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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 COMMISSION FILE NUMBER 0-19799
SEPTEMBER 30, 1996
EXPRESS AMERICA HOLDINGS
CORPORATION
DELAWARE 86-0670679
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.
INCORPORATION OR ORGANIZATION)
TWO RENAISSANCE SQUARE
40 NORTH CENTRAL, 12TH FLOOR
PHOENIX, ARIZONA 85004
(602) 417-8100
SECURITIES REGISTERED PURSUANT TO
SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At November 30, 1996, the registrant had 3,860,130 shares of common stock
outstanding. On such date, the aggregate market value of common stock held by
non-affiliates of the Registrant was approximately $15,630,091.
DOCUMENTS INCORPORATED BY REFERENCE
Materials have been incorporated by reference into this Report from the
following documents: Materials from the Registrant's Proxy Statement relating to
the 1997 Annual Meeting of Stockholders have been incorporated by reference into
Part III, Items 10, 11, 12 and 13.
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TABLE OF CONTENTS
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Page
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PART I
Item 1. Business .............................................................. 3
Item 2. Properties ............................................................ 9
Item 3. Legal Proceedings ..................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders ................... 10
Executive Officers of the Registrant ................................ 11
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters ......................................... 12
Item 6. Selected Consolidated Financial Data .................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................... 16
Item 8. Financial Statements and Supplementary Data ........................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................ 37
PART III
Item 10. Directors and Executive Officers of the Registrant .................... 37
Item 11. Executive Compensation ................................................ 37
Item 12. Security Ownership of Certain Beneficial Owners and Management ....... 37
Item 13. Certain Relationships and Related Transactions ........................ 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ...... 38
SIGNATURES................................................................................ 42
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PART I
ITEM 1. BUSINESS
GENERAL
Express America Holdings Corporation (the "Company" or "Express America") is
a holding company that, through its wholly-owned subsidiaries, provides
investment management and related services for six open-end funds (the "Open-end
Funds") and two closed-end funds (the "Closed-end Funds") (each a "Fund" and
collectively the "Pilgrim America Funds" or the "Funds"). Express America is
traded on the Nasdaq Stock Market National Market System (the "Nasdaq NMS")
under the symbol EXAM. The Company commenced its investment management
operations on April 7, 1995, when it consummated the acquisition (the
"Acquisition") of certain of the assets of Pilgrim Group, Inc. (now known as
Atlas Financial Group, Inc.) and its subsidiaries ("Atlas").
Express America was incorporated as First Western Corporation and changed its
name on September 20, 1993. Express America Mortgage Corporation ("EAMC"), a
wholly-owned subsidiary, was incorporated as Wesav Mortgage Corporation and
changed its name on June 14, 1993. The terms "Company" and "Express America"
refer to the Company and its consolidated subsidiaries. Prior to the
Acquisition, the Company, primarily through the activities of EAMC, had been
engaged in the mortgage banking business, deriving revenues primarily from
mortgage loan servicing and mortgage loan originations. On September 30, 1994,
the Company sold substantially all of its servicing assets to NationsBanc
Mortgage Corporation. On February 28, 1995, the Company announced the
discontinuance of all remaining mortgage banking operations. EAMC is in the
process of selling its remaining mortgage banking related assets (see Item 7.
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for further discussion of discontinued operations).
The Company paid Atlas and its shareholders $28.1 million and assumed certain
liabilities. The Company recorded goodwill in connection with the Acquisition of
$32.3 million, which included provisions for certain transaction costs related
to the Acquisition and the cost of moving the acquired operations to Phoenix,
Arizona, which occurred in the fourth quarter of 1995. The Acquisition was
funded through working capital of the Company.
As a result of the Acquisition, the Company became the manager of the
Open-end Funds: Pilgrim America MagnaCap Fund, Pilgrim America High Yield Fund
and Pilgrim Government Securities Income Fund (collectively referred to as the
"Elite Series"); and the Closed-end Funds, which are traded on the New York
Stock Exchange: Pilgrim America Prime Rate Trust and Pilgrim America Bank and
Thrift Fund, Inc. ("Pilgrim America Bank and Thrift Fund"); which at that date
had combined net assets of $1.3 billion. The Company also became a distributor
and servicing agent for a money market fund.
In connection with the Acquisition, the Company formed three new wholly-owned
subsidiaries: Pilgrim America Investments, Inc. ("PAI"), a registered investment
adviser which serves as the investment manager for Pilgrim America Funds;
Pilgrim America Securities, Inc. ("PAS"), a broker-dealer registered with the
National Association of Securities Dealers, Inc. (the "NASD"), which serves as
the distributor of the Open-end Funds; and Pilgrim America Group, Inc. ("PAG"),
the parent of PAI and PAS.
