is amended to delete "nineteen percent (19%)%"
from clause (i) thereof and to substitute "seventeen percent (17%)" therefor.
1.4. The defined term "Originator Purchase Overcollateralization Amount"
contained in Section 1.01 of the Agreement is amended to delete such term in its
entirety and to substitute the following therefor:
"Originator Purchase Overcollateralization Amount" means, at any time, the
remainder of (a) the quotient of (i) the aggregate Stated Principal Balance of
Approved Acquired Receivables which constitute Pledged Receivables, divided by
(ii) 1.20 minus (b) the lesser of (i) the product of (A) the aggregate Stated
Principal Balance of Approved Acquired Receivables which constitute Pledged
Receivables multiplied by (B) 83.33% and (ii) the product of (A) the aggregate
Stated Principal Balance of Approved Acquired Receivables which constitute
Pledged Receivables multiplied by (B) 89% multiplied by (C) a fraction, (x) the
numerator of which is the aggregate purchase price paid by the Originator for
such Approved Acquired Receivables which constitute Pledged Receivables and (y)
the denominator of which is the aggregate Stated Principal Balance of such
Approved Acquired Receivables at the time the Originator purchased such Approved
Acquired Receivables.
1.5. The defined term "Required Overcollateralization Percentage" contained
in Section 1.01 of the Agreement is amended to delete "twenty-five percent
(25%)" from clause (i) thereof and to substitute "twenty percent (20%)"
therefor.
<PAGE>
1.6. Section 1.01 of the Agreement is amended to add the following terms
"Originator Note" and "Required Amount" to such Section in proper alphabetical
order:
"Originator Note" means a promissory note made by the Originator in favor
of the Borrower evidencing indebtedness of the Originator to the Borrower for
borrowed money substantially in the form of Exhibit H hereto.
"Required Amount" means, as of any date of determination, an amount equal
to the aggregate Stated Principal Balance of that portion of the Pledged
Receivables Balance at such time that is represented by Eligible Receivables
that are Direct Originations in excess of ten percent (10%) of the Pledged
Receivables Balance at such time.
1.7. Section 2.13(a)(iii) of the Agreement is amended to delete such
Section in its entirety and to substitute the following therefor:
(iii) all right, title and interest of the Borrower in, to and under all
Purchased Rate Caps and all Originator Notes;
1.8. Section 4.02 of the Agreement is amended to add the following clause
(mm) thereto:
(mm) The maker of the Mortgage Note in respect of any Pledged Receivable
that is a Direct Origination has made at least twenty four (24) monthly payments
thereon prior to the date the Receivable became a Pledged Receivable; provided
that this clause (mm) shall be applicable only to such Pledged Receivables in
excess of 10% of the Pledged Receivables Balance.
1.9. Section 6.10 of the Agreement is amended to add the following clause
(f) thereto:
(f) Together with each Monthly Remittance Report and Borrowing Date/Spread
Account Surplus Remittance Report required to be delivered to the Agent pursuant
<PAGE>
to Section 6.10 hereof, the Originator and the Borrower shall prepare and
forward to the Agent for the Lender, a report setting forth the aggregate
outstanding principal balance of the Originator Notes and a calculation of the
Required Amount, in each case, as of the date of each such Monthly Remittance
Report or Borrowing Date/Spread Account Surplus Remittance Report (as
applicable).
1.10. Section 7.01 is amended to delete clause (n) thereof in its entirety
and to substitute the following therefor:
(n) the Originator has a tangible net worth of less than $25,000,000;
1.11. Section 7.01 is further amended to add the following clauses (r) and
(s) thereto:
(r) any two of Ronald Rabidou, Richard A. Stratton, Heather A. Sica and
James H. Shippee shall cease to be employees of the Originator; or
(s) the aggregate outstanding principal balance of the Originator Notes is
less than the Required Amount at any time,
1.12. The Agreement is further amended to add the following Section 8.03
thereto:
SECTION 8.03. Borrower's Demand Obligation under Originator Notes. From
time to time on and after the Termination Date, subject to the limitations set
forth herein, the Borrower covenants and agrees to make demand for payment on
the Originator under the Originator Notes in respect of each Pledged Receivable
that is a Direct Origination that becomes a Defaulted Receivable on or after the
Termination Date. The amount of each such demand for payment shall be equal to
the aggregate of the Accelerated Payment Amounts of such Defaulted Receivables
that have not previously been the subject of a payment demand under this Section
8.03. The Borrower shall or shall cause the Originator to remit the amount of
each such demand directly to the Agent's Account to be applied in accordance
with Section 2.05 hereof. The Borrower's obligation to make such demands for
<PAGE>
payment under the Originator Notes shall be limited to an aggregate amount equal
to the Required Amount as of the close of business on the Business Day
immediately preceding the Termination Date. The parties hereto agree that if the
Borrower shall fail to comply with this Section 8.03, the Agent shall have the
right, directly and as attorney-in-fact of the Borrower, to enforce the
Borrower's rights under the Originator Notes.
SECTION 2. Conditions Precedent. This Amendment shall become effective and
shall be deemed effective as of date first above written upon the satisfaction
of the following conditions precedent: (a) no event has occurred and is
continuing which constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or both; and
(b) the Agent shall have received (i) five (5) copies of this Amendment duly
executed by the Borrower, Litchfield, HLS and the Agent and (ii) written
confirmation from each of S&P and Fitch that this Amendment will not adversely
affect the rating of the commercial paper notes issued by HLS to fund "Loans"
secured by interests in "Pledged Assets" (as such quoted terms are defined in
the Agreement) to the Borrower;
SECTION 3. Representations and Warranties of the Borrower and Litchfield.
3.1 Each of the Borrower and Litchfield hereby represents and warrants that
this Amendment constitutes a legal, valid and binding obligation of the such
Person enforceable against it in accordance with its terms.
3.2 Upon the effectiveness of this Amendment, each of the Borrower and
Litchfield reaffirms all covenants, representations and warranties made in the
Agreement by such Person to the extent the same are not amended hereby and
agrees that all such covenants, representations and warranties shall be deemed
to have been remade as of the effective date of this Amendment.
SECTION 4. Reference to and Effect on the Agreement.
4.1. Upon the effectiveness of this Amendment, each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like
import shall mean and be a reference to the Agreement as amended hereby, and
each reference to the Agreement in any other document, instrument or agreement
executed and/or delivered in reference to the Agreement as amended hereby.
<PAGE>
4.2. Except as specifically amended hereby, the Agreement and other
documents, instruments and agreements executed and/or delivered in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed.
4.3. The execution, delivery and effectiveness of this Amendment shall not
(a) operate as a waiver of any right, power or remedy of the Agent or the
Borrower under the Agreement or any other document, instrument or agreement
executed in connection therewith, (b) constitute a waiver of any provision
contained therein, nor (c) be deemed to be a consent to any other or further
actions or occurrences, except as specifically set forth herein.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Paragraph Headings. The paragraph headings contained in this
Amendment are and shall be without substance, meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
SECTION 7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LITCHFIELD MORTGAGE SECURITIES
CORPORATION 1994
By_________________________________
Title:
LITCHFIELD FINANCIAL CORPORATION
By_________________________________
Title:
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL MARKETS, INC.
By_________________________________
Title:
HOLLAND LIMITED SECURITIZATION, INC.
By Internationale Nederlanden (U.S.)
Capital Markets, Inc., as
attorney-in-fact
By_________________________________
Title:
<PAGE>
Exhibit 10.149
REVOLVING LINE OF CREDIT
PROMISSORY NOTE
VARIABLE RATE
Revolving Line of Credit Pittsfield, Massachusetts
$20,000,000 April 26, 1996
FOR VALUE RECEIVED, LITCHFIELD FINANCIAL CORPORATION, a Massachusetts
corporation (the "Borrower"), promises to pay to the order of THE FIRST NATIONAL
BANK OF BOSTON (the "Bank"), ON DEMAND, the principal sum of TWENTY MILLION
DOLLARS ($20,000,000) or the then current balance of the Borrower's line of
credit account under this Note (the "Borrower's Revolving Line Account") on
advances made from time to time on or after the date hereof by the Bank, as
reflected by the books, records and ledgers of the Bank, together with interest
on the unpaid principal balance and partial payments of principal from time to
time which, unless earlier demanded, shall be payable as follows:
(a) Interest at the rate set forth below on the last day of each month
commencing May 31, 1996; and
(b) Principal balance and accrued interest (a) on April 30, 1997, or (b) at
any other time ON DEMAND.
Interest shall be calculated on the daily principal balance during the
preceding month at an annual rate equal to either of the following: (i) the
Bank's Base Rate (as herein defined) or (ii) with respect to any advance or
portion thereof identified in a Notice of Borrowing (as herein defined), the
Adjusted Eurodollar Rate (as herein defined) plus two percent (2.0%) (the
"Eurodollar Rate"). During the initial Interest Period and thereafter in the
absence of any Notice of Borrowing with respect to any amounts advanced
hereunder, the annual interest rate shall be the Base Rate. All interest
calculations shall be made on the basis of a 360 day year for the actual number
of days elapsed including holidays or days on which the Bank is not open for the
conduct of banking business. Interest on overdue principal or after demand for
payment shall be payable at an annual rate equal to the greater of 18 percent
(18%) per annum or four percent (4%) above the Base Rate.
Any installment or payment due hereunder which shall be received by the
Bank more than ten days after its due date shall be subject to an additional
charge of five percent of the amount so overdue (but in no event higher than the
maximum allowed by Massachusetts law).
The term Adjusted Eurodollar Rate applicable to any Interest Period shall
mean the rate of interest per annum determined pursuant to the following
formula:
AER = [ IOR ]*
-----------
[1.00 - RP]
<PAGE>
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
The Adjusted Eurodollar Rate shall be adjusted automatically as of the
effective date of any change in the Reserve Percentage.
*The amount in brackets shall be rounded upwards, if necessary, to the
next higher 1/100 of 1%.
The term Base Rate shall mean the rate of interest established from
time-to-time by Bank at its head office as its Base Rate. The Bank shall
not be obligated to give the Borrower notice of any change in the Base Rate
except for the Bank's customary periodic invoices.
The term Business Day shall mean a day upon which banks in London and
Boston are not required or authorized to close.
The term Interbank Offered Rate applicable to any Interest Period
shall mean the rate of interest determined by the Bank to be the prevailing
rate per annum at which deposits in U.S. dollars are offered to the Bank by
first-class banks in the interbank Eurodollar market in which the Bank
regularly participates on or about 10:00 a.m. (Boston, Massachusetts time)
two Business Days before the first day of such Interest Period in an amount
approximately equal to the principal amount identified in a Notice of
Borrowing to which such Interest Period is to apply for a period of time
approximately equal to such Interest Period.
The term Interest Period shall mean the period commencing (a) on the
date hereof, (b) on a date identified in a Notice of Borrowing or (c) at
the conclusion of each successive Interest Period and ending one, two,
three or six months thereafter, as the Borrower may elect in a Notice of
Borrowing; provided that:
(i) for the initial Interest Period and thereafter in the absence of
any election by the Borrower, the Interest Period shall be one month;
(ii) any Interest Period (other than an Interest Period determined
pursuant to clause (iv) below) that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day shall fall in the next calendar month, in which
case such Interest Period shall end on the immediately proceeding Business
Day;
(iii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (iv) below, end on the last Business Day of a calendar
month;
<PAGE>
(iv) any Interest Period that would otherwise end after the Maturity
Date shall end on the Maturity Date; and
(v) no Interest Period shall have a duration of less than one month.
The term Notice of Borrowing shall mean a written notice given by
Borrower to Bank at least three Business Days prior to the commencement of
the Interest Period specified in such notice, which notice shall identify
(a) the amount of any advance or portion thereof with respect to which
Borrower shall elect to have interest calculated at the Eurodollar Rate;
and (b) the Interest Period selected by Borrower for such amount.
The term Reserve Percentage applicable to any Interest Period shall
mean the rate (expressed as a decimal) applicable to the Bank during such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency or marginal reserve requirement) of the Bank with respect to
"Eurocurrency liabilities" as that term is defined under such regulations.
The Borrower may prepay funds advanced hereunder, in whole or in part,
without prepayment penalty, any partial prepayment to be $1,000 or a
multiple thereof, if (a) the interest rate applicable to such amount on the
date of prepayment shall be the Base Rate and (b) the Borrower shall not
have given a Notice of Borrowing selecting the Eurodollar Rate for such
amount. If (c) on the date of prepayment the interest rate applicable to
any amount to be prepaid shall be the Eurodollar Rate or (d) the Borrower
shall have given a Notice of Borrowing selecting the Eurodollar Rate for
such amount, then (1) upon three Business Days prior notice to the Bank,
the Borrower may prepay funds advanced hereunder, in whole or in part,
without penalty at the end of the Interest Period applicable to such
amount, any partial prepayments to be $1,000 or a multiple thereof, and (2)
at any time other than the end of any Interest Period, the Borrower may not
voluntarily prepay the funds advanced hereunder. With respect to any
prepayment (whether by reason of acceleration or otherwise) not otherwise
permitted by the preceding two sentences, the Borrower shall pay to the
Bank any losses, costs and damages with respect to such prepayment,
including, without limitation, any lost profits, upon presentation by the
Bank of a statement of the amount due setting forth the Bank's calculation
thereof, which shall be deemed true and correct absent manifest error.
In the event that: (i) on any date on which the Adjusted Eurodollar
Rate would otherwise be set for any Interest Period, the Bank shall have
determined in good faith (which determination shall be final and
conclusive) that, by reason of changes affecting the interbank Eurodollar
market adequate and reasonable means do not exist for ascertaining the
Adjusted Eurodollar Rate, or (ii) at any time the Bank shall have
determined in good faith (which determination shall be final and
conclusive) that: (A) the continued advance of funds hereunder at the
Adjusted Eurodollar Rate for any Interest Period has been made
impracticable or unlawful by (1) the occurrence of a contingency that
materially and adversely affects the interbank Eurodollar market or (2)
compliance by the Bank in good faith with any applicable law or
governmental regulation, guideline or order or interpretation or change
thereof by any governmental authority charged with the interpretation or
<PAGE>
administration thereof or with any request or directive of any such
governmental authority (whether or not having the force of law); or (B) the
Adjusted Eurodollar Rate shall no longer represent the effective cost to
the Bank for U.S. dollar deposits in the interbank Eurodollar market in
which the Bank regularly participates; then, and in any such event, the
Bank shall forthwith so notify the Borrower thereof (a "Notice of
Termination of Adjusted Eurodollar Rate"). Until the Bank notifies the
Borrower that the circumstances giving rise to such Notice of Termination
of Adjusted Eurodollar Rate no longer apply, the obligation of the Bank to
continue the advance of funds hereunder at the Eurodollar Rate shall be
suspended. If at the time the Bank gives a Notice of Termination of
Adjusted Eurodollar Rate, the Borrower has previously given the Bank a
Notice of Borrowing but the applicable Interest Period shall not yet have
commenced, such Notice of Borrowing shall be deemed to be void.
Upon such date as shall be specified in such Notice of Termination of
Adjusted Eurodollar Rate (which shall not be earlier than the date such
notice is given) the Borrower shall prepay the principal amount due
hereunder, together with interest thereon and any other amounts required to
be paid hereunder, or the interest rate applicable to this Note shall
convert to the Base Rate.