On September 1, 1995, the Company introduced three new Open-end Funds:
Pilgrim America Masters Asia-Pacific Equity Fund, Pilgrim America Masters MidCap
Value Fund and Pilgrim America Masters LargeCap Value Fund (collectively
referred to as the Pilgrim America Masters Series of Funds or the "Masters
Series"). The Masters Series was designed to give investors access to private
money managers who typically manage similar portfolios only for high net worth
individuals and institutional investors. Each of these funds has its own
investment objectives and policies and is subadvised by a money manager
("Sub-Advisor") selected by the Company based on the Sub-Advisor's knowledge and
proven experience in its specialized market segment. Pursuant to portfolio
management agreements between the Company and each Sub-Advisor, the Company pays
subadvisory fees to the Sub-Advisors based on the average net assets of the
Masters Series fund managed by each particular Sub-Advisor.
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INVESTMENT MANAGEMENT SERVICES
The Company provides investment advisory, distribution and administrative
services for Pilgrim America Funds under investment management and
administration agreements and distribution plans with the Funds. Pursuant to the
investment management agreements with each of the Funds, PAI provides investment
advisory services to each Fund, subject to authority of each Fund's board of
directors or trustees (the "Boards") and to each Funds' investment objectives,
policies and restrictions. The investment management agreements are effective
for two years following execution and must be approved annually thereafter by
the Boards of the respective Funds, including a majority of the independent
trustees or directors (i.e. those who are not "interested persons" with respect
to PAI, as defined in section 2(a)(19) of the Investment Company Act of 1940, as
amended (the "Investment Company Act")). The agreements generally are terminable
upon 60 days notice without penalty.
The Elite Series Funds and the Closed-end Funds are managed by portfolio
managers employed by the Company. The Company's portfolio management staff
includes five portfolio managers, two assistant portfolio managers, three
analysts and a chief investment officer. The Masters Series Funds are managed by
the Sub-Advisors selected by the Company and approved by the Board of the
respective Master Series Funds.
Generally, the Company employs the personnel who serve as officers of the
Funds and who manage the day-to-day business operations, including maintaining
the Funds' portfolio records, answering shareholder inquiries, providing
information, creating and publishing information, monitoring compliance with
securities regulations, and other administrative activities. The Funds generally
pay their own expenses such as legal and auditing fees, board and shareholder
meeting costs, Securities and Exchange Commission (the "Commission") and state
registration fees and similar expenses.
REVENUES
Substantially all of the Company's revenues are derived from investment
management, administrative and distribution fees which are based on a percentage
of net assets under management plus, in the case of Pilgrim America Prime Rate
Trust, the proceeds of any borrowings (hereinafter, collectively referred to as
"Assets") (see "The Closed-end Funds" below). These revenues are earned pursuant
to agreements with the Funds. Typically, management fees earned by the Company
on equity Funds are higher than those related to fixed income Funds (see
"Pilgrim America Funds" below). Since the Company's revenues are largely
dependent on the total value and composition of Assets under management,
fluctuations in financial markets and in the composition of Assets could
significantly effect the Company's revenues and the results of its operations.
PILGRIM AMERICA FUNDS
THE OPEN-END FUNDS
The Open-end Funds are marketed and distributed through PAS in accordance
with distribution plans adopted by each Fund pursuant to Rule 12b-1 of the
Investment Company Act and the rules of the NASD. Pursuant to the distribution
plans, as underwriter to each Fund, PAS receives distribution ("12b-1") fees as
compensation or for reimbursement of expenses incurred in connection with the
offering, sale and shareholder servicing of each Fund's shares. The 12b-1 fees
are limited based upon net assets of the particular Fund and share class sold.
The distribution plans must be approved annually by the Board of the respective
Funds, including a majority of the independent directors or trustees. These
distribution plans are terminable at any time without notice or penalty. The
termination of the distribution plans would result in the loss of 12b-1 fees to
the Company.
PAS distributes the Open-end Funds on a wholesale basis through independent
financial professionals, national and regional brokerage firms, and other
financial institutions ("Authorized Dealers"). Although the Authorized Dealers
have entered into selling agreements with the Company, such agreements (which
generally are terminable by either party without penalty) do not legally
obligate the Authorized Dealers to sell any specific amount of the Company's
investment products (see "Competition and Marketing Strategy" below). PAS
maintains a sales force of wholesale sales representatives and sales assistants.
Wholesalers and their assistants work closely with the Authorized Dealers to
assist in selling shares of the Open-end Funds.
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Distribution of Open-end Fund Shares
Beginning in 1995, each Open-end Fund began offering three classes of shares.
Each share of these classes represents an identical interest in the Funds but
has varying types and amounts of sales and distribution charges.
Class A shares are offered with a maximum initial sales charge of 5.75% for
equity Funds, and 4.75% for fixed income Funds. Sales charges are based on the
value of the shares sold. The majority of the sales charge is paid, or
"reallowed", to the Authorized Dealers. PAS receives the balance as an
underwriting commission of up to .75% of the value of the shares sold. PAS also
receives 12b-1 fees from the Funds at an annual rate of .25% to .30% of Class A
share average daily net assets.
Class B shares are offered with no initial sales charge. PAS pays a
commission of up to 4.00% to the Authorized Dealer at the time of sale. Such
payments are capitalized as deferred acquisition costs and are amortized over a
six-year period. The shareholder then pays a contingent sales charge to PAS in
the event shares are redeemed within a six-year period from the date of
purchase. The Company uses its own funds (which may be borrowed) to pay
commissions to Authorized Dealers. The Company "recovers" the broker commission
through a 12b-1 fee received from the Funds that is higher than that of Class A
or M shares, and is paid at an annual rate of 1.00% of Class B share average
daily net assets. Class B shares automatically convert to Class A shares
approximately eight years after purchase.
Class M shares are offered with a lower initial sales charge than Class A
shares. The maximum initial sales charge is 3.50% for equity Funds, and 3.25%
for fixed income Funds. As with Class A shares, the majority of this commission
is reallowed to the Authorized Dealer. PAS receives the balance as an
underwriting commission of up to .50% of the value of the shares sold. PAS also
receives 12b-1 fees from the Funds at an annual rate of .75% of Class M share
average daily net assets.
Under the Funds' distribution plans, ongoing payments are made by PAS on a
quarterly basis to Authorized Dealers for distribution and shareholder
servicing, based on each Fund's average annual Assets at .25% for Class A
shares, .25% for Class B shares, and .40% to .65% for Class M shares. Payments
begin in the 13th month following purchase of Class A or B shares and in the 1st
month following purchase of Class M shares.
Each of the Open-end Funds has distinct investment objectives and policies
which have been developed as part of the Company's strategy to provide core
investments to investors.
The Elite Series
Pilgrim America MagnaCap Fund seeks growth of capital, with income as a
secondary consideration, through investing in equity securities determined to be
of high quality based upon its "rising dividends" criteria. Management fees for
the Fund range from .50% to 1.00% of average annual Assets. Organized in 1969,
Assets of the Fund at September 30, 1996 were $269.2 million.
Pilgrim America High Yield Fund seeks a high level of current income, with
capital appreciation as a secondary objective, through investing in a
diversified portfolio of high-yielding debt securities. Management fees for the
Fund are based on asset levels and range from .40% to .75% annual Assets.
Organized in 1939, Assets of the Fund at September 30, 1996 were $30.8 million.
Pilgrim Government Securities Income Fund seeks a high level of current
income, consistent with liquidity and preservation of capital, through investing
in a portfolio of securities issued or guaranteed by the U.S. Government, or
certain of its agencies and instrumentalties. Management fees for the Fund range
from .40% to .50% of average annual Assets. Organized in 1984, Assets of the
Fund at September 30, 1996 were $36.0 million.
The Masters Series
Pilgrim America Masters Asia-Pacific Equity Fund seeks long-term appreciation
through investing in the equity securities of companies based in the
Asia-Pacific region. Management fees for the Fund are 1.25% of average annual
Assets. Organized in July 1995, Assets of the Fund at September 30, 1996 were
$53.1 million.
The Sub-Advisor of the Fund is HSBC Asset Management Americas, Inc. and HSBC
Asset Management Hong Kong Limited (collectively "HSBC"), subsidiaries of HSBC
Holdings plc, which was
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founded as the Hong Kong and Shanghai Banking Corporation in 1865. HSBC manages
over $36 billion of assets worldwide and its clients primarily include pension
funds, institutional investors, and high net worth individuals. HSBC's minimum
investment requirement for privately managed accounts is $10 million.
Pilgrim America Masters MidCap Value Fund seeks to provide long-term capital
appreciation through investing in equity securities of companies believed to be
undervalued and generally having market capitalization of between $200 million
and $5 billion. Management fees for the Fund are 1.00% of average annual Assets.
Organized in July 1995, Assets of the Fund at September 30, 1996 were $11.4
million.
The Sub-Advisor of the Fund is CRM Advisors, LLC ("CRM"), an affiliate of
Cramer Rosenthal McGlynn, Inc. which was established in 1973. Cramer Rosenthal
McGlynn, Inc. manages $2.4 billion of assets and its clients primarily include
pension plans, high net worth individuals, foundations, endowment funds, and
others. CRM's minimum investment requirement for privately managed accounts is
$5 million.
Pilgrim America Masters LargeCap Value Fund seeks to provide long-term
capital appreciation through investing in equity securities of companies
believed to be undervalued and generally having market capitalizations of at
least $5 billion. Management fees for the Fund are 1.00% of average annual
Assets. Organized in July 1995, Assets of the Fund at September 30, 1995 were
$12.2 million.