In case any law, regulation, treaty or official directive or the
interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof or the compliance with
any guideline or request of any central bank or other governmental
authority (whether or not having the force of law): (i) subjects the Bank
to any tax with respect to payments of principal or interest or any other
amounts payable hereunder by the Borrower or otherwise with respect to the
transactions contemplated hereby (except for taxes on the overall net
income of the Bank imposed by the United States of America or any political
subdivision thereof), or (ii) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, the
Bank, or (iii) imposes upon the Bank any other condition with respect to
its performance under this Note, and the result of any of the foregoing is
to increase the cost to the Bank, reduce the income receivable by the Bank
or impose any expense upon the Bank with respect to this Note, the Bank
shall notify the Borrower thereof. The Borrower agrees to pay to the Bank
the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by the Bank of a statement in the amount and
setting forth the Bank's calculation thereof, which statement shall be
deemed true and correct absent manifest error.
The entries on the records of the Bank (including any appearing on
this Note) shall be prima facie evidence of the aggregate principal amount
outstanding under this Note and interest accrued thereon. The Bank shall
enter all advances as debits in the Borrower's Revolving Line Account and
credit all payments made by the Borrower on account to the Borrower's
Revolving Line Account. At least once per month the Bank shall render a
statement of account for the Borrower's Revolving Line Account.
Payments shall be applied first to late charges, second to interest
and then to principal. Interest shall continue to accrue until the
appropriate payment is actually received by the Bank. If any installment of
this Note becomes due and payable on any day upon which the office of the
<PAGE>
Bank is legally closed for business, the due date shall be extended to the
next succeeding business day and interest shall be payable at the then
applicable rate during such extension.
The following loan documents and security instruments executed in
connection with this Note (the "Loan Documents") are incorporated herein by
reference with the same force and effect as if set forth herein in full:
The Loan and Security Agreement among the Borrower and the Bank, as
amended by Amendments No. 1 through Amendment No. 6 and as it may be
amended or modified from time to time (the "Loan and Security Agreement")
and all other Loan Documents (as defined therein).
As used in this Note, the term "Obligors" shall mean the Borrower, and
any endorser, guarantor and surety of this Note or the obligations
represented by this Note, and any other party to this Note. The term
"Obligations" shall mean any obligation hereunder or otherwise of any
Obligor to the Bank whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising.
The securities, instruments or other property listed in the Loan
Documents, if any, and also any other property belonging to, standing in
the name of or pledged on behalf of, any Obligor which may be now or
hereafter in the possession of the Bank for any purpose, or in which the
Bank may at any time have a security interest or other lien, together with
all additions or accessions or proceeds thereto or substitutions therefor
(collectively, "Collateral"), shall constitute continuing security for any
and all Obligations.
Should the Bank at any time reasonably deem itself insecure, the
Borrower shall deliver to the Bank, forthwith upon demand, additional
property to be held as Collateral in an amount and of a character
satisfactory to the Bank, and shall execute and deliver such agreements and
documents, including any financing statements under the applicable Uniform
Commercial Code, with respect to such Collateral as the Bank shall require.
The Borrower represents and warrants that (a) all Collateral is owned
by the Borrower or by the person(s) delivering all or any part of the
property to the Bank to be held as Collateral and is not subject to any
liens, security interests or rights of others, except those approved by the
Bank in writing, and its delivery to the Bank has been duly authorized by
all necessary action, and that (b) the Collateral is genuine and is what it
purports to be.
The Bank may at its option after an Event of Default (as defined in
the Loan and Security Agreement) or demand of this Note, whether or not
this Note is due and regardless of the adequacy of any other Collateral,
demand, sue for, collect or make any compromise or settlement it deems
desirable with reference to any Collateral. The right is expressly granted
to the Bank at its option to transfer at any time to itself or to its
nominee any securities, instruments, documents or other property pledged
hereunder and to receive the income thereon and hold the same as security
herefor, or apply it on the principal or interest due hereon or due on any
liability secured hereby. The Bank shall have no duty as to the protection
<PAGE>
or collection of any Collateral or any income thereon, and shall not be
bound to take any steps necessary to preserve any rights in any Collateral
against prior parties. If any Obligor, as registered holder of any
securities constituting Collateral, receives (a) any dividend or other
distribution in cash or other property in connection with the liquidation
or dissolution of the issuer of such securities, or (b) any stock
certificate, warrant, option or right, whether as an addition to, in
substitution of, or in exchange for, such securities, or otherwise, such
Obligor shall accept the same in trust for the Bank, and shall forthwith
deliver the same to the Bank in the exact form received, with such
Obligor's endorsement and or assignment when necessary, to be held by the
Bank as Collateral.
In addition to the foregoing, to secure the payment of this Note and
the payment and performance of any other indebtedness, liability or
obligation of the Borrower to the Bank, the Bank is hereby granted a
security interest in all bank deposits, credits, other money, and property,
whether or not due, of any Obligor at any time or from time to time
credited, held, or owed by the Bank, due from the Bank or in the
possession, custody or control of the Bank in any capacity, and all such
assets shall constitute Collateral hereunder.
The Borrower shall furnish the Bank from time to time with such
financial statements and other information as the Bank may require in form
satisfactory to the Bank. Financial information furnished to the Bank shall
be true and correct and fairly represent the financial condition of the
Borrower as of the date(s) furnished and the operating results of the
Borrower for the periods for which the same are furnished. The Borrower
shall permit representatives of the Bank to inspect the Borrower's
properties and its books and records, and to make copies or abstracts
thereof.
Nothing herein shall be construed to restrict the Bank, in its sole
discretion, from making advances requested by an Authorized Officer of
Borrower in excess of the stated maximum dollar amount, without requiring
the execution of additional promissory notes, or otherwise modifying this
instrument, and the Bank's so doing at any time shall not waive its right
to insist upon strict compliance with the terms of this Note, any of the
Loan Documents or other instruments executed in connection with this
financial transaction.
The Obligors agree that the Bank may, in its sole and exclusive
discretion, (i) make loan advances to the Borrower upon verbal or written
authority of any Authorized Officer (as defined in the Loan and Security
Agreement) or (ii) deliver loan proceeds by direct deposit to any demand
deposit account of the Borrower with the Bank, or otherwise, as so
directed, and that all such loans and advances as evidenced by the Bank's
books, records and ledgers shall represent the binding obligations of the
Borrower hereunder.
Each of the Obligors (i) waives presentment for payment, demand,
notice, protest, and diligence in collection or bringing suit and all other
demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note or any Collateral, and
assents to any extension or postponement of the time of payment or any
other indulgence under this Note, or with respect to any Collateral, to any
substitution, exchange or release of any Collateral and/or to the release
of any other party or person primarily or secondarily liable hereunder, and
<PAGE>
(ii) agrees to the application by the Bank ("Set Off Rights"), without
prior notice, as payment or part payment of, or as an offset to, this Note
or any Obligations, of all bank deposits, credits, other money, and
property, whether or not due, of the Borrower or any Obligor at any time or
from time to time credited, held or owed by the Bank, due from the Bank or
in the possession, custody or control of the Bank in any capacity. The Bank
shall be deemed to have exercised its Set Off Rights and to have made a
charge against any such deposits, credits, money or property immediately
upon the occurrence of an event of default under any of the Loan Documents
even though such charge is made or entered on the books of the Bank
subsequent thereto.
The Borrower will pay on demand all reasonable costs of collection and
reasonable attorneys' fees paid or incurred by the Bank in enforcing the
Obligations of any Obligor.
All parties now or hereafter liable for the payment of any of the
indebtedness evidenced by this Note agree, by executing and endorsing this
Note or by entering into or executing any agreement to pay any indebtedness
hereby evidenced, that the Bank shall have the right, without notice and
without in any way affecting the liability of any Obligor, to (a) accept
partial payment, (b) exchange or release security or collateral, or (c)
deal in any way at any time with any parties liable for the indebtedness or
any other indulgences or forbearances whatsoever.
In the event any payment of principal or interest received in payment
of this Note and paid by the Borrower or any Obligor shall be deemed by
final order of a court of competent jurisdiction to have been a voidable
preference or fraudulent conveyance under the bankruptcy or insolvency laws
of the United States, or otherwise due to any party, other than the Bank,
then the obligation of the Borrower and the Obligors shall survive as an
obligation due hereunder, and shall not be discharged or satisfied by said
payment or payments, notwithstanding return by the Bank to said parties of
this Note, or any guaranty, endorsement or the like.
The Bank may assign and transfer this Note to any person, firm or
corporation and deliver to the assignee any Collateral or security interest
held by the Bank in connection with this Note; in the event of such
assignment, the Bank shall have no further responsibility or liability with
respect to such Collateral or security interest and the terms of this Note
and the Loan Documents shall inure to the benefit of the assignee and its
successors. Any payments received by the Bank after the effective date of
any such assignment shall be transferred by the Bank to the assignee.
If any provision of this Note is deemed by any court having
jurisdiction thereon invalid or unenforceable, the balance of this Note
shall remain in effect; if any provision of this Note is deemed by any such
court to be unenforceable because such provision is too broad in scope,
such provision shall be construed to be limited in scope to the extent such
court shall deem necessary to make it enforceable; and if any provision is
deemed inapplicable by any such court to any person or circumstances, it
shall nevertheless be construed to apply to all other persons and
circumstances.
No delay or omission on the part of the Bank in exercising any right
<PAGE>
hereunder shall operate as a waiver of such right or of any other right
under this Note. No waiver of any right shall be effective unless in
writing and signed by the Bank nor shall a waiver on one occasion be
construed as a bar to or waiver of any such right on any future occasion.
This document shall be construed in accordance with the substantive
law of the Commonwealth of Massachusetts, without giving effect to the
conflicts or choice of law provisions of Massachusetts or any other
jurisdiction, and shall have the effect of a sealed instrument.
The Borrower represents that the proceeds of this Note shall not be
used for personal, family, household or agricultural purposes.
PRIOR TO SIGNING THIS NOTE, THE BORROWER HAS READ AND UNDERSTOOD ALL
OF THE PROVISIONS OF THIS NOTE AND AGREES TO THE TERMS OF THIS NOTE.
WITNESS: LITCHFIELD FINANCIAL CORPORATION
______________________ By____________________________
Its: President
<PAGE>
Exhibit 10.150
REVOLVING LINE OF CREDIT
PROMISSORY NOTE
VARIABLE RATE
Revolving Line of Credit Pittsfield, Massachusetts
$10,000,000 October 26, 1996
FOR VALUE RECEIVED, LITCHFIELD FINANCIAL CORPORATION, a Massachusetts
corporation (the "Borrower"), promises to pay to the order of FLEET BANK-NH
(the "Bank"), ON DEMAND, the principal sum of TEN MILLION DOLLARS
($10,000,000) or the then current balance of the Borrower's line of credit
account under this Note (the "Borrower's Revolving Line Account") on
advances made from time to time on or after the date hereof by the Bank
pursuant to the Loan and Security Agreement (as defined herein), as
reflected by the books, records and ledgers of the Bank, together with
interest on the unpaid principal balance and partial payments of principal
from time to time which, unless earlier demanded, shall be payable as
follows:
(a) Interest at the rate set forth below on the last day of each month
commencing November 30, 1996; and
(b) Principal balance and accrued interest (a) on April 30, 1997, or
(b) at any other time ON DEMAND.
Interest shall be calculated on the daily principal balance during the
preceding month at an annual rate equal to either of the following: (i) the
Base Rate (as herein defined) or (ii) with respect to any advance or
portion thereof identified in a Notice of Borrowing (as herein defined),
the Adjusted Eurodollar Rate (as herein defined) plus two percent (2.0%)
(the "Eurodollar Rate"). During the initial Interest Period and thereafter
in the absence of any Notice of Borrowing with respect to any amounts
advanced hereunder, the annual interest rate shall be the Base Rate. All
interest calculations shall be made on the basis of a 360 day year for the
actual number of days elapsed including holidays or days on which the Bank
is not open for the conduct of banking business. Interest on overdue
principal or after demand for payment shall be payable at an annual rate
equal to the greater of 18 percent (18%) per annum or four percent (4%)
above the Base Rate.
Any installment or payment due hereunder which shall be received by
the Bank more than ten days after its due date shall be subject to an
additional charge of five percent of the amount so overdue (but in no event
higher than the maximum allowed by Massachusetts law).
The term Adjusted Eurodollar Rate applicable to any Interest Period
<PAGE>
shall mean the rate of interest per annum determined by The First National
Bank of Boston, as Agent ("Agent") pursuant to the following formula:
AER = [ IOR ]*
--------------------
[1.00 - RP]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
The Adjusted Eurodollar Rate shall be adjusted automatically as of the
effective date of any change in the Reserve Percentage.
*The amount in brackets shall be rounded upwards, if necessary, to the
next higher 1/100 of 1%.
The term Base Rate shall me an the rate of interest established from
time-to-time by The First National Bank of Boston ("Bank of Boston") at its
head office as its Base Rate. The Base Rate is an index and is not
necessarily the lowest interest rate offered by Bank of Boston to its
customers. The Bank shall not be obligated to give the Borrower notice of
any change in the Base Rate except for the Agent's customary periodic
invoices.
The term Business Day shall mean a day upon which banks in London and
Boston are not required or authorized to close.
The term Interbank Offered Rate applicable to any Interest Period
shall mean the rate of interest determined by the Bank of Boston to be the
prevailing rate per annum at which deposits in U.S. dollars are offered to
the Bank of Boston by first-class banks in the interbank Eurodollar market
in which the Bank of Boston regularly participates on or about 10:00 a.m.
(Boston, Massachusetts time) two Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount
identified in a Notice of Borrowing to which such Interest Period is to
apply for a period of time approximately equal to such Interest Period.
The term Interest Period shall mean the period commencing (a) on the
date hereof, (b) on a date identified in a Notice of Borrowing or (c) at
the conclusion of each successive Interest Period and ending one, two,
three or six months thereafter, as the Borrower may elect in a Notice of
Borrowing; provided that:
(i) for the initial Interest Period and thereafter in the absence of
any election by the Borrower, the Interest Period shall be one month;
<PAGE>
(ii) any Interest Period (other than an Interest Period determined
pursuant to clause (iv) below) that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day shall fall in the next calendar month, in which
case such Interest Period shall end on the immediately proceeding Business
Day;
(iii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (iv) below, end on the last Business Day of a calendar
month;
(iv) any Interest Period that would otherwise end after the Maturity
Date shall end on the Maturity Date; and
(v) no Interest Period shall have a duration of less than one month.
The term Notice of Borrowing shall mean a written notice given by
Borrower to Agent and Bank at least three Business Days prior to the
commencement of the Interest Period specified in such notice, which notice
shall identify (a) the amount of any advance or portion thereof with
respect to which Borrower shall elect to have interest calculated at the
Eurodollar Rate; and (b) the Interest Period selected by Borrower for such
amount.
The term Reserve Percentage applicable to any Interest Period shall
mean the rate (expressed as a decimal) applicable to Bank of Boston during
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System for determining the
maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency or marginal reserve requirement) of Bank of Boston
with respect to "Eurocurrency liabilities" as that term is defined under
such regulations.