The Sub-Advisor of the Fund is Ark Asset Management Co., Inc. ("Ark"),
formerly the institutional investment management division of Lehman Brothers,
which was established in 1929. Ark manages $21.4 billion of assets and its
clients primarily include pension plans, high net worth individuals,
foundations, endowment funds and others. Ark's minimum investment requirement
for privately managed accounts is $50 million.
THE CLOSED-END FUNDS
The Closed-end Funds, which comprise a majority of Assets under management,
are traded on the New York Stock Exchange. Consequently, PAS does not earn a
commission on sales of shares of these Funds.
Pilgrim America Prime Rate Trust seeks a high level of current income as is
consistent with preservation of capital by acquiring, as banks and other
financial institutions do, interests in senior collateralized corporate loans.
At a meeting on May 2, 1996 the Fund's shareholders approved an amendment to
the Fund's fundamental investment policies permitting the Fund to engage in
borrowing transactions for investment purposes to the extent permitted under the
Investment Company Act. The Investment Company Act permits borrowing up to a
maximum of 33 1/3% of the Fund's total assets (including amounts borrowed). The
Fund's shareholders also approved an amendment to the investment management
agreement to provide that the Fund pay PAI for management and administrative
services at the current rate schedule based on the expanded base of assets
(defined as average daily net assets plus average daily proceeds of any
outstanding borrowings or "Assets under management"). As a result of these
amendments, on May 10, 1996 the Fund entered into a credit agreement which
provides that the Fund can borrow up to $285 million, or approximately 25% of
the Funds total assets. Significant borrowings began during the fourth quarter
of Fiscal 1996.
Management fees and administrative fees for the Fund range from .65% to .85%,
and .10% to .15%, of Assets under management, respectively. Organized in 1988,
net assets of the Fund at September 30, 1996 were $869.2 million, and borrowings
were $179.0 million.
On November 19, 1996, Pilgrim America Prime Rate Trust issued 18,122,963
additional shares of beneficial interest in the Fund ("Common Shares") pursuant
to a one for five non-transferable rights offering (the "Offering") which was
completed on November 12, 1996. Total net proceeds to the Fund were $157.7
million, after the deduction of Offering expenses.
As a result of the Offering, the Fund is anticipating increasing its
borrowings proportionately with the increase in its net assets and is currently
negotiating with outside lenders to increase borrowing capacity. Additionally,
the Company has agreed to reduce its management fees on Assets in the Fund over
$1.15 billion to .60% for a period of three years following the Offering.
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Pilgrim America Bank and Thrift Fund seeks long-term capital appreciation
with income as a secondary objective by investing primarily in equity securities
of national and state chartered banks other than money center banks, thrifts,
the holding or parent companies of such institutions and in savings accounts of
mutual thrifts. Management fees for the Fund range from .70% to 1.00% of average
annual net assets. Organized in 1986, Assets of the Fund at September 30, 1996
were $243.6 million.
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The following table summarizes each Fund, its Assets and fee structure as of
September 30, 1996:
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Assets Under Assets Under Management Administrative Distribution
Management Management Fee Fee Fee
(In Millions) (In Millions) (Basis (Basis (Basis
September 30, September 30, Points) Points) Points)
1996 1995 (1) (1) (2)
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OPEN-END FUNDS
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Pilgrim America MagnaCap Fund $ 269.2 $ 215.2 50-100 -- 30-100
Pilgrim America High Yield Fund 30.8 15.6 40-75 -- 25-100
Pilgrim Government Securities
Income Fund 36.0 42.8 40-50 -- 25-100
Pilgrim America Masters Asia-
Pacific Equity Fund 53.1 1.6 125 -- 25-100
Pilgrim America Masters MidCap Value
Fund 11.4 0.9 100 -- 25-100
Pilgrim America Masters LargeCap
Value Fund 12.2 1.2 100 -- 25-100
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Total Open-end Fund Assets 412.7 277.3
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CLOSED-END FUNDS
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Pilgrim America Prime Rate Trust (3) 1,048.2 868.0 65-85(4) 10-15 --
Pilgrim America Bank and Thrift
Fund 243.6 202.3 70-100 -- --
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Total Closed-end Fund Assets 1,291.8 1,070.3
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Total Assets Under Management
(including borrowings) (3) $1,704.5 $1,347.6
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(1) Fee varies based upon levels of average Assets. Table includes the
current range of fees to which each of the Fund's assets are subject.
(2) In 1995, each Open-end Fund began offering three classes of shares (see
"Distribution of Fund Shares" above). The distribution fees for Class A Shares,
Class B Shares, and Class M Shares are 25 basis points (30 for Pilgrim America
MagnaCap Fund), 100 basis points and 75 basis points, respectively.
(3) During the fourth quarter of Fiscal 1996, Pilgrim America Prime Rate
Trust began borrowing for investment purposes pursuant to its amended
fundamental investment policies approved by its shareholders on May 2, 1996.
Borrowings at September 30, 1996 were $179.0 million.
(4) In effect at September 30, 1996. In connection with the Offering
completed on November 12, 1996 (see "The Closed-end Funds"), the Company has
agreed to reduce its management fee on Assets of Pilgrim America Prime Rate
Trust over $1.15 billion to .60% for a period of three years following the
Offer.
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REGULATION
Virtually all aspects of the Company's business are subject to various
federal and state laws and regulations. PAI is registered as an investment
adviser with the Commission under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is registered under applicable state
securities laws. The Advisers Act imposes numerous obligations on registered
investment advisers including recordkeeping, operational and disclosure
obligations.
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PAS is registered as a broker-dealer under the Securities Exchange Act of
1934, and under all applicable state securities laws. PAS is a member of the
NASD and the Securities Investor Protection Corporation. PAS is also subject to
the Commission's net capital rules designed to enforce minimum standards
regarding the general financial condition and liquidity of a broker-dealer.
Under certain circumstances, this rule limits the ability of the Company to make
withdrawals of capital and receive dividends from PAS. PAS's regulatory net
capital currently exceeds such minimum net capital requirements.
Each of the Pilgrim America Funds is registered under the Investment Company
Act. The shares of each Fund are registered with the Commission under the
Securities Act of 1933, as amended, and the shares of each Fund are qualified
(or are exempt) for sale under applicable state securities laws in all states
and in the District of Columbia in which shares are sold. The Funds have also
elected to be taxed as regulated investment companies ("RIC's") under Subchapter
M of the Internal Revenue Code of 1986, as amended, in order to pass investment
income and capital gains to their shareholders without the Funds incurring
federal income taxes on such amounts distributed. In order to qualify as a RIC,
there are numerous requirements imposed on the Funds, including diversification,
distribution, and income character qualifications.
The foregoing federal and state laws and regulations generally grant
governmental agencies and bodies broad administrative powers, including the
power to limit or restrict the Company from carrying on its business in the
event it fails to comply with such laws and regulations. In such event, the
possible sanctions which may be imposed include limitations on the Company's
business activities for specified periods of times, revocation or suspension of
investment adviser or broker-dealer registrations, the suspension or expulsion
from the securities business of the Company, its subsidiaries, officers or
employees, and other censures, sanctions or fines.
COMPETITION AND MARKETING STRATEGY
The investment management business and the mutual fund industry in particular
is highly competitive. In the United States, there are over 5,700 mutual funds,
many with several classes of shares, of varying sizes and investment objectives
and policies whose shares are being offered to the public by investment
management firms, broker-dealers, and insurance companies, many of whom also
offer investment alternatives other than mutual funds. Many of these financial
services firms have substantially greater resources and assets under management,
and provide a broader array of investment products and services, than does the
Company.
Competition for sales of mutual fund shares is influenced by many factors,
including general securities market conditions, government regulations, general
economic conditions, portfolio performance, advertising and sales promotional
efforts, distribution channels, and the type and quality of dealer and
shareholder services. Many Authorized Dealers are large broker-dealer firms. The
retail distribution systems of these firms constitute the Company's primary
access to retail purchasers of shares of the Open-end Funds. Many of these firms
sponsor competing proprietary mutual funds. The Company believes that the
Authorized Dealers value the ability to offer their customers a broad selection
of investment alternatives and will continue to sell the Open-end Funds.
However, to the extent that these firms limit or restrict the sale of shares of
the Open-end Funds through their retail brokerage systems in favor of
proprietary or other mutual funds, assets under management by the Company may
decline and the Company's revenues may be adversely affected.
The Company believes that competition within the mutual fund industry will
increase as a result of consolidation and acquisition activity. Many industry
analysts believe that economies of scale must be achieved in order to compete
economically. In order to increase assets under management, and compete with
mutual fund management companies with greater resources and assets under
management, the Company aggressively markets its Funds to the broker-dealer
community as high quality, core investments managed by seasoned investment
managers. Consistent with this marketing strategy, the Sub-Advisors have been
retained to provide investment management services to the Master Series Funds.
These Sub-Advisors typically manage similar portfolios for institutions and high
net worth individuals, requiring a minimum investment of $5 million to $50
million per client. Each has been selected based on their track records relative
to their market benchmarks and their peers.
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In 1995, the Company began offering three separate classes of shares for all
of its Open-end Funds (see "The Open-end Funds"). Each of the Class A, B or M
shares offer an identical interest in the Funds, but have different sales
charges and 12b-1 fees. The Class B shares and the Class M shares were created
specifically to give the investor access to the Funds while paying a lower
front-end commission than would be charged on the Class A shares. These shares
are available for all of the Open-end Funds. The Company believes that multiple
class shares in the Open-end Funds makes them more competitive.
The Company has been marketing the Pilgrim America Funds for just over one
year. The Company's success will be highly dependent on penetration of the
retail distribution systems of Authorized Dealers, which generally offer
numerous competing internally and externally managed investment products. The
inability to effectively compete with other investment products could have a
material adverse effect on the Company's business.