Agent shall determine the Adjusted Eurodollar Rate on the basis of the
entire amount of any advance or portion thereof with respect to which
Borrower shall elect to have interest calculated at the Adjusted Eurodollar
Rate, and Agent shall allocate to Bank and to each other Lender (as defined
in the Loan and Security Agreement) which has not given a Notice of
Termination of Adjusted Eurodollar Rate each Lender's proportionate share
of such advance and the interest payable hereunder.
The Borrower may prepay funds advanced hereunder, in whole or in part,
without prepayment penalty, any partial prepayment to be $1,000 or a
multiple thereof, if (a) the interest rate applicable to such amount on the
date of prepayment shall be the Base Rate and (b) the Borrower shall not
have given a Notice of Borrowing selecting the Eurodollar Rate for such
amount. If (c) on the date of prepayment the interest rate applicable to
any amount to be prepaid shall be the Eurodollar Rate or (d) the Borrower
shall have given a Notice of Borrowing selecting the Eurodollar Rate for
such amount, then (1) upon three Business Days prior notice to the Agent
and Bank, the Borrower may prepay funds advanced hereunder, in whole or in
part, without penalty at the end of the Interest Period applicable to such
<PAGE>
amount, any partial prepayments to be $1,000 or a multiple thereof, and (2)
at any time other than the end of any Interest Period, the Borrower may not
voluntarily prepay the funds advanced hereunder. With respect to any
prepayment (whether by reason of acceleration or otherwise) not otherwise
permitted by the preceding two sentences, the Borrower shall pay to the
Bank any losses, costs and damages with respect to such prepayment,
including, without limitation, any lost profits, upon presentation by the
Bank of a statement of the amount due setting forth the Bank's calculation
thereof, which shall be deemed true and correct absent manifest error.
In the event that: (i) on any date on which the Adjusted Eurodollar
Rate would otherwise be set for any Interest Period, Agent shall have
determined in good faith (which determination shall be final and
conclusive) that, by reason of changes affecting the interbank Eurodollar
market adequate and reasonable means do not exist for ascertaining the
Adjusted Eurodollar Rate, or (ii) at any time the Bank shall have
determined in good faith (which determination shall be final and
conclusive) that: (A) the continued advance of funds hereunder at the
Adjusted Eurodollar Rate for any Interest Period has been made
impracticable or unlawful by (1) the occurrence of a contingency that
materially and adversely affects the interbank Eurodollar market or (2)
compliance by the Bank in good faith with any applicable law or
governmental regulation, guideline or order or interpretation or change
thereof by any governmental authority charged with the interpretation or
administration thereof or with any request or directive of any such
governmental authority (whether or not having the force of law); or (B) the
Adjusted Eurodollar Rate shall no longer represent the effective cost to
the Bank for U.S. dollar deposits in the interbank Eurodollar market in
which the Bank regularly participates; then, and in any such event, the
Bank shall forthwith so notify the Agent and Borrower thereof (a "Notice of
Termination of Adjusted Eurodollar Rate"). Until the Bank notifies the
Agent and Borrower that the circumstances giving rise to such Notice of
Termination of Adjusted Eurodollar Rate no longer apply, the obligation of
the Bank to continue the advance of funds hereunder at the Eurodollar Rate
shall be suspended. If at the time the Bank gives a Notice of Termination
of Adjusted Eurodollar Rate, the Borrower has previously given the Bank a
Notice of Borrowing but the applicable Interest Period shall not yet have
commenced, such Notice of Borrowing shall be deemed to be void.
Upon such date as shall be specified in such Notice of Termination of
Adjusted Eurodollar Rate (which shall not be earlier than the date such
notice is given) the Borrower shall prepay the principal amount due
hereunder, together with interest thereon and any other amounts required to
be paid hereunder, or the interest rate applicable to this Note shall
convert to the Base Rate.
In case any law, regulation, treaty or official directive or the
interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof or the compliance with
any guideline or request of any central bank or other governmental
authority (whether or not having the force of law): (i) subjects the Bank
to any tax with respect to payments of principal or interest or any other
amounts payable hereunder by the Borrower or otherwise with respect to the
transactions contemplated hereby (except for taxes on the overall net
income of the Bank imposed by the United States of America or any political
subdivision thereof), or (ii) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, the
Bank, or (iii) imposes upon the Bank any other condition with respect to
<PAGE>
its performance under this Note, and the result of any of the foregoing is
to increase the cost to the Bank, reduce the income receivable by the Bank
or impose any expense upon the Bank with respect to this Note, the Bank
shall notify the Borrower and Agent thereof. The Borrower agrees to pay to
the Bank the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred
or determined, upon presentation by the Bank of a statement in the amount
and setting forth the Bank's calculation thereof, which statement shall be
deemed true and correct absent manifest error.
The entries on the records of the Bank (including any appearing on
this Note) shall be prima facie evidence of the aggregate principal amount
outstanding under this Note and interest accrued thereon. The Bank shall
enter all advances as debits in the Borrower's Revolving Line Account and
credit all payments made by the Borrower on account to the Borrower's
Revolving Line Account. At least once per month the Bank shall render a
statement of account for the Borrower's Revolving Line Account.
Payments shall be applied first to late charges, second to interest
and then to principal. Interest shall continue to accrue until the
appropriate payment is actually received by the Bank. If any installment of
this Note becomes due and payable on any day upon which the office of the
Bank is legally closed for business, the due date shall be extended to the
next succeeding business day and interest shall be payable at the then
applicable rate during such extension.
The following loan documents and security instruments executed in
connection with this Note (the "Loan Documents") are incorporated herein by
reference with the same force and effect as if set forth herein in full:
The Amended and Restated Loan and Security Agreement among the
Borrower, Agent, and the Bank and The First National Bank of Boston, as it
may be amended or modified from time to time (the "Loan and Security
Agreement") and all other Loan Documents (as defined therein).
As used in this Note, the term "Obligors" shall mean the Borrower, and
any endorser, guarantor and surety of this Note or the obligations
represented by this Note, and any other party to this Note. The term
"Obligations" shall mean any obligation hereunder or otherwise of any
Obligor to the Bank whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising.
The securities, instruments or other property listed in the Loan
Documents, if any, and also any other property belonging to, standing in
the name of or pledged on behalf of, any Obligor which may be now or
hereafter in the possession of the Bank for any purpose, or in which the
Bank may at any time have a security interest or other lien, together with
all additions or accessions or proceeds thereto or substitutions therefor
(collectively, "Collateral"), shall constitute continuing security for any
and all Obligations.
Should the Bank at any time reasonably deem itself insecure, the
<PAGE>
Borrower shall deliver to the Bank or Agent, forthwith upon demand,
additional property to be held as Collateral in an amount and of a
character satisfactory to the Bank, and shall execute and deliver such
agreements and documents, including any financing statements under the
applicable Uniform Commercial Code, with respect to such Collateral as the
Bank and Agent shall require.
The Borrower represents and warrants that (a) all Collateral is owned
by the Borrower or by the person(s) delivering all or any part of the
property to the Bank or Agent to be held as Collateral and is not subject
to any liens, security interests or rights of others, except those approved
by the Bank in writing, and its delivery to the Bank has been duly
authorized by all necessary action, and that (b) the Collateral is genuine
and is what it purports to be.
The Bank and Agent may at their option after an Event of Default (as
defined in the Loan and Security Agreement) or demand of this Note, whether
or not this Note is due and regardless of the adequacy of any other
Collateral, demand, sue for, collect or make any compromise or settlement
it deems desirable with reference to any Collateral. The right is expressly
granted to the Bank and Agent at their option to transfer at any time to
themselves or to their nominee any securities, instruments, documents or
other property pledged hereunder and to receive the income thereon and hold
the same as security herefor, or apply it on the principal or interest due
hereon or due on any liability secured hereby. Neither Agent nor the Bank
shall have any duty as to the protection or collection of any Collateral or
any income thereon, nor shall they be bound to take any steps necessary to
preserve any rights in any Collateral against prior parties. If any
Obligor, as registered holder of any securities constituting Collateral,
receives (a) any dividend or other distribution in cash or other property
in connection with the liquidation or dissolution of the issuer of such
securities, or (b) any stock certificate, warrant, option or right, whether
as an addition to, in substitution of, or in exchange for, such securities,
or otherwise, such Obligor shall accept the same in trust for the Bank, and
shall forthwith deliver the same to the Agent in the exact form received,
with such Obligor's endorsement and or assignment when necessary, to be
held by the Agent as Collateral.
In addition to the foregoing, to secure the payment of this Note and
the payment and performance of any other indebtedness, liability or
obligation of the Borrower to the Bank, the Bank is hereby granted a
security interest in all bank deposits, credits, other money, and property,
whether or not due, of any Obligor at any time or from time to time
credited, held, or owed by the Bank, due from the Bank or in the
possession, custody or control of the Bank in any capacity, and all such
assets shall constitute Collateral hereunder.
The Borrower shall furnish the Bank from time to time with such
financial statements and other information as the Bank may require in form
satisfactory to the Bank. Financial information furnished to the Bank shall
be true and correct and fairly represent the financial condition of the
Borrower as of the date(s) furnished and the operating results of the
Borrower for the periods for which the same are furnished. The Borrower
shall permit representatives of the Bank to inspect the Borrower's
properties and its books and records, and to make copies or abstracts
thereof.
<PAGE>
Nothing herein shall be construed to restrict the Bank, in its sole
discretion, from making advances requested by an Authorized Officer of
Borrower in excess of the stated maximum dollar amount, without requiring
the execution of additional promissory notes, or otherwise modifying this
instrument, and the Bank's so doing at any time shall not waive its right
to insist upon strict compliance with the terms of this Note, any of the
Loan Documents or other instruments executed in connection with this
financial transaction.
The Obligors agree that the Bank and Agent may, in their sole and
exclusive discretion, (i) make loan advances to the Borrower upon verbal or
written authority of any Authorized Officer (as defined in the Loan and
Security Agreement) or (ii) deliver loan proceeds by direct deposit to any
demand deposit account of the Borrower with the Agent, or otherwise, as so
directed, and that all such loans and advances as evidenced by the Agent's
books, records and ledgers shall represent the binding obligations of the
Borrower hereunder.
Each of the Obligors (i) waives presentment for payment, demand,
notice, protest, and diligence in collection or bringing suit and all other
demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note or any Collateral, and
assents to any extension or postponement of the time of payment or any
other indulgence under this Note, or with respect to any Collateral, to any
substitution, exchange or release of any Collateral and/or to the release
of any other party or person primarily or secondarily liable hereunder, and
(ii) agrees to the application by the Bank ("Set Off Rights"), without
prior notice, as payment or part payment of, or as an offset to, this Note
or any Obligations, of all bank deposits, credits, other money, and
property, whether or not due, of the Borrower or any Obligor at any time or
from time to time credited, held or owed by the Bank, due from the Bank or
in the possession, custody or control of the Bank in any capacity. The Bank
shall be deemed to have exercised its Set Off Rights and to have made a
charge against any such deposits, credits, money or property immediately
upon the occurrence of an event of default under any of the Loan Documents
even though such charge is made or entered on the books of the Bank
subsequent thereto.
The Borrower will pay on demand all reasonable costs of collection and
reasonable attorneys' fees paid or incurred by the Bank and Agent in
enforcing the Obligations of any Obligor.
All parties now or hereafter liable for the payment of any of the
indebtedness evidenced by this Note agree, by executing and endorsing this
Note or by entering into or executing any agreement to pay any indebtedness
hereby evidenced, that the Bank shall have the right, without notice and
without in any way affecting the liability of any Obligor, to (a) accept
partial payment, (b) exchange or release security or collateral, or (c)
deal in any way at any time with any parties liable for the indebtedness or
any other indulgences or forbearances whatsoever.
In the event any payment of principal or interest received in payment
of this Note and paid by the Borrower or any Obligor shall be deemed by
final order of a court of competent jurisdiction to have been a voidable
preference or fraudulent conveyance under the bankruptcy or insolvency laws
of the United States, or otherwise due to any party, other than the Bank,
then the obligation of the Borrower and the Obligors shall survive as an
obligation due hereunder, and shall not be discharged or satisfied by said
<PAGE>
payment or payments, notwithstanding return by the Bank to said parties of
this Note, or any guaranty, endorsement or the like.
The Bank may assign and transfer this Note to any person, as provided
in the Loan and Security Agreement.
If any provision of this Note is deemed by any court having
jurisdiction thereon invalid or unenforceable, the balance of this Note
shall remain in effect; if any provision of this Note is deemed by any such
court to be unenforceable because such provision is too broad in scope,
such provision shall be construed to be limited in scope to the extent such
court shall deem necessary to make it enforceable; and if any provision is
deemed inapplicable by any such court to any person or circumstances, it
shall nevertheless be construed to apply to all other persons and
circumstances.
No delay or omission on the part of the Bank or Agent in exercising
any right hereunder shall operate as a waiver of such right or of any other
right under this Note. No waiver of any right shall be effective unless in
writing and signed by the Bank nor shall a waiver on one occasion be
construed as a bar to or waiver of any such right on any future occasion.
This document shall be construed in accordance with the substantive
law of the Commonwealth of Massachusetts, without giving effect to the
conflicts or choice of law provisions of Massachusetts or any other
jurisdiction, and shall have the effect of a sealed instrument.
The Borrower represents that the proceeds of this Note shall not be
used for personal, family, household or agricultural purposes.
PRIOR TO SIGNING THIS NOTE, THE BORROWER HAS READ AND UNDERSTOOD ALL
OF THE PROVISIONS OF THIS NOTE AND AGREES TO THE TERMS OF THIS NOTE.
WITNESS: LITCHFIELD FINANCIAL CORPORATION
______________________ By____________________________
Its: President
<PAGE>
Exhibit 10.151
<TABLE>
PROMISSORY NOTE
<S> <C>
Principal Loan Date Maturity Loan # Call Collateral Account Officer Initials
8,000,000.00 01-13-97 01-15-98 11077 032 NOTES 2958 LK576 --------
Borrower: Litchfield Financial Corporation Lender: BSB BANK & TRUST
Box 544 Commercial Loan Dept.
Williamstown, MA 01267 58-68 Exchange St.(P.O.Box 1056
Binghamton, NY 13902
Principal Amount: $8,000,000 Initial Rate: 9.500% Date of Note : January 13, 1997
</TABLE>
PROMISE TO PAY. Litchfield Financial Corporation ("Borrower") promises
to pay to BSB Bank and Trust Co. ("Lender"), or order, in lawful money of
the United States of America, the principal amount of Eight Million &
00/100 Dollars ($8,000,000.00) or so much as may be outstanding, together
with interest on the unpaid outstanding principal balance of each advance.
Interest shall be calculated from the date of each advance until repayment
of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on January 15, 1998. In
addition, Borrower will pay regular monthly payments of accrued unpaid
interest beginning February 15, 1997, and all subsequent interest payments
are due on the same day of each month after that. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an index which is Lender's
Prime Rate (the "Index"). This is the rate Lender charges, or would charge,
on 90-day unsecured loans to the most creditworthy corporate customers.