Additionally, the Company may increase assets under management through
acquisition of investment management firms and investment advisory assets. From
time to time the Company reviews acquisition prospects and may engage in
discussions or negotiations that could lead to an acquisition. Currently, the
Company is not party to any agreements or understandings regarding any
acquisitions.
EMPLOYEES
At September 30, 1996, the Company had 69 full time employees, including 24
sales and marketing employees, 13 portfolio management employees, and 32 general
and administrative employees. Sixty employees were employed at the Company's
headquarters in Phoenix, Arizona. The Company's employees are not represented by
any collective bargaining agreement, and management believes that it maintains
good relationships with its employees.
ITEM 2. PROPERTIES
The principal executive and administrative offices of the Company occupy
approximately 19,000 square feet of commercial office space in Phoenix, Arizona
under a lease expiring June 15, 2002. As of November 30, 1996, the Company also
leases approximately 19,000 square feet of additional space under two lease
agreements in connection with its discontinued mortgage banking operations, all
of which was sublet as of September 30, 1996. The leases and the related
subleases expire on June 30, 1997 and September 30, 1997.
The Company also leases approximately 24,000 square feet of office space in
Los Angeles, California under a lease assumed as part of the Acquisition (see
"Item 1. Business--General"). This space was sublet in connection with the
relocation of the Company's operations to Phoenix, Arizona during 1995. The
lease and related sublease expire on May 31, 2000.
The Company does not own any real estate except for its interest in real
estate held in connection with its discontinued mortgage banking operations.
ITEM 3. LEGAL PROCEEDINGS
The Company acquired its now discontinued mortgage banking operations from
the Resolution Trust Corporation ("RTC") on May 16, 1991 following a competitive
marketing process. The RTC filed a complaint in the United States District
Court, District of Arizona on December 8, 1995, against the Company, Rauscher
Pierce Refsnes, Inc., Smith Barney, Harris Upham & Co., Incorporated and five
individuals and their spouses including the current CEO and CFO of the Company
and two former officers of the Company. The complaint alleges various
irregularities in the bidding process and the closing of the acquisition. The
RTC has asked for an aggregate of at least $20 million in actual damages and at
least $60 million in punitive damages from all defendants. The RTC ceased
operating on December 31, 1995 and the Federal Deposit Insurance Corporation
(the "FDIC") assumed responsibility for this case.
The Company filed an Answer and a Motion to Dismiss with respect to the FDIC
action on February 16, 1996. The Motion to Dismiss stated that most of the
claims asserted by the FDIC including the claim for punitive damages are
defective as a matter of law and must be dismissed. The Court heard oral
arguments by all parties regarding each of their Motions to Dismiss in June 1996
and rendered a decision
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in August 1996 in which it generally found that the FDIC had properly pled its
claims or that the FDIC needed to amend its complaint to restate certain claims.
The only claims dismissed were contract claims against the Company's CEO and CFO
and all claims against the CEO's current spouse. The FDIC filed an amended
complaint in September 1996 and the Company filed an amended Answer. The Answer
contains both denials and affirmative defenses to the remaining claims asserted
by the FDIC. The Company believes it has meritorious defenses to the claims
brought by the FDIC and it will vigorously defend itself against all claims.
The Company notified its Officer and Director liability carrier of the FDIC
action in January 1996 seeking coverage as permitted by the policy in connection
with losses which it may incur in connection with this action. To date, the
insurance carrier has not responded with respect to its determination as to
whether the policy permits recovery of any losses incurred in connection with
this action.
The Company is also involved in various other legal proceedings which arose
in the course of its discontinued mortgage operations. Management is of the
opinion that such proceedings are not material in nature and will not have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of the fiscal year covered by this Report.
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information respecting the names, ages and positions and
offices with the Company of the executive officers of the Company at September
30, 1996 who are not continuing directors or nominees. Information respecting
the executive officers of the Company who are continuing directors and nominees
is set forth in Item 10 of this Report.
JAMES R. REIS, 39, has served as an executive officer of the Company in the
position of Vice Chairman and Chief Financial Officer since December 1993,
Secretary from November 1994 to April 1995, and as President and Chief Financial
Officer from its formation to December 1993. Mr. Reis serves as Vice Chairman
and Director of PAS, PAI and PAG, and as Executive Vice President of each of the
Funds since April 1995. Mr. Reis has served as EAMC's Vice Chairman since April
1993, its Secretary from May 1991 to April 1995, as Executive Vice President
from May 16, 1991 until December 1993, and as Chief Financial Officer of EAMC
from May 16, 1991 until September 1992. Mr. Reis is a certified public
accountant.
JAMES M. HENNESSY, 47, has served as Senior Vice President and Secretary of
the Company, PAS and of each of the Funds, and Senior Vice President of PAI and
PAG, since April 1995 and as Secretary of PAI and PAG since July 1995. Mr.