This rate may or may not be the lowest rate available from Lender ate any
given time. Lender will tell Borrower the current index rate upon
Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often
than each day. The Index currently is 8.250% per annum. The interest rate
to be applied to unpaid principal balance of this Note will be at a rate of
1.250 percentage points over the Index, resulting in an initial rate of
9.500% per annum. NOTICE: Under no circumstances will the interest rate on
this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
<PAGE>
LATE CHARGE. If a payment is 10 days or more late, Borrower will be
charged 4.000% of the unpaid portion of the regularly scheduled payment or
$10.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens:
(a) Borrower fails to make any payment when due. (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower fails to comply with or to
perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any
other agreement or loan Borrower has with Lender. (c) Any representation or
statement made or furnished to Lender or Borrower or on Borrower's behalf
is false or misleading in any material respect either now or at the time
made or furnished. (d) Borrower becomes insolvent, a receiver is appointed
for any part of Borrower's property, Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency
laws. (e) Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of
the other events described in this default section occurs with respect to
any guarantor of this Note. (g) A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect of payment
or performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if
Borrower has not been given a notice of a breach of the same provision of
this Note within the preceding twelve (12) months, it may be cured (and no
event of default will have occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default: (a) cures the default
within (15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
LENDER RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice, and then Borrower will pay that amount. Upon default,
including failure to pay upon final maturity, Lender, at its option, amy
also, if permitted under applicable law, increase the variable interest
rate on this Note to 2.250 percentage points over the Index. The interest
rate will not exceed the maximum rate permitted by applicable law. Borrower
agrees to pay all costs and expenses incurred by Lender to collect this
Note. This includes, subject to any limits under applicable law, Lender's
reasonable attorneys' fees and Lender's legal expenses whether or not there
is a lawsuit, including reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by law, Borrower also will pay any court costs,
in addition to all other sums provided by law. This Note has been delivered
to Lender and accepted by Lender in the State of New York. If there is a
lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of BROOME County, the State of New York. Lender
and Borrower hereby waive the right to any jury trial in any action,
proceeding. or counterclaim brought by either Lender or Borrower against
the other. This Note shall be governed by and construed in accordance with
the laws of the State of New York.
RIGHT OF SETOFF. In addition to Lender's right of setoff arising by
operation of law, Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
<PAGE>
Borrower's accounts with Lender (whether checking, savings, or some other
account and whether evidenced by a certificate of deposit), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
COLLATERAL. This Note is secured by INDIVIDUAL NOTES ORIGINATED OR
PURCHASED BY LITCHFIELD, TOGETHER WITH ALL PROCEEDS OF COLLATERAL. If there
is any inconsistency between the terms and conditions of this Note and the
terms and conditions of the collateral documents, the terms and conditions
of this Note shall prevail.
LINE OF CREDIT. This Note evidences a revolving line of credit.
Advances under this Note may be requested only in writing by Borrower or by
an authorized person. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office
shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their
authority: RICHARD A. STRATTON, PRESIDENT; HEATHER A. SICA, EXECUTIVE VICE
PRESIDENT; RONALD RABIDOU, CHIEF FINANCIAL OFFICER; NORAH BRESETT,
CONTROLLER; and JENNIFER FIELD, SENIOR ACCOUNTANT. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instruction
of an authorized person or (b) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligations to
advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
Guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing
business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note
or any other loan with Lender; or (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those authorized by Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any
other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice
of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom
the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF THE NOTE.
Borrower:
LITCHFIELD FINANCIAL CORPORATION
By: ________________________________________
Richard A. Stratton, President
By: ________________________________________
Heather A. Sica, Executive Vice President
By: ________________________________________
Ronald E. Rabidou, Chief Financial Officer
By: _________________________________________
Norah K. Bresett, Controller
By: _________________________________________
Jennifer A. Field, Senior Accountant
Exhibit 11.1
Litchfield Financial Corporation
Computation of Earnings per Share
Year Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Primary
Weighted average number of
common shares outstanding ........ 5,441,636 4,315,469 4,116,685
Net effect of dilutive
stock options--based on
the treasury stock method
using the average market
price .......................... 232,628 207,514 163,321
------- ------- -------
Total ............................ 5,674,264 4,522,983 4,280,006
========= ========= =========
Income before extraordinary
item ............................ $ 5,273,000 $ 3,449,000 $ 2,699,000
Extraordinary item
(net of applicable tax
benefit of $76,000) ......... -- -- (126,000)
----------- ----------- ------------
Net income ....................... $ 5,273,000 $ 3,449,000 $ 2,573,000
=========== =========== ============
Income before extraordinary
item per common share ....... $.93 $ .76 $ .63
Extraordinary item (net of
applicable tax benefit
of $76,000)
per common share .............. -- -- (.03)
--- ---- -----
Net income per common share ...... $ .93 $ .76 $ .60
=== ==== =====
Fully Diluted
Weighted average number of
common shares outstanding ....... 5,441,659 4,313,583 4,116,685
Net effect of dilutive
stock options--based on the
treasury stock method using
the average market price ......... 294,808 229,426 163,321
------- ------- -------
Total ............................ 5,736,467 4,543,009 4,280,006
========= ========= =========
Income before extraordinary item . $ 5,273,000 $ 3,449,000 $ 2,699,000
Extraordinary item (net of
applicable tax benefit of
$ 76,000) -- -- (126,000)
----------- ----------- -----------
Net income ....................... $ 5,273,000 $ 3,449,000 $ 2,573,000
=========== =========== ===========
Income before extraordinary
item per common share .......... $ .92 $ .76 $ .63
Extraordinary item (net
of applicable tax benefit
of $76,000)
per common share .............. -- -- (.03)
----------- ----------- -----------
Net income per common share ...... $ .92 $ .76 $ .60
=========== =========== ===========
Exhibit 13.1
Litchfield Logo is displayed here.
A specialty consumer finance company.
1996 ANNUAL REPORT
Income Per Share Before Extraordinary Item
A bar graph of income per share before extraordinary item for 1989 through
1996 is displayed here.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION is a specialty consumer finance
company which provides mortgage financing for the purchase of rural and
vacation properties and financing for the purchase of vacation ownership
interests, popularly known as timeshare interests. In addition, the Company
makes loans to rural land and resort developers secured by consumer
receivables and other secured loans.
Through the support of its investors and dedication of its employees,
Litchfield has been able to provide quality service, maintain consistent
growth and be among the top performers in the consumer finance industry.
Litchfield's common stock trades on The Nasdaq Stock Market's National
Market under the symbol "LTCH" and is listed in some newspapers as
"LITCHFNL".
A bar graph depicting the components of revenue for 1991 through 1996
is displayed here.
<PAGE>
Dear Fellow Stockholders and Noteholders:
Litchfield had a great year in 1996. Net income was up 53%, revenues
were up 39% and originations increased 11%. We encourage you to review the
details in this annual report where you will see our Company is better
today by virtually all measures. I would like to describe what we believe
are some of the reasons for our success.
People. We have the finest team in specialty finance. Our people are
focused, hard working and dedicated to getting things right. Whether its
preparing a spreadsheet, answering a customer's question or negotiating a
large loan purchase, everybody works to get it right. We hold ourselves to
a very high standard and are not satisfied unless we are graded straight
A's.
Plan. We have specific, measurable goals and budgets. We all live by
our business plan and how each part of our Company contributes to the
plan's success. We measure the smallest details of our business, report on
them, discuss them and look for ways to improve them.
Niche. The niches we are in have six important characteristics: good
credit, guarantees, reserves, good rates, good collateral and growing
markets. We are striving to maximize our potential in consumer land and VOI
loans while looking for other consumer loan businesses with these
characteristics.
Relationships. We have solid relationships with our customers,
lenders, investment bankers and service providers. We are open, candid and
ask all of them how we can do better. We do what we say we will do and they
believe in us.
Training. Training is a part of everybody's job at Litchfield. We have
an in-house curriculum to improve our skills, efficiency and use of
technology. We have a management training program for young recruits. These
trainees rotate through all our departments for a two to three year period.
Yesterday's trainees are our middle managers of today and senior managers
of tomorrow. This is one of the best things we have ever done.
Track Record. We have had eight consecutive years of over 20% earnings
per share growth which we believe shows a consistent, reliable track
record. Our success includes starting new businesses from scratch and
buying businesses and integrating the new people into Litchfield.
In 1997 and forward, we believe we can continue to build on these
ingredients of our success to maintain deliberate, controlled growth,
quality assets and cost control. We will constantly review our performance
and strive to improve ourselves. Thank you for your continued support.
RANDY STRATTON
Chief Executive Officer and President
January 31 , 1997
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
Year Ended December 31,
-------------------------------------------------------
<S> <C>
Statements of Income Data: (1) 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Revenues:
Interest and fees on loans .. $ 2,305 $ 4,330 $ 5,669 $ 11,392 $ 15,396
Gain on sale of loans ....... 2,501 4,550 4,847 5,161 7,331
Servicing and other fee income. 368 501 459 908 1,456
----- ----- ------ ------ ------
Total revenues ....... 5,174 9,381 10,975 17,461 24,183
===== ===== ====== ====== ======
Expenses:
Interest expense ......... 629 2,717 3,158 6,138 7,197
Salaries and employee benefits 1,017 1,350 1,776 2,798 3,233
Other operating expenses. 810 1,017 1,164 2,120 3,225
Provision for loan losses 270 620 559 890 1,954
----- ----- ----- ------ ------
Total expenses 2,726 5,704 6,657 11,946 15,609
===== ===== ===== ====== ======
Income before income taxes and
extraordinary item 2,448 3,677 4,318 5,515 8,574
Provision for income taxes 942 1,426 1,619 2,066 3,301
----- ----- ----- ----- -----
Income before extraordinary item 1,506 2,251 2,699 3,449 5,273
Extraordinary item (2) -- -- (126) -- --
------ ------ ------ ----- -------
Net income .. $ 1,506 $ 2,251 $ 2,573 $ 3,449 $ 5,273
====== ====== ====== ===== =======
Primary per common share amounts:
Income before extraordinary
item $ .42 $ .53 $ .63 $ .76 $ .93
Extraordinary item -- -- (.03) -- --
-------- -------- -------- -------- --------
Net income per share . $ .42 $ .53 $ .60 $ .76 $ .93
======== ======== ======== ======== ========
Primary weighted average number of
shares outstanding 3,572,289 4,224,402 4,280,006 4,522,983 5,674,264
Fully-diluted per common share
amounts:
Income before extraordinary
item $ .42 $ .53 $ .63 $ .76 $ .92
Extraordinary item -- -- (.03) -- --
-------- -------- -------- -------- -------
Net income per share $ .42 $ .53 $ .60 $ .76 $ .92
======== ======== ======== ======== =======
Fully-diluted weighted average
number of shares outstanding 3,589,264 4,246,945 4,280,006 4,543,009 5,736,467
Cash dividends declared per
common share $ -- $ .02 $ .03 $ .04 $ .05
Other Statements of Income Data:
Net income as a percentage
of revenues 29.1% 24.0% 23.4% 19.8% 21.8%
Return on average assets 6.2% 5.0% 4.3% 3.7% 4.0%
Return on average equity (3) 20.3% 17.0% 16.4% 16.6% 13.3%
</TABLE>
(1) Certain amounts in the 1992 through 1995 financial information have been
restated to conform to the 1996 presentation.
(2) Reflects loss on early extinguishment of a portion of the 1992 Notes (as
defined herein), net of applicable tax benefit of $76,000.
(3) Average equity includes redeemable preferred stock, which was redeemed on
March 19, 1992, and stockholders' equity.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION - (Continued)
(Dollars in thousands, except per share data)
December 31,
--------------------------------------------
Balance Sheet Data : 1992 1993 1994 1995 1996
------ ------- ------- ------- -------
Total assets $34,177 $55,044 $64,367 $113,391 $153,800
Loans held for sale (4) 5,086 5,931 11,094 14,380 12,260
Loans held for investment (4) 3,501 10,306 15,790 33,613 79,996
Subordinated pass-through
certificates held to
maturity (4) 7,773 7,433 3,951 13,468 18,004
Senior long-term debt 15,065 32,302 29,896 47,401 46,995
Subordinated debt 1,145 --- --- --- ---
Stockholders' equity 11,813 14,722 16,610 37,396 42,448
December 31,
--------------------------------------------
Other Financial Data: 1992 1993 1994 1995 1996
------- ------- ------- -------- --------
Loans purchased and
originated (5) $32,214 $42,410 $59,798 $121,046 $133,750
Loans sold (5) 24,632 28,099 40,116 65,115 54,936
Serviced Portfolio (6) 58,968 84,360 105,013 176,650 242,445
Loans serviced for others 43,623 59,720 72,731 111,117 129,619
Dealer/developer reserves 3,512 4,926 6,575 9,644 10,628
Allowance for loan losses (7) 498 1,064 1,264 3,715 4,528
Allowance ratio (8) .84% 1.26% 1.20% 2.10% 1.87%
Net charge-off ratio (5)(9) .37% .69% .38% .67% .94%
Non-performing asset ratio (10) 1.09% 1.48% 1.02% 1.35% 1.57%
(4) Amount indicated is net of allowance for losses.
(5) During the relevant period.
(6) The Serviced Portfolio consists of the principal amount of Land, VOI and
Dealer/Other Loans serviced by or on behalf of the Company.
(7) The allowance for loan losses includes allowance for losses under the
recourse provisions of loans sold. See Note 4 to financial statements.
(8) The allowance ratio is the allowances for loan losses divided by the amount
of the Serviced Portfolio.
(9) The net charge-off ratio is determined by dividing the amount of net
charge-offs for the period by the average Serviced Portfolio for the period.
(10) The non-performing asset ratio is determined by dividing the sum of the
amount of those loans which are 90 days or more past due and other real estate
owned by the amount of the Serviced Portfolio.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Litchfield Financial Corporation (the "Company") is a specialty consumer
finance company which provides financing for the purchase of rural and vacation
properties ("Land Loans") and financing of vacation ownership interests ("VOI
Loans"), popularly known as timeshare interests. In addition, the Company makes
loans to rural land dealers and resort developers secured by consumer
receivables and other secured loans (collectively "Dealer/Other Loans").
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gain from the sale of loans, and (iii) servicing and other fee
income. Gains on sales of loans are based principally on the present value of
the difference between the interest to be collected from the borrower and the
interest to be passed on to the purchaser of the loan during the estimated
average life of the loans, less a normal servicing fee (referred to as "excess
servicing asset"). The excess servicing asset is calculated using prepayment,
default, and interest rate assumptions prevalent in the marketplace at the time
of sale for similar instruments. The Company provides an allowance for expected
losses under the recourse provisions at the time of the loan sale. The excess
servicing asset is amortized over the estimated life of the loans using the
interest method. Because a significant portion of the Company's revenues is
comprised of gains realized on sales of loans, the timing of such sales has a
significant effect on the Company's results of operations.
Results of Operations
The following table sets forth the percentage relationship to revenues of
certain items included in the Company's statements of income.
Year ended December 31,
----------------------------
1994 1995 1996
----- ---- -----
Revenues:
Interest and fees on loans ............ 51.6% 65.2% 63.7%
Gain on sale of loans ................ 44.2 29.6 30.3
Servicing and other fee income ........ 4.2 5.2 6.0
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Expenses:
Interest expense ...................... 28.8 35.2 29.7
Salaries and employee benefits ........ 16.2 16.0 13.4
Other operating expenses .............. 10.6 12.1 13.3
Provision for loan losses ............. 5.1 5.1 8.1
---- ---- ----
60.7 68.4 64.5
---- ---- ----
Income before income taxes and
extraordinary item ....................... 39.3 31.6 35.5
Provision for income taxes ................ 14.7 11.8 13.7
---- ---- ----
Income before extraordinary item .......... 24.6 19.8 21.8
Extraordinary item ........................ (1.2) -- --
---- ---- ----
Net income ................................ 23.4% 19.8% 21.8%
==== ==== ====
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased 38.5% to $24,183,000 for the year ended December 31,
1996, from $17,461,000 for the year ended December 31, 1995. Net income for the
year ended December 31, 1996 increased 52.9% to $5,273,000 compared to
$3,449,000 in 1995. Net income as a percentage of revenues was 21.8% for the
year ended December 31, 1996 compared to 19.8% for the year ended December 31,
1995. Loan originations grew 10.5% to $133,750,000 in 1996 from $121,046,000 in
1995. Excluding the 1995 purchase of $41,500,000 of loans from the Government
Employees Financial Corporation ("GEFCO"), originations increased 68.1%. The
Serviced Portfolio increased 37.2% to $242,445,000 at December 31, 1996 from
$176,650,000 at December 31, 1995.
Interest and fees on loans increased 35.2% to $15,396,000 in 1996 from
$11,392,000 in 1995, primarily as the result of increases in loans held for
investment, subordinated pass-through certificates and fees related to
Dealer/Other Loan originations. Interest on loans, subordinated pass-through
certificates, cash and investments, and excess servicing revenue comprised
77.8%, 8.0% and 7.0%, respectively, of interest and fees on loans for the year
ended December 31, 1996, compared with 74.5%, 10.4% and 8.6%, respectively, for
the prior year. Interest earned on loans, subordinated pass-through
certificates, cash and investments, and excess servicing revenue increased
41.1%, 4.4% and 10.6%, respectively, for 1996 compared to 1995. The average rate
earned on loans owned and subordinated pass-through certificates decreased to
12.5% for the year ended December 31, 1996 from 13.2% in 1995, primarily due to
the effect of the growth in Dealer/Other Loans as a percentage of the loan
portfolio. Dealer/Other Loan yields are usually less than Land Loan or VOI Loan
yields, but Dealer/Other Loans servicing costs and loan losses are generally
less as well. Fees on loans representing an adjustment of yield comprised 7.2%
of interest and fees on loans in 1996 compared to 6.5% in 1995. Such fees
increased 48.4% in 1996 compared to 1995 primarily as the result of the increase
in Dealer/Other Loans.
Gain on the sale of loans increased 42.0% to $7,331,000 in 1996 from
$5,161,000 in 1995. The volume of loans sold decreased 15.6% to $54,936,000 for
the year ended 1996 from $65,115,000 in 1995. The primary reason for the
increase in the gain on sale of loans despite the decrease in the volume of
loans sold was that the Company did not recognize any gain on the sale of
$27,155,000 of VOI Loans purchased from GEFCO in the second quarter of 1995.
Loans serviced for others increased 16.7% to $129,619,000 at December 31,
1996 from $111,117,000 at December 31, 1995. Servicing and other fee income
increased 60.4% to $1,456,000 for the year ended December 31, 1996, from
$908,000 in 1995 because of the higher average Serviced Portfolio in 1996. In
connection with the Company's continued growth, the Company decided to
subcontract its servicing rights in order to avoid incurring additional fixed
overhead costs associated with such servicing. Accordingly, the Company
subcontracted to an unaffiliated third party the servicing of VOI Loans in 1995
and the remaining loans in April 1996.
Interest expense increased 17.3% to $7,197,000 for the year ended December
31, 1996, from $6,138,000 in 1995. The increase in interest expense primarily
<PAGE>
reflects an increase in average borrowings which was only partially offset
by a decrease in average rates. During the year ended December 31, 1996,
borrowings averaged $71,800,000 at an average rate of 9.3% as compared to
$60,500,000 and 9.7%, respectively, during 1995. Interest expense includes the
amortization of deferred debt issuance costs.
Salaries and employee benefits increased 15.6% to $3,233,000 for the year
ended December 31, 1996 from $2,798,000 in 1995 because of increases in
incentive compensation, salaries and the average number of employees in 1996.
The average number of employees increased to 56 in 1996 from 45 in 1995,
primarily as the result of the GEFCO acquisition. The number of full time
equivalents increased to 57 at December 31, 1996 compared to 55 at December 31,
1995. The small increase in the number of full-time equivalents despite the
significant growth in originations and the Serviced Portfolio described above is
partially the result of subcontracting servicing to a third party. As a result,
personnel costs as a percentage of revenues decreased to 13.4% for the year
ended December 31, 1996 compared to 16.0% in 1995.
Other operating expenses increased 52.1% to $3,225,000 for the year ended
December 31, 1996 from $2,120,000 for the same period in 1995 primarily as the
result of the subcontracting of servicing to a third party. As a percentage of
revenues, other operating expenses increased to 13.3% in 1996 compared to 12.1%
in 1995.
During 1996, the Company increased its provision for loan losses 119.6% to
$1,954,000 from $890,000 in 1995, primarily as the result of the overall
increase in the Serviced Portfolio as well as the proportionate increase in the
percentage of non-guaranteed loans in the Serviced Portfolio. Historically, the
loan loss rate for non-guaranteed loans has been higher than the rate for
guaranteed loans.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues increased 59.1% to $17,461,000 for the year ended December 31,
1995, from $10,975,000 for the year ended December 31, 1994. Net income for the
year ended December 31, 1995 increased 34.0% to $3,449,000 compared to
$2,573,000 in 1994. Net income as a percentage of revenues was 19.8% for the
year ended December 31, 1995 compared to 23.4% for the year ended December 31,
1994. This decrease was primarily due to the Company's strategy of retaining
more of its loans and the increased interest costs associated with long-term
debt incurred to support this strategy.
Interest and fees on loans increased 101.0% to $11,392,000 in 1995 from
$5,669,000 in 1994, primarily as the result of increases in loans and
subordinated pass-through certificates. Interest on loans, subordinated
pass-through certificates, cash and investments, and excess servicing revenue
comprised 74.5%, 10.4% and 8.6%, respectively, of interest and fees on loans for
the year ended December 31, 1995, compared with 70.1%, 12.0% and 6.9%,
respectively, for the prior year. Interest earned on loans, subordinated
pass-through certificates, cash and investments, and excess servicing revenue
increased 113.7%, 73.9% and 149.5%, respectively, for the year ended December
31, 1995. The average rate earned on loans owned and subordinated pass-through
certificates increased to 13.2% for the year ended December 31, 1995 from 12.6%
in 1994, primarily due to the effect of the higher yield of the VOI Loans. Fees
on loans comprised 6.5% of interest
<PAGE>
and fees on loans in 1995 compared to 11.0% in 1994. Such fees increased 18.8%
in 1995 compared to 1994.
Gain on the sale of loans increased 6.5% to $5,161,000 in 1995 from
$4,847,000 in 1994. The volume of loans sold increased 62.3% to $65,115,000 for
the year ended 1995 from $40,116,000 in 1994. The primary reason the gain on
sale of loans increased less than the volume of loans sold was that the Company
did not recognize any gain on the sale of $27,155,000 of VOI Loans purchased
from GEFCO consistent with the purchase method of accounting.
Loans serviced for others increased 52.8% to $111,117,000 as of December
31, 1995 from $72,731,000 at December 31, 1994. This growth resulted in a 97.8%
increase in servicing and other fee income to $908,000 for the year ended
December 31, 1995, from $459,000 in 1994. In connection with the Company's
continued growth, the Company made a strategic decision to subcontract a portion
of its servicing rights in order to avoid incurring additional fixed overhead
costs associated with such servicing. Accordingly, the Company subcontracted the
servicing of VOI Loans to an unaffiliated third party in 1995 and its remaining
loans in April 1996.
Interest expense increased to $6,138,000 for the year ended December 31,
1995, from $3,158,000 in 1994. The increase in interest expense primarily
reflects an increase in borrowings. During the year ended December 31, 1995,
borrowings averaged $60,500,000 at an average rate of 9.7% as compared to
$32,000,000 and 9.3%, respectively, during 1994. Interest expense includes the
amortization of deferred debt issuance costs.
Salaries and employee benefits increased 57.5% to $2,798,000 for the year
ended December 31, 1995 from $1,776,000 in 1994 due to hiring additional staff
to support an increase in the Serviced Portfolio and an increase in certain
incentive based compensation. As a result of the Company's growth, the Company
increased total full-time equivalent employees to 55 in 1995 from 36 in 1994.
Personnel costs as a percentage of revenues remained relatively constant at
16.0% for the year ended December 31, 1995 compared to 16.2% in 1994.
Other operating expenses increased 82.1% to $2,120,000 for the year ended
December 31, 1995 from $1,164,000 for the same period in 1994. As a percentage
of revenues, other operating expenses increased to 12.1% in 1995 as compared to
10.6% in 1994. This increase is attributable to additional overhead incurred
with the significant growth of the Company primarily in connection with the
purchase of the GEFCO portfolio.
During 1995, the Company increased its provision for loan losses 59.2% to
$890,000 from $559,000 in 1994 primarily as the result of the increase in the
Serviced Portfolio.
Liquidity and Capital Resources
The Company's business requires continued access to short and long-term
sources of debt financing and equity capital. The Company's principal cash
<PAGE>
requirements arise from loan originations, repayment of debt on maturity,
payments of operating and interest expenses and loan repurchases. The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of credit, long-term debt and equity offerings and cash flows from
operations.
In connection with certain loan sales, the Company commits to repurchase
from investors any such loans that become 90 days or more past due. This
obligation is subject to various terms and conditions, including, in some
instances, a limitation on the amount of loans that may be required to be
repurchased. There were approximately $8,780,000 of loans at December 31, 1996
which the Company could be required to repurchase in the future should such
loans become 90 days or more past due. The Company repurchased $991,000,
$448,000, and $259,000 of such loans under the recourse provisions of loan sales
in 1996, 1995, and 1994, respectively. Also, in connection with certain
securitization programs, $18,647,000 of cash and cash equivalents are restricted
as credit enhancements at December 31, 1996.
The Company funds its loan purchases in part with borrowings under various
lines of credit. At December 31, 1996, the Company had a secured line of credit
of $30,000,000 from the Bank of Boston, as lead agent, and Fleet Bank. The
Company can elect to borrow all or part of the outstanding balance on the line
of credit at either the Bank's prime interest rate or the Eurodollar rate plus
2%. Outstanding borrowings under this line of credit at December 31, 1996 were
$26,200,000. The line of credit matures in April 1997, with renewal at the
lender's discretion. At December 31, 1995 the secured line of credit was
$15,000,000 at the Bank's prime interest rate plus 1%. There were no outstanding
borrowings under this credit line at December 31, 1995. The line of credit is
secured by consumer receivables and other secured loans.
On July 23, 1996, the Company entered into an additional secured line of
credit of $5,000,000 with another financial institution at that institution's
prime rate of interest plus 1.25%. This line of credit matures in July 1997.
There were no outstanding borrowings on this line of credit at December 31,
1996. This line of credit is secured by consumer receivables and other secured
loans. In January 1997, the secured line of credit was increased to $8,000,000
and the maturity was extended to January 1998.
On September 13, 1996, the Company entered into a $15,000,000 revolving
line of credit facility with the Bank of Scotland. The outstanding borrowings
under this facility at December 31, 1996 were $8,300,000. This facility is
secured by certain subordinated pass-through certificates, excess servicing
assets, cash collateral accounts and certain other loans and matures in
September 1999. Interest is payable quarterly in arrears at the Bank's prime
interest rate plus 1%. In January 1997, this facility was increased to
$20,000,000.
The Company is not required to maintain compensating balances or forward
sales commitments under the terms of the above lines of credit.
The Company also has a revolving line of credit and sale facility as part
of an asset backed commercial paper facility with Holland Limited
Securitization, Inc. ("HLS") a multi-seller commercial paper issuer sponsored by
Internationale Nederlanden (U.S.) Capital Markets, Inc. ("ING"). In October
1996, the Company amended the facility to increase the facility to $100,000,000,
<PAGE>
subject to certain terms and conditions, reduce certain credit enhancement
requirements and expand certain loan eligibility criteria. The facility expires
in June 1998.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with HLS or sells the loans to HLS. HLS issues commercial paper
or other indebtedness to fund the purchase or pledge of loans from LMSC. HLS is
not affiliated with the Company or its affiliates. As of December 31, 1996, the
outstanding balance of loans sold under this facility was $77,521,000 and
outstanding borrowings under the line of credit were $1,799,000. Interest is
payable on the line of credit at an interest rate based on certain commercial
paper rates.
During the first quarter of 1995, the Company entered into a 10.43%,
$12,500,000 debt placement with an insurance company. Principal is payable
monthly based on collection of the underlying collateral. The note is redeemable
only with the approval of the noteholder. The note is collateralized by certain
of the Company's investments in subordinated pass-through certificates, excess
servicing assets and cash. At December 31, 1996 and 1995, the balance
outstanding on the note was $7,428,000 and $9,836,000 and the approximate value
of the underlying collateral was $13,772,000 and $17,700,000, respectively.
On March 15, 1995, the Company completed a public offering of $18,400,000
of 10% Notes due 2004 ("1995 Notes"). The 1995 Notes allow for a maximum annual
redemption at the election of the noteholders of $920,000 and contain certain
restrictions regarding the payment of cash dividends and require the maintenance
of certain financial ratios. On April 1, 1996 the noteholders redeemed, and the
Company paid $120,000 of the 1995 Notes. On October 31, 1995, the Company
completed a public offering of 1,250,000 shares of common stock at a price of
$15 per share. The net proceeds to the Company were approximately $17,325,000
after deducting expenses related to the offering.
Previously, the Company significantly increased its capital base through a
$9,500,000 initial public offering in February, 1992 and public debt offerings
of $15,065,000 in November 1992 ("1992 Notes") and $17,570,000 in May 1993
("1993 Notes"). The 1992 Notes and the 1993 Notes bear interest at 10% and 8
7/8%, respectively, and are due 2002 and 2003, respectively. The 1992 Notes and
the 1993 Notes are unsecured obligations of the Company and each such issuance
allows for a maximum annual redemption by noteholders of 5% of the original
principal amount thereof. On November 1, 1996, the Company repaid $103,000 of
the 1992 Notes due 2002 pursuant to the noteholders' annual redemption rights.
On August 1, 1996 and June 1, 1996, the Company repaid $20,000 and $163,000,
respectively of the 1993 Notes due 2003 pursuant to the noteholders' annual
redemption rights.
The Company manages its exposure to changes in interest rates by attempting
to match its proportion of fixed versus variable rate assets, liabilities and
loan sale facilities. The Company has mitigated its interest rate exposure due
to interest rate declines by instituting interest rate floors on its adjustable
rate loans.
Historically, the Company has not required major capital expenditures to
support its operations.