Hennessy has served as General Counsel of the Company since September 1995 and
also as Senior Vice President, EAMC (June 1992 to August 1994 and since April
1995) and Secretary since April 1995. Mr. Hennessy also served from January 1990
to June 1992 as President of Beverly Hills Securities Corp., a mortgage banking
company acquired by the Company in June 1992.
STANLEY VYNER, 46, has served as President and Chief Executive Officer for
Pilgrim America Investments, Inc. since August 16, 1996. He served as Chief
Executive Officer of HSBC Asset Management Americas, Inc. until December of
1995, and prior to that was the Chief Executive Officer of HSBC Life Assurance
Co., the largest provider of retirement services in Hong Kong where Mr. Vyner
worked for nearly 11 years. An actuary by profession, Mr. Vyner earned his
Honors Degree in Economics from Edinburgh University, UK. He is a Fellow of the
Faculty of Actuaries.
ROBERT BOULWARE, 40, has served as President and Chief Executive Officer of
Pilgrim America Securities since November 1996. Previously Mr. Boulware served
as Executive Vice President and Chief Operating Officer. He has also served the
Company in various sales and marketing positions since April 1995. From 1992 to
1995, Mr. Boulware was with Express America Mortgage Company. Prior to joining
the company, he served as Vice President at Bank of America from 1990-1992 and
as President and CEO in his last position with Wesav Financial from 1987 to
1990.
MICHAEL J. ROLAND, 38, has served since April 1995 as Senior Vice President,
Treasurer and Chief Financial Officer of PAG, PAI and PAS. He also has served as
Senior Vice President, Treasurer and Principal Accounting Officer of each of the
Funds since April 1995. From January 1995 to March 1995 he served as Senior Vice
President of The Pilgrim Group, Inc. Mr. Roland was a partner at the consulting
firm of Corporate Savings Group, in Newport Beach, California from July 1994 to
December 1994, Vice President, Pacific Financial Asset Management Corp. and of
the PFAMCo Funds from March 1992 to June 1994, and in various financial
reporting positions for Pacific Mutual Life Insurance Company, most recently
Assistant Vice President and Director of Financial Reporting, from 1987 to 1992.
Mr. Roland is a certified public accountant.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Following the Company's initial public offering on March 17, 1992, the
Company's Common Stock has been traded on the Nasdaq NMS, under the symbol FWCO
until September 20, 1993, and under the symbol EXAM since such date.
The following table sets forth, for the fiscal periods shown, the high and
low per share sale prices of the Company's Common Stock, as reported by the
Nasdaq NMS.
Fiscal Year Ended September 30, 1995 High Low
--------------------------------------- -------- -------
First Quarter $6 3/4 $3 3/4
Second Quarter 5 1/4 3 3/4
Third Quarter 5 3/8 3 7/8
Fourth Quarter 6 13/16 5 1/4
Fiscal Year Ended September 30, 1996
---------------------------------------
First Quarter $6 $3 1/2
Second Quarter 5 1/2 3 1/4
Third Quarter 4 7/8 3 7/8
Fourth Quarter 5 13/16 4 3/8
The number of stockholder accounts of record of the Common Stock as of
September 30, 1996 was approximately 333.
The Company has not paid dividends on its Common Stock. It is the present
policy of the Company's Board of Directors to retain future earnings to finance
the growth and development of the Company's business. Any future dividends will
be at the discretion of the Company's Board of Directors and will depend upon
the financial condition, capital requirements, earnings, terms of credit
agreements (which prohibit "restricted payments". See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources), and liquidity of the Company as
well as other factors the Company's Board of Directors may deem relevant.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following two tables of selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and the related notes thereto included elsewhere herein. The
first table represents selected data from the Consolidated Financial Statements
and other data related to the Company's continuing investment management
business. Operations of the mortgage banking business, which was discontinued as
of February 28, 1995, are presented on a condensed basis therein, as they are in
the Company's consolidated financial statements, in accordance with generally
accepted accounting principles for discontinued operations.
The second table is presented by management to provide expanded information
as to the operations of the discontinued mortgage banking business through
February 28, 1995, at which time the Company announced the discontinuance of
such operations. The selected data from this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" with respect to periods prior to discontinuance of the mortgage
banking operations.