<PAGE>
Credit Quality and Allowances for Loan Losses
The Company maintains allowances for loan losses at levels which, in the
opinion of management, provide adequately for possible losses on loans, loans
sold and subordinated pass-through certificates. Past-due loans (loans 30 days
or more past due which are not covered by dealer/developer reserves and
guarantees) as a percentage of the Serviced Portfolio were 1.34% at December 31,
1996 compared to 1.73% at December 31, 1995. Management evaluates the adequacy
of the allowances on a quarterly basis by examining current delinquencies, the
characteristics of the accounts, the value of the underlying collateral, and
general economic conditions and trends. Management also evaluates the extent to
which dealer/developer reserves and guarantees can be expected to absorb loan
losses. A provision for loan losses is recorded in an amount deemed sufficient
by management to maintain the allowances at adequate levels. Total allowances
for loan losses and loans sold increased to $4,528,000 at December 31, 1996
compared to $3,715,000 at December 31, 1995, decreasing the allowance ratio to
1.87% at December 31, 1996 from 2.10% at December 31, 1995. The decrease in the
allowance ratio reflects the increase in Dealer/Other Loans as a percentage of
the portfolio. Historically, Dealer/Other Loans have experienced significantly
lower delinquency, defaults and loss rates compared with Land Loans and VOI
Loans.
As part of the Company's financing of Land Loans and VOI Loans,
arrangements are entered into with dealers and resort developers, whereby
reserves are established to protect the Company from potential losses associated
with such loans. As part of the Company's agreement with the dealers and resort
developers, a portion of the amount payable to each dealer and resort developer
for a Land Loan or a VOI Loan is retained by the Company and is available to the
Company to absorb loan losses for those loans. The Company negotiates the amount
of the reserves with the dealers and developers based upon various criteria, two
of which are the financial strength of the dealer or developer and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,628,000 at December 31, 1996 and $9,644,000 at December 31, 1995. The
Company generally returns any excess reserves to the dealer/developer on a
quarterly basis as the related loans are repaid by borrowers.
Inflation
Inflation has not had a significant effect on the Company's operating
results to date.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1996 1995
---------- ----------
ASSETS
Cash and cash equivalents $ 5,557,000 $ 18,508,000
Restricted cash 18,923,000 16,345,000
Loans held for sale, net of allowance
for loan losses of $817,000 and
$1,100,000 in 1996 and 1995, respectively 12,260,000 14,380,000
Loans held for investment, net of allowance
for loan losses of $1,200,000 and $413,000
in 1996 and 1995, respectively 79,996,000 33,613,000
Subordinated pass-through certificates
held to maturity, net of allowance
for loan losses of $1,400,000 and
$1,270,000 in 1996 and 1995, respectively 18,004,000 13,468,000
Excess servicing asset 12,019,000 10,058,000
Other 7,041,000 7,019,000
------------ ------------
Total assets $153,800,000 $113,391,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Lines of credit $36,299,000 --
Term note payable 7,428,000 9,836,000
Accounts payable and accrued liabilities 3,811,000 4,442,000
Dealer/developer reserves 10,628,000 9,644,000
Allowance for loans sold 1,111,000 932,000
Deferred income taxes 5,080,000 3,740,000
---------- ----------
64,357,000 28,594,000
---------- ----------
10% Notes due 2002 12,785,000 12,888,000
8 7/8 % Notes due 2003 15,930,000 16,113,000
10% Notes due 2004 18,280,000 18,400,000
---------- ----------
46,995,000 47,401,000
========== ==========
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 1,000,000 shares,
none issued and outstanding -- --
Common stock, $.01 par value;
authorized 8,000,000 shares,
5,444,399 shares issued and
outstanding in 1996;
5,223,715 shares issued and
5,174,715 shares outstanding
in 1995 54,000 52,000
Additional paid in capital 34,633,000 31,873,000
Retained earnings 7,761,000 6,065,000
Less 49,000 common shares held
in treasury, at cost, in 1995 -- (594,000)
Total stockholders' equity 42,448,000 37,396,000
------------- -------------
Total liabilities and stockholders' equity $ 153,800,000 $ 113,391,000
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-------------------------------
1996 1995 1994
----- ---- -----
Revenues:
Interest and fees on loans $15,396,000 $11,392,000 $5,669,000
Gain on sale of loans 7,331,000 5,161,000 4,847,000
Servicing and other fee income 1,456,000 908,000 459,000
---------- ---------- ----------
24,183,000 17,461,000 10,975,000
---------- ---------- ----------
Expenses:
Interest expense 7,197,000 6,138,000 3,158,000
Salaries and employee benefits 3,233,000 2,798,000 1,776,000
Other operating expenses 3,225,000 2,120,000 1,164,000
Provision for loan losses 1,954,000 890,000 559,000
---------- ---------- ---------
15,609,000 11,946,000 . 6,657,000
---------- ---------- ---------
Income before income taxes
and extraordinary item 8,574,000 5,515,000 4,318,000
Provision for income taxes 3,301,000 2,066,000 1,619,000
--------- --------- ---------
Income before extraordinary item 5,273,000 3,449,000 2,699,000
Extraordinary item (net of
applicable tax benefit of $76,000) --- --- (126,000)
---------- ---------- ----------
Net income $5,273,000 $3,449,000 $2,573,000
========== ========== ==========
Primary per common share amounts:
Income before extraordinary item $ .93 $ .76 $ .63
Extraordinary item --- --- ( .03)
----- ----- ------
Net income $ .93 $ .76 $ .60
===== ===== ======
Primary weighted average number of
shares 5,674,264 4,522,983 4,280,006
Fully-diluted per common share amounts:
Income before extraordinary item $ .92 $ .76 $ .63
Extraordinary item --- --- ( .03)
----- ----- ------
Net income $ .92 $ .76 $ .60
===== ===== ======
Fully-diluted weighted average number
of shares 5,736,467 4,543,009 4,280,006
See accompanying notes to consolidated financial statements.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Additional
Common Paid In Retained Treasury
Stock Capital Earnings Stock Total
------ ------- -------- --------- -----------
Balance, December 31, 1993 $36,000 $9,662,000 $5,024,000 $ --- $14,722,000
Issuance of 178,313 shares
in connection with 5%
stock dividend 2,000 2,183,000 (2,185,000) --- ---
Issuance of 12,995 shares --- 23,000 --- --- 23,000
Repurchase of 49,100 shares --- --- --- (595,000) (595,000)
Dividends ($.03 per share) --- --- (113,000) --- (113,000)
Net income --- --- 2,573,000 --- 2,573,000
------ ---------- --------- -------- ----------
Balance, December 31, 1994 38,000 11,868,000 5,299,000 (595,000) 16,610,000
Issuance of 186,819 shares
in connection with 5%
stock dividend 2,000 2,473,000 (2,475,000) --- ---
Issuance of 1,282,551 shares
(including reissuance of
100 shares held in treasury) 12,000 17,532,000 --- 1,000 17,545,000
Dividends ($.04 per share) --- --- (208,000) --- (208,000)
Net income --- --- 3,449,000 --- 3,449,000
------ ---------- --------- -------- ----------
Balance, December 31, 1995 52,000 31,873,000 6,065,000 (594,000) 37,396,000
Issuance of 259,124 shares
in connection with 5%
stock dividend 3,000 3,301,000 (3,304,000) --- ---
Issuance of 10,560 shares
(including reissuance of
ten shares held in treasury) --- 52,000 --- --- 52,000
Retirement of 48,990 shares
held in treasury (1,000) (593,000) --- 594,000 ---
Dividends ($.05 per share) --- --- (273,000) --- (273,000)
Net income --- --- 5,273,000 --- 5,273,000
------- ----------- ---------- -------- -----------
Balance, December 31, 1996 $54,000 $34,633,000 $7,761,000 $ --- $42,448,000
======= =========== ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------
1996 1995 1994
---------- ----------- -----------
Cash flows from operating activities:
Net income $5,273,000 $ 3,449,000 $2,573,000
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Gain on sale of loans (7,331,000) (5,161,000) (4,847,000)
Loss on retirement of 10% Notes
due 2002 --- --- 88,000
Amortization and depreciation 520,000 511,000 490,000
Amortization of excess servicing
asset 3,444,000 2,267,000 1,996,000
Provision for loan losses 1,954,000 890,000 559,000
Provision for deferred
income taxes 1,340,000 1,209,000 1,101,000
Net changes in operating assets
and liabilities:
Restricted cash (2,578,000) (4,957,000) (6,791,000)
Loans held for sale (532,000) (11,978,000) 2,220,000
Dealer /developer reserves 984,000 3,069,000 1,649,000
Net change in other assets
and liabilities (2,701,000) 881,000 (3,549,000)
Net cash provided by (used in) ----------- ----------- -----------
operating activities 373,000 (9,820,000) (4,511,000)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of investments
held to maturity --- (5,595,000) (2,011,000)
Redemption of investments
held to maturity 118,000 9,232,000 7,890,000
Net originations and principal
payments on loans held for
investment (47,170,000) (18,022,000) (7,051,000)
Sale of loans originally held
for investment --- --- 1,011,000
Collections on subordinated
pass-through certificates 590,000 --- ---
Capital expenditures and other
assets (126,000) (1,676,000) (1,697,000)
Net cash used in investing ------------ ------------ -----------
activities (46,588,000) (16,061,000) (1,858,000)
------------ ------------ -----------
Cash flows from financing activities:
Net borrowings (repayments)
on lines of credit 36,299,000 (5,823,000) 5,823,000
Proceeds from issuance of
long-term notes --- 18,400,000 ---
Redemption of long-term notes (406,000) (895,000) (2,406,000)
Proceeds from term note --- 12,500,000 ---
Payments of term note (2,408,000) (2,664,000) ---
Net proceeds from issuance of
common stock 52,000 17,544,000 23,000
Reissuance (purchase) of
treasury stock --- 1,000 (595,000)
Dividends paid (273,000) (208,000) (113,000)
Net cash provided by ----------- ----------- ----------
financing activities 33,264,000 38,855,000 2,732,000
----------- ----------- ----------
Net (decrease) increase in cash
and cash equivalents (12,951,000) 12,974,000 (3,637,000)
Cash and cash equivalents,
beginning of period 18,508,000 5,534,000 9,171,000
Cash and cash equivalents, ----------- ----------- -----------
end of period $5,557,000 $18,508,000 $5,534,000
=========== =========== ===========
Supplemental Schedule of Noncash
Financing and Investing Activities:
Exchange of loans for subordinated
pass-through certificates $3,540,000 $8,842,000 $ ---
========== ========== =========
Exchange of loans for investments
held to maturity $ --- $ 358,000 $ ---
========== ========== =========
Transfers from loans to real
estate acquired through
foreclosure $1,654,000 $1,991,000 $843,000
========== ========== =========
Supplemental Cash Flow
Information:
Interest paid $6,674,000 $5,766,000 $2,972,000
========== ========== ==========
Income taxes paid $1,411,000 $1,151,000 $ 448,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
Litchfield Financial Corporation (the "Company") is a specialty consumer
finance company which provides financing for the purchase of rural and vacation
properties ("Land Loans") and financing of vacation ownership interests ("VOI
Loans"), popularly known as timeshare interests. In addition, the Company makes
loans to rural land dealers and resort developers secured by consumer
receivables and other secured loans (collectively, "Dealer/Other Loans".)
Basis of Presentation The consolidated financial statements include the
accounts of Litchfield Financial Corporation and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Interest income
Interest income from loans and subordinated pass-through certificates held
to maturity is recognized using the interest method. Accrual of interest is
suspended when collection is doubtful and, in any event, when a loan is
contractually delinquent for ninety days and it is determined that amounts
cannot be recovered from dealer/developer reserves or guarantees. The accrual is
resumed when the loan becomes contractually current as to principal and interest
and past-due interest is recognized at that time.
Gain on sale of loans
Loans are typically sold to investors with the Company retaining a
participation in cash flows derived from the loans sold. Gain on sales of loans
are recorded on the settlement date based upon the difference between the
selling price and the carrying value of the loans sold using the specific
identification method. The gain is increased by the present value of the
differential between the interest to be collected from the borrower and the
interest to be passed on to the purchaser of the loan during the estimated
average life of the loans, less fees for normal servicing of the loans (referred
to as excess servicing asset). The excess servicing asset is calculated using
prepayment, default, and interest rate assumptions prevalent in the marketplace
at the time of sale for similar instruments. The Company provides an allowance
for expected losses under the recourse provisions at the time of the loan sale.
The excess servicing asset is amortized over the estimated life of the loans
using the interest method. Because a significant portion of the Company's
revenues is comprised of gains realized upon sales of loans, the timing of such
sales has a significant effect on the Company's results of operations.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On a quarterly basis, the Company assesses the carrying value of the excess
servicing asset by comparing actual versus assumed prepayment rates on a
disaggregated basis reflecting factors such as origination dates of the loans
and the types of loans. The Company will adjust the carrying value of the excess
servicing asset for any unfavorable changes.
Loans
Loans held for sale are carried at the lower of aggregate cost or market
value. Market value is determined by outstanding commitments from investors or
current investor yield requirements.
Provisions for loan losses and impairment of loans
Provisions for loan losses are charged to income in amounts sufficient to
maintain the allowances at levels considered adequate to cover anticipated
losses on outstanding loans, including loans sold and subordinated pass-through
certificates. Management evaluates allowance requirements on a quarterly basis
by examining current delinquencies, historical loan losses, the value of the
underlying collateral and general economic conditions and trends. Management
also evaluates the availability of dealer/developer reserves to absorb loan
losses. The Company determines those loans that are uncollectible based upon
detailed review of all loans and any charge-offs are charged to the allowance
for loan losses.
Land Loans and VOI Loans which consist of large groups of smaller balance
loans are evaluated collectively for impairment and are stated at the lower of
cost or fair value.
Dealer/Other Loans are evaluated individually for impairment based on the
factors described above. No such loans were impaired at December 31, 1996 or
1995.
Loan origination fees and related costs
The Company defers the excess of loan origination fees over related direct
costs and recognizes such amount as interest income over the estimated life of
the related loans using the interest method.
Real estate acquired through foreclosure
Real estate acquired through foreclosure is carried at the lower of fair
value less estimated costs to sell or cost. On a quarterly basis, the Company
evaluates the carrying value of the real estate and establishes a valuation
allowance if the fair value of the asset less the estimated costs to sell the
asset is less than the carrying value of the asset. Subsequent increases in the
fair market value less the estimated cost to sell the asset would reduce the
valuation allowance, but not below zero. There was no such valuation allowance
at December 31, 1996 or 1995. Other real estate owned of $1,775,000 and
$1,288,000 is included in other assets at December 31, 1996 and 1995,
respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Dealer/developer reserves
As part of the Company's financing of loans through dealer/developers, the
Company retains a portion of the proceeds from the purchased loans as a reserve
to offset potential losses on those loans. The Company negotiates the amount of
reserves with the dealer/developers based upon various criteria, including the
credit risk associated with the dealer/developer and the loans being purchased.
The Company generally returns any excess reserves to the dealer/developer on a
quarterly basis as the related loans are repaid by borrowers.
Income taxes
The Company uses the liability method of accounting for income taxes in
its financial statements.
Net income per common share
Primary and fully diluted earnings per share were computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding for each period.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted cash
Restricted cash and cash equivalents represent accounts established as
credit enhancements for certain loan sales and escrow deposits held for
customers.
Investments held to maturity and Subordinated pass-through certificates held to
maturity
Management determines the appropriate classification of debt securities at
the time of purchase. Debt securities are classified as held to maturity when
the Company has the intent and ability to hold the investments to maturity.
Investments held to maturity are carried at amortized cost and are included in
other assets.
The Company classifies its subordinated pass-through certificates as held
to maturity based on its ability and expressed intent to hold the certificates
of maturity. Historically, the Company has not sold its subordinated
pass-through certificates and cannot sell such certificates without the consent
of the senior certificate holders. In addition, the Company has pledged certain
pass-through certificates as collateral for certain liabilities and cannot sell
such certificates without the further consent of the lenders.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Subordinated pass-through certificates held to maturity are carried at
amortized cost less an allowance for loan losses. On a quarterly basis, the
Company assesses the carrying value of the subordinated pass-through
certificates for impairment. The Company considers the affect of changes in
prepayment, default and interest rates on the cash flows underlying the
subordinated pass-through certificates. The Company will adjust the carrying
value for any impairment of carrying value that it considers to be other
than-temporary.
Deferred debt issuance costs
Deferred debt issuance costs are amortized over the life of the related
debt. The unamortized balance of $1,820,000 and $2,211,000 is included in other
assets at December 31, 1996 and 1995, respectively. The amount of the
accumulated amortization was $1,051,000 and $675,000 at December 31, 1996 and
1995 respectively. Mortgage servicing rights
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights, an Amendment of FASB Statement No. 65." The Company adopted the
provisions of the standard in 1996. The standard requires the Company to
allocate the cost of purchasing or originating mortgage loans to the mortgage
servicing rights and the loans (without the servicing rights) based on their
relative fair values if the Company sells or securitizes the loans and retains
the servicing rights. Any cost allocated to mortgage servicing rights is
recognized as a separate asset. Mortgage servicing rights are amortized in
proportion to and over the period of estimated net servicing income and are
evaluated for impairment based on their fair value.
In the absence of fair market values for the servicing of Land and VOI
Loans, the Company uses fair values derived from cash flows to estimate fair
value. Such estimates consider assumptions about prepayments, defaults and
interest rates consistent with those used in the Company's gain on sale of loan
models described above.
Because estimated future cash flows from servicing approximate the cost of
servicing the related Land and VOI Loans, the Company did not allocate any cost
to mortgage servicing rights in 1996.
Reclassification
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation.
New accounting standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." In general, the
provisions of this standard are effective for financial statements for transfers
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and shall be applied prospectively. In future periods,
the Company's excess servicing asset will be reclassified as interest only
strips and will be accounted for under the provisions of the Statement of
Financial Accounting Standards No. 115 "Accounting For Certain Investments in
Debt and Equity Securities."
2. Investments Held to Maturity and Subordinated Pass-Through Certificates
Held to Maturity
The following is a summary of investments and subordinated pass-through
certificates held to maturity:
Gross Unrealized Fair
----------------
December 31, 1996 Cost Gains Losses Value
----------------- ---- ----- ------ ------
Mortgage-backed securities $142,000 $ --- $ --- $ 142,000
Subordinated pass-through
certificates 18,004,000 185,000 --- 18,189,000
----------- -------- ------ -----------
Total debt securities $18,146,000 $185,000 $ --- $18,331,000
=========== ======== ====== ===========
Gross Unrealized Fair
-----------------
December 31, 1995 Cost Gains Losses Value
----------------- ---------- ------- ------ ---------
Mortgage-backed securities $ 260,000 $ --- $ --- $ 260,000
Subordinated pass-through
certificates 13,468,000 15,000 --- 13,483,000
----------- ------- ----- -----------
Total debt securities $13,728,000 $15,000 $ --- $13,743,000
=========== ======= ===== ===========
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
Mortgage-backed securities are included in other assets.
Estimated
Cost Fair Value
------ -----------
Due in one year or less $ --- $ ---
Due after one year
through five years 18,146,000 18,331,000
----------- -----------
Total debt securities $18,146,000 $18,331,000
=========== ===========
In 1990, the Company began privately placing issues of pass-through
certificates evidencing an undivided beneficial ownership interest in pools of
loans held by a trust. The principal and part of the interest payments on the
loans transferred to the trust are collected by the Company, as the servicer of
the loan pool, remitted to the trust for the benefit of the investors, and then
distributed by the trust to the investors in the pass-through certificates.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In certain of the Company's issues of pass-through certificates, credit
enhancement was achieved by dividing the issue into a senior portion which was
sold to the investors and a subordinated portion which was retained by the
Company. The Company had investments in pass-through certificates of $18,004,000
and $13,468,000 at December 31, 1996 and 1995, respectively. In certain other of
the Company's private placements, credit enhancement was achieved through cash
collateral. The Company had $18,647,000 and $16,179,000 of restricted cash at
December 31, 1996 and 1995 representing credit enhancements.
If borrowers default in the payment of principal or interest on the loans
underlying these issues of pass-through certificates, losses would be absorbed
first by the subordinated portion or cash collateral retained by the Company and
might, therefore, have to be charged against the allowance for the loan losses
to the extent dealer/developer guarantees and reserves are not available.
3. Loans
Loans at December 31, 1996 and 1995 consisted of the following:
December 31,
----------------------
Loans held for sale 1996 1995
------------------- ------- ---------
Land $11,833,000 $ 9,125,000
VOI 2,194,000 7,546,000
Discount, net of accretion (950,000) (1,191,000)
Allowance for loan losses (817,000) (1,100,000)
------------ ------------
Loans, net $12,260,000 $14,380,000
============ ===========
December 31,
------------------------
Loans held for investment 1996 1995
------------------------- --------- ----------
Land $ 1,861,000 $ 1,429,000
VOI 1,313,000 3,698,000
Dealer/Other 79,374,000 30,140,000
Discount, net of accretion (1,352,000) (1,241,000)
Allowance for loan losses (1,200,000) (413,000)
------------ ------------
Loans, net $79,996,000 $33,613,000
============ ============
Contractual maturities of loans as of December 31, 1996 are as follows:
December 31,
1996
----------
1996 $13,654,000
1997 14,669,000
1998 10,517,000
1999 3,690,000
2000 4,613,000
Thereafter 45,113,000
-----------
$92,256,000
===========
It is the Company's experience that a substantial portion of the loans will
be repaid before contractual maturity dates. Consequently, the above tabulation
is not to be regarded as a forecast of future cash collections.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Allowances for Loan Losses
An analysis of the allowances for loan losses follows:
Loans owned and subordinated Year ended December 31,
--------------------------------
pass-through certificates 1996 1995 1994
-------------------------- ---------- -------- ----------
llowance at beginning of period $2,783,000 $384,000 $464,000
Net charge-offs of uncollectible
accounts (1) (1,395,000) (539,000) (80,000)
Provision for loan losses 1,735,000 761,000 ---
Allocation of purchase
adjustment (2) 294,000 2,177,000 ---
---------- ---------- --------
Allowance at end of period $3,417,000 $2,783,000 $384,000
========== ========== ========
Year ended December 31,
----------------------------------
Loans sold 1996 1995 1994
----------- ---------- --------- ----------
Allowance at beginning of period $ 932,000 $880,000 $600,000
Net charge-offs of uncollectible
accounts (3) (570,000) (407,000) (279,000)
Provision for loan losses 219,000 129,000 559,000
Allocation of purchase
adjustment (2) 530,000 330,000 ---
---------- -------- ---------
Allowance at end of period $1,111,000 $932,000 $880,000
========== ======== =========
(1) Net of recoveries of $240,000 in 1996 and $42,000 in 1994. There were no
recoveries in 1995.
(2) Represents allocation of purchase adjustment related to the purchase of
pools of certain loans including the GEFCO portfolio in 1995. (See Note
12.)
(3) Net of recoveries of $70,000, $11,000 and $5,000 in 1996, 1995 and 1994,
respectively.
Net charge-offs by major loan and collateral types experienced by the
Company are summarized as follows:
Year ended December 31,
-------------------------------------------
1996 1995 1994
---------- -------- -------
Land $ 669,000 $546,000 $359,000
VOI 1,284,000 45,000 ---
Dealer/Other 12,000 355,000 ---
---------- -------- --------
Total $1,965,000 $946,000 $359,000
========== ======== ========
5. Excess Servicing Asset
The activity in the excess servicing asset is summarized as follows:
Year ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Balance, beginning of period $10,058,000 $ 8,925,000 $4,931,000
Gain on sale of loans 4,641,000 3,232,000 5,971,000
Recapture on repurchase of loans (70,000) (52,000) (366,000)
Amortization (2,610,000) (2,047,000) (1,611,000)
----------- ------------ -----------
Balance, end of period $12,019,000 $10,058,000 $8,925,000
=========== =========== ===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Derivative financial instrument held for purposes other than trading
In June, 1994, the Company entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain interest rate increases. The
Company's objective in managing interest rate exposure is to match its
proportion of fixed versus variable rate assets, liabilities and loan sale
facilities. The interest rate cap entitles the Company to receive an amount,
based upon an amortizing notional amount, when commercial paper rates exceed 8%.
The notional amount was $5.4 million at December 31, 1996.
The premium paid for this interest rate cap agreement is amortized ratably
in the interest expense during the life of the agreement of seven years.
Payments to be received as a result of the cap agreement are accrued as a
reduction of interest expense. The unamortized cost of the premium is included
in other assets. The Company is exposed to credit loss in the event of
non-performance by the cap provider. The balance of the unamortized premium at
December 31, 1996 was $196,000.
7. Debt
Financial data relating to the Company's lines of credit is as follows:
Year ended December 31,
-----------------------------
1996 1995
----------- -----------
Lines of credit available:
Unsecured lines of credit $ --- $ ---
Secured lines of credit (1) 51,799,000 15,000,000
Total lines of credit ----------- -----------
available $51,799,000 $15,000,000
=========== ===========
Borrowings outstanding at
end of period:
Unsecured lines of credit $ --- $ ---
Secured lines of credit (1) 36,299,000 ---
Total borrowings outstanding ----------- ----------
at end of period $36,299,000 $ ---
=========== ==========
Weighted average interest rate
at end of period:
Unsecured lines of credit ---% ---%
Secured lines of credit 7.9% 9.5%
Total weighted average
interest rate 7.9% 9.5%
Maximum borrowings outstanding
at any month end:
Unsecured lines of credit $ --- $3,000,000
=========== ==========
Secured lines of credit $36,299,000 $5,000,000
=========== ==========
Average amount outstanding
during period:
Unsecured lines of credit $ --- $ 231,000
=========== ==========
Secured lines of credit $15,948,000 $2,306,000
=========== ==========
Weighted average interest rate
during the period (determined by
dividing interest expense by
average borrowings):
Unsecured lines of credit ---% 13.0%
Secured lines of credit 7.6% 9.8%
Total weighted average
interest rate during the period 7.6% 10.1%
(1) Amount includes $1,799,000 of outstanding borrowings at December 31, 1996 on
the revolving line of credit with Holland Limited Securities, Inc. (See Note
11.)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company had a secured line of credit of $30,000,000 from the Bank of
Boston as lead agent, and Fleet Bank. The Company can elect to borrow all or
part of the outstanding balance on the line of credit at either the Bank's prime
interest rate or the Eurodollar rate plus 2%. Outstanding borrowings under this
line of credit at December 31, 1996 were $26,200,000. The line of credit matures
in April 1997, with renewal at the lender's discretion.
The Company also entered into an additional secured line of credit of
$5,000,000 with another financial institution at that institution's prime rate
of interest plus 1.25%. This line of credit matures in July 1997. There were no
outstanding borrowings on this line of credit at December 31, 1996. In January
1997, the secured line of credit was increased to $8,000,000 and the maturity
was extended to January 1998. The above lines of credit are secured by consumer
receivables and other secured loans.
The Company also entered into a $15,000,000 line of credit facility with
the Bank of Scotland. The outstanding borrowings under this facility at December
31, 1996 were $8,300,000. This facility is secured by certain subordinated
pass-through certificates, excess servicing assets, cash collateral accounts and
certain other loans and matures in September 1999. Interest is payable quarterly
in arrears at the Bank's prime interest rate plus 1%. In January 1997, this
facility was increased to $20,000,000.
The Company is not required to maintain compensating balances or forward
sales commitments under the terms of these lines of credit. As described in Note
11, the Company also has line of credit as part of an asset backed commercial
paper facility.
At December 31, 1995 the secured line of credit from the Bank of Boston as
lead agent was $15,000,000 at the Bank's prime interest rate plus 1%. There were
no outstanding borrowings at December 31, 1995.
During the first quarter of 1995, the Company entered into a 10.43%,
$12,500,000 debt placement with an insurance company. Principal is payable
monthly based on collection of the underlying collateral. The note is redeemable
only with the approval of the noteholder. The note is collateralized by certain
of the Company's investments in subordinated pass-through certificates, excess
servicing assets, and cash. At December 31, 1996 and 1995, the balance
outstanding on the note was $7,428,000 and $9,836,000 and the approximate value
of the underlying collateral was $13,772,000 and $17,700,000, respectively.
On March 15, 1995, the Company completed a public offering of $18,400,000
of 10% Notes due 2004 ("1995 Notes"). The 1995 Notes allow for a maximum annual
redemption at the election of the noteholders of $920,000 and contain certain
restrictions regarding the payment of cash dividends and require the maintenance
of certain financial ratios. On April 1, 1996 the noteholders redeemed, and the
Company paid $120,000 of the 1995 Notes.
Previously, the Company completed public offerings of $15,065,000 in
November 1992 ("1992 Notes") and $17,570,000 in May 1993 ("1993 Notes"). The
1992 Notes and the 1993 Notes bear interest at 10% and 8 7/8%, respectively, and
are due 2002 and 2003, respectively. The 1992 Notes and the 1993 Notes are
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
unsecured obligations of the Company and each such issuance allows for a maximum
annual redemption by noteholders of 5% of the original principal amount thereof.
On November 1, 1996, the Company repaid $103,000 of the 1992 Notes due 2002
pursuant to the noteholders' annual redemption rights. On August 1, 1996 and
June 1, 1996, the Company repaid $20,000 and $163,000, respectively of the 1993
Notes due 2003 pursuant to the noteholders' annual redemption rights.
8. Retirement Plans
Effective January 1, 1996, the Company implemented the Litchfield Financial
Corporation Employee 401(k) Plan ("the Plan"), a defined contribution plan for
all eligible employees at least 21 years of age and who have been employed by
the Company for at least six months. Participating employees may elect to defer
up to fifteen percent of their annual gross earnings. The Company will match an
amount equal to one hundred percent of the employee's pretax contributions up to
five percent of the employee's eligible compensation contributed into the Plan.
Contributions made by the Company in 1996 were $101,000.
The Company established a Simplified Employee Pension (SEP) Plan in 1992.
The SEP is a defined contribution plan for all eligible employees at least 21
years of age and who have worked for the Company in at least three of the
immediately preceding five years. Contributions to the SEP were made entirely at
the discretion of the Company. Contributions to the SEP in 1994 were $92,000.
There were no contributions in 1995 and the plan was discontinued in 1996.
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
December 31
1996 1995
Deferred Tax Assets:
Loan loss allowance $ 350,000 $ 348,000
Other 282,000 109,000
------- -------
Total deferred tax assets 632,000 457,000
Valuation allowance --- ---
Net deferred tax assets 632,000 457,000
------- --------
Deferred Tax Liabilities:
Depreciation 50,000 28,000
Mortgage loan income recognition. 3,696,000 2,746,000
Accretion income 1,662,000 1,423,000
Other 304,000 ---
--------- ---------
Total deferred tax liabilities 5,712,000 4,197,000
--------- ----------
Net deferred tax liabilities $5,080,000 $3,740,000
========== ==========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Significant components of the provision for income taxes attributable
to continuing operations are as follow:
Year ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
Current:
Federal $1,911,000 $ 819,000 $ 462,000
State 50,000 38,000 56,000
--------- --------- ---------
Total Current 1,961,000 857,000 518,000
--------- --------- ---------
Deferred:
Federal 1,288,000 1,191,000 1,098,000
State 52,000 18,000 3,000
---------- --------- ---------
Total Deferred 1,340,000 1,209,000 1,101,000
---------- --------- ---------
$3,301,000 $2,066,000 $1,619,000
========== ========== ==========
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
Year ended December 31,
-----------------------------------
1996 1995 1994
------ ------ ------
Tax at U.S. statutory rates 35.0% 34.0% 34.0%
State income taxes, net of
federal tax benefit 3.4 3.4 3.5
Other - net 0.1 0.1 ---
----- ----- -----
38.5% 37.5% 37.5%
===== ===== =====
10. Stockholders' Equity and Stock Option Plans
Stockholders' Equity
In July 1996, the Board of Directors declared a five percent stock dividend
of the Company's Common Stock paid August 9, 1996 to stockholders of record on
July 23, 1996. Accordingly, weighted average share and per share amounts have
been restated for periods presented. The Company also declared 5% stock
dividends in 1995 and 1994.
Stock Option Plans
The Company has reserved 1,122,319 shares of common stock for issuance to
officers, directors and employees on exercise of options granted under a stock
option plan established in 1990. Options were granted at prices equal to or in
excess of the fair market value of the stock on the date of the grant. There
were 615,000 and 384,000 shares exercisable at December 31, 1996 and 1995,
respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Information with respect to options granted is as follows:
Number Exercise
of price
Shares per share
------- --------------
Outstanding at December 31, 1993 503,644
Granted 200,656 $11.11 - $11.67
Canceled or exercised (26,831) $1.15 - $11.23
-------
Outstanding at December 31, 1994 677,469
Granted 81,588 $9.98 - $11.56
Canceled or exercised (43,385) $1.44 - $11.67
-------
Outstanding at December 31, 1995 715,672
Granted 204,311 $11.55 - $14.05
Canceled or exercised (13,175) $1.15 - $11.55
-------
Outstanding at December 31, 1996 906,808
=======
In April 1995, the Company established the Stock Option Plan for
Non-Employee Directors which provides for the grant of options to purchase 5,513
shares of common stock to each non-employee director serving on the Board at the
time the plan was approved and to each new non-employee director elected in the
five year period commencing April 1995. The maximum number of shares for which
options may be granted under the plan is 66,150 shares. Options for 22,052
shares were granted at an exercise price of $12.02 per share in 1995 which was
the fair market value on the date of grant. There were 22,052 options
outstanding at December 31, 1996 and 1995. There were 7,352 options that were
exercisable at December 31, 1996. There were no options exercisable at December
31, 1995.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.23%
and 6.31%; a dividend yield of .35%, volatility factors of the expected market
price of the Company's common stock of .24; and a weighted-average expected life
of the option of 7.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1996 1995
----- -----
Pro forma net income $4,983,000 $3,363,000
Pro forma earnings per share
Primary $ .88 $ .74
Fully-diluted $ .87 $ .74
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
11. Sale of Loans
The Company has sold $249,451,000 and $194,515,000 of loans at face value
through December 31, 1996 and 1995, respectively. The principal amount remaining
on the loans sold was $129,619,000 and $111,117,000 at December 31, 1996 and
1995, respectively. The Company guarantees, through replacement or repayment,
loans in default up to a specified percentage of loans sold. Dealer/developer
guaranteed loans are secured by repurchase or replacement guarantees in addition
to, in most instances, dealer/developer reserves.
The Company's exposure to loss on loans sold in the event of nonperformance
by the consumer, the dealer/developer on its guarantee, and the determination
that the collateral is of no value was $8,780,000, $10,259,000, and $12,456,000
at December 31, 1996, 1995 and 1994, respectively. Such amounts have not been
discounted. The Company repurchased $991,000, $448,000 and $259,000 of loans
under the recourse provisions of loan sales in 1996, 1995, and 1994,
respectively. Net charge-offs on loans repurchased under recourse provisions
were $570,000, $407,000, and $279,000 in 1996, 1995, and 1994, respectively. In
addition, when the Company sells loans through securitization programs, the
Company commits either to replace or repurchase any loans that do not conform to
the requirements thereof in the operative loan sale document.
The Company's Serviced Portfolio is geographically diversified with
collateral and consumers located in 41 and 50 states, respectively. At December
31, 1996, 14.3% of the collateral by principal balance was located in Texas and
14.4% and 12.2% of the borrowers by collateral location were located in Texas
and Florida, respectively. No other state accounted for more than 10.0% of the
total.
The Company has a revolving line of credit and sale facility as part of an
asset backed commercial paper facility with Holland Limited Securitization, Inc.
("HLS") a multi-seller commercial paper issuer sponsored by Internationale
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Nederlanden (U.S.) Capital Markets, Inc. ("ING"). In October 1996, the Company
amended the facility to increase the facility to $100,000,000, subject to
certain terms and conditions, reduce credit enhancement requirements and expand
certain loan eligibility criteria. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with HLS or sells the loans to HLS. HLS issues commercial paper
or other indebtedness to fund the purchase or pledge of loans from LMSC. HLS is
not affiliated with the Company or its affiliates. As of December 31, 1996, the
outstanding balance of the loans sold under this facility was $77,521,000 and
outstanding borrowings under the line of credit were $1,799,000. Interest is
payable on the line of credit at an interest rate based on certain commercial
paper rates.
12. Portfolio Acquisition
On April 27, 1995, the Company purchased a portfolio of VOI Loans, loans to
developers secured by VOI Loans, other performing and non performing loans, and
other related assets from GEFCO. The purchase price and allocation of the
purchase price was as follows:
Purchase Price:
Cash paid to GEFCO $37,985,000
Net liabilities assumed from GEFCO 1,688,000
Other direct costs of acquisition 1,263,000
---------
Total $40,936,000
===========
Allocation of purchase price:
VOI Loans $34,138,000
Loans secured by VOI Loans 2,799,000
Other loans and assets 3,999,000
---------
Total $40,936,000
===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Market for Common Stock (Unaudited)
The Company's Common Stock is traded on The Nasdaq Stock Market's National
Market under the symbol "LTCH." The following table sets forth, for the periods
indicated, the high and low stock prices of the Company's Common Stock. All
share prices have been adjusted for a 5% stock dividend in each of 1996, 1995
and 1994.
High Low Dividends
1994
1st Quarter................ 12 3/8 9 1/4 ---
2nd Quarter................ 11 7/8 10 3/8 ---
3rd Quarter................ 13 3/8 10 3/8 ---
4th Quarter................ 11 3/8 9 1/2 $.03
1995
1st Quarter................ 10 7/8 9 5/8 ---
2nd Quarter................ 12 7/8 10 ---
3rd Quarter................ 16 12 3/8 ---
4th Quarter................ 15 1/4 12 3/8 $.04
1996
1st Quarter................ 13 5/8 11 ---
2nd Quarter................ 14 1/4 12 7/8 ---
3rd Quarter................ 15 11 1/2 ---
4th Quarter................ 15 12 1/2 $.05
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
14. Quarterly Results of Operations (Unaudited)
<S> <C>
First Second Third Fourth Total
--------- ---------- ---------- --------- -----------
1994
Total revenues ................ $ 1,952,000 $ 2,979,000 $ 3,672,000 $ 2,372,000 $ 10,975,000
Total expenses ................ 1,435,000 1,670,000 1,579,000 1,973,000 6,657,000
Income before
extraordinary item ......... 318,000 805,000 1,346,000 230,000 2,699,000
Extraordinary item (net of
applicable taxes) .......... -- (125,000) (2,000) 1,000 (126,000)
Net income .................... 318,000 680,000 1,344,000 231,000 2,573,000
Income before extraordinary
item per common share ... .07 .19 .31 .05 .63
Extraordinary item per
common share ............... -- (.03) -- -- (.03)
Net income per common share ... .07 .16 . 31 .05 .60
Weighted average number of
shares outstanding ......... 4,293,753 4,308,684 4,287,744 4,236,444 4,280,006
1995
Total revenues ................ $ 2,750,000 $ 4,574,000 $ 5,464,000 $ 4,673,000 $ 17,461,000
Total expenses ................ 2,157,000 3,013,000 3,137,000 3,639,000 11,946,000
Net income .................... 370,000 975,000 1,454,000 650,000 3,449,000
Net income per common share ... .09 .22 .33 .13 .76
Weighted average number of
shares outstanding ......... 4,233,442 4,345,396 4,412,366 5,198,700 4,543,009
1996
Total revenues ................ $ 4,715,000 $ 6,261,000 $ 7,136,000 $ 6,071,000 $ 24,183,000
Total expenses ................ 3,420,000 3,720,000 3,967,000 4,502,000 15,609,000
Net income .................... 798,000 1,564,000 1,946,000 965,000 5,273,000
Primary net income per
common share ............... .14 .27 .34 .17
.93
Primary weighted average
number of shares outstanding 5,637,643 5,708,160 5,697,094 5,706,037 5,674,264
Fully-diluted net income per
common share ............... .14 .27 .34 .17
.92
Fully-diluted weighted average
number of shares outstanding 5,700,891 5,708,191 5,720,924 5,754,250 5,736,467
</TABLE>
A significant portion of the Company's revenues consists of gains on sales
of loans. Thus, the timing of loan sales has a significant effect on the
Company's Accruals of approximately $510,000 and $285,000 for salary
compensation as the result of the realization of performance criteria by certain
executive and management personnel were recorded in the fourth quarter of 1995
and 1994. In 1996, such amounts were accrued throughout the year including
$128,000 in the fourth quarter.
<PAGE>
To the Stockholders and Noteholders of
LITCHFIELD FINANCIAL CORPORATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. They include amounts
based on informed judgment and estimates. The representations in the financial
statements are the responsibility of management. Financial information elsewhere
in the Annual Report is consistent with that in the financial statements.
To meet management's responsibility, the Company maintains a system of
internal control designed to provide reasonable assurance that errors or
irregularities that could be material to the financial statements are prevented
or would be detected within a timely period. The system of internal control
includes statements of policies and business practices, widely communicated to
employees, which are designed to require them to maintain high ethical standards
in their conduct of Company affairs. The internal controls are augmented by
organizational arrangements that provide for appropriate delegation of authority
and division of responsibility and by a program of internal audit with
management follow-up.
The financial statements have been audited by Ernst & Young LLP. Their
audit was conducted in accordance with generally accepted auditing standards and
included a review of internal controls and selective tests of transactions.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, meets periodically with the independent auditors and management to
review accounting, auditing, internal accounting controls and financial
reporting matters. The independent auditors have free access to this committee
without management present.
Ernst & Young LLP
Boston, Massachusetts
January 31, 1997
The Board of Directors and Stockholders
LITCHFIELD FINANCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of Litchfield
Financial Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Litchfield
Financial Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Ronald E. Rabidou Norah K. Bresett
Chief Financial Officer Chief Accounting Officer and Controller
<PAGE>
Corporate Officers
Richard A. Stratton
Chief Executive Officer and President
Heather A. Sica
Executive Vice President and Treasurer
Ronald E. Rabidou, C.P.A.
Chief Financial Officer
Wayne M. Greenholtz
Senior Vice President
James H. Shippee
Senior Vice President
Michael A. Spadacino, Esq.
Senior Vice President
James A. Yearwood
First Vice President
Norah K. Bresett, C.P.A.
Chief Accounting Officer
and Controller
General Counsel
Hutchins, Wheeler & Dittmar,
A Professional Corporation
Boston, MA
Transfer Agent
State Street Bank and Trust Company
c/o Boston EquiServe
Boston, MA
<PAGE>
Independent Auditors
Ernst & Young LLP
Boston, MA
Board of Directors
John A. Costa
Managing Director of Planning and Business Development for Cardholder
Management Services
Donald R. Dion, Jr., Esq.
Chairman and Chief Executive Officer of Dion Money Management Advisors, Inc.
David J. Ferrari
President, Argus Management Corporation
Gerald Segel
Retired Chairman, Tucker, Anthony & R.L. Day, Inc.
Heather A. Sica
Executive Vice President and Treasurer
Richard A. Stratton
Chief Executive Officer and President
James Westra, Esq.
Stockholder of Hutchins, Wheeler & Dittmar, A Professional Corporation
Nasdaq Symbol
The common stock is traded under the symbol "LTCH".
Copies of the Company's Form 10-K Report, filed with the Securities and
Exchange Commission, may be obtained from the office of the Treasurer,
Litchfield Financial Corporation, 789 Main Road, Stamford, VT 05352.
As of January 31, 1997, there were 1,467 stockholders of record.
<PAGE>
Corporate Headquarters
Litchfield Financial Corporation
Physical Address:
789 Main Road
Stamford, VT 05352
Mailing Address:
P.O. Box 488
Williamstown, MA 01267
Tel: (802) 694-1200
Fax: (802) 694-1237
Western Regional Office
Litchfield Financial Corporation
13701 West Jewell Avenue
Suite 200
Lakewood, CO 80228
Tel: (303) 985-1030
Fax: (303) 985-5375
Exhibit 21.1
LITCHFIELD FINANCIAL CORPORATION
List of Subsidiaries
Name and Doing Business As Incorporation D/B/A
--------------------------- -------------- -----
Litchfield Financial Corporation Massachusetts None
Litchfield Mortgage Securities Corporation Massachusetts None
Litchfield Mortgage Securities Corporation 1992-2 Massachusetts None
Taconic Financial Services Corporation Vermont None
Litchfield Mortgage Securities Corporation 1994 Delaware None
Litchfield Residual Securities Corporation Delaware None
Stamford Asset Recovery Corporation Delaware None
Stamford Business Credit Corporation Delaware None
Litchfield Timeshare Securities Corporation 1995 Delaware None
LTSC Real Estate Asset Corporation Delaware None
Litchfield Capital Corporation 1996 Delaware None
Green Mountain Funding Corporation Delaware None
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Litchfield Financial Corporation of our report dated January 31, 1997,
included in the 1996 Annual Report to Stockholders of Litchfield Financial
Corporation.
We also consent to the incorporation by reference in Registration
Statements (Forms S-8 Nos. 333-11529 and 333-11531) filed with the Securities
and Exchange Commission pertaining to various Litchfield Financial Stock Option
Plans of our report dated January 31, 1997, with respect to the consolidated
financial statements of Litchfield Financial Corporation incorporated by
reference in the Annual Report (Form 10-K) for the year ended December 31, 1996
ERNST & YOUNG LLP
Boston, Massachusetts
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 24,480
<SECURITIES> 18,004
<RECEIVABLES> 92,256
<ALLOWANCES> 4,528
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 153,800
<CURRENT-LIABILITIES> 0
<BONDS> 46,995
0
0
<COMMON> 54
<OTHER-SE> 42,394
<TOTAL-LIABILITY-AND-EQUITY> 153,800
<SALES> 0
<TOTAL-REVENUES> 24,183
<CGS> 0
<TOTAL-COSTS> 0
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</TABLE>