12
<PAGE>
<TABLE>
EXPRESS AMERICA HOLDINGS CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues ........................................... $ 14,485 $ 6,363 $ -- $ -- $ --
Expenses ........................................... 15,887 6,913 -- -- --
----------- ----------- ---------- ---------- -----------
Loss from continuing operations before
taxes ............................................. (1,402) (550) -- -- --
Income tax benefit ................................. 1,750 -- -- -- --
----------- ----------- ---------- ---------- -----------
Earnings (loss) from continuing
operations ........................................ 348 (550) -- -- --
Earnings (loss) from operations of
discontinued mortgage business .................... -- (14) (8,490) (2,057) 3,427
Loss on discontinuance of mortgage
operations ........................................ -- (5,307) -- -- --
----------- ----------- ---------- ---------- -----------
Net earnings (loss) ................................ $ 348 $ (5,871) $ (8,490) $ (2,057) $ 3,427
=========== =========== ========== ========== ===========
Per common share:
Earnings (loss) from continuing
operations ....................................... $ 0.07 $ (0.11) $ -- $ -- $ --
=========== =========== ========== ========== ===========
Net (earnings) loss ................................ $ 0.07 $ (1.19) $ (1.58) $ (0.47) $ 1.42
=========== =========== ========== ========== ===========
Shares used in per share calculations .............. 4,866,737 4,950,044 5,377,860 4,363,015 2,412,193
=========== =========== ========== ========== ===========
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Total assets(1) .................................... $ 42,555 $ 43,495 $ 44,721 $ 443,313 $ 343,558
=========== =========== ========== ========== ===========
Net assets (liabilities) of
discontinued operations .......................... $ (3,392) $ (4,138) $ 35,590 $ 53,783 $ 27,735
=========== =========== ========== ========== ===========
Redeemable preferred stock ......................... $ -- $ 338 $ 1,015 $ 1,692 $ 2,369
=========== =========== ========== ========== ===========
Total stockholders' equity ......................... $ 29,788 $ 35,722 $ 43,601 $ 52,091 $ 25,366
=========== =========== ========== ========== ===========
- --------------------------------------------------------------------------------
See explanation of footnotes following the tables.
</TABLE>
13
<PAGE>
<TABLE>
EXPRESS AMERICA HOLDINGS CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
DISCONTINUED OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
DISCONTINUED OPERATIONS:
Revenues:
Loan administration ........................................ $ -- $ 139 $ 23,442 $ 17,577 $ 9,657
Loan origination ........................................... -- (225) 3,573 8,382 1,927
Interest income ............................................ -- 1,983 20,598 20,025 3,562
Warehouse interest expense ................................. -- (1,090) (12,906) (10,617) (1,458)
Gain on sale of servicing rights ........................... -- 2,074 40,877 22,526 2,657
Other income ............................................... -- 239 871 288 965
-------- -------- -------- -------- --------
Total revenues ............................................ -- 3,120 76,455 58,181 17,310
Expenses:
Personnel .................................................. -- 3,322 26,517 19,254 5,700
Amortization of purchased servicing rights ................. -- 66 10,640 23,283 1,836
Write off of goodwill ...................................... -- -- 6,649 -- --
Other interest expense ..................................... -- 145 5,248 3,812 1,074
Other operating expenses ................................... -- 2,618 26,643 15,002 2,963
Restructuring charges ...................................... -- -- 5,050 -- --
-------- -------- -------- -------- --------
Total expenses ............................................ -- 6,151 80,747 61,351 11,573
-------- -------- -------- -------- --------
Earnings (loss) before income taxes
(benefit) and extraordinary item ............................ -- (3,031) (4,292) (3,170) 5,737
Income taxes (benefit) ...................................... -- (3,017) 2,942 (1,113) 2,310
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary item ................... -- (14) (7,234) (2,057) 3,427
Extraordinary loss on early extinguishment of debt .......... -- -- 1,256 -- --
-------- -------- -------- -------- --------
EARNINGS (LOSS) FROM OPERATIONS OF
DISCONTINUED MORTGAGE BUSINESS .............................. $ -- $ (14) $ (8,490) $ (2,057) $ 3,427
======== ======== ======== ======== ========
Earnings (loss) before extraordinary item per share ......... $ -- $ -- $ (1.35) $ (0.47) $ 1.42
======== ======== ======== ======== ========
Earnings (loss) per share of common stock ................... $ -- $ -- $ (1.58) $ (0.47) $ 1.42
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------
See explanation of footnotes following the tables.
</TABLE>
14
<PAGE>
<TABLE>
EXPRESS AMERICA HOLDINGS CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
DISCONTINUED OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Mortgage loans held for sale ............. $ 3,516 $ 2,352 $ 95,993 $ 322,648 $ 283,517
Purchased servicing net .................. -- -- 763 56,741 36,362
Total assets ............................. 3,673 5,538 111,260 443,313 343,558
Notes payable ............................ 1,320 -- 49,025 333,929 299,087
Total liabilities ........................ 7,065 9,676 75,670 389,530 315,823
SELECTED OPERATING DATA:
Volume of loans originated ............... -- 199,895 3,616,990 3,966,893 702,448
Loan servicing portfolio (at
period end)(2) ......................... -- 171,861 429,304 8,065,058 4,397,201
- --------------------------------------------------------------------------------
The following footnotes relate to the preceeding tables of Selected Consolidated
Financial Data:
(1) Total assets prior to and including 1994 were assets of the discontinued
mortgage operations.
(2) Includes loans held for sale and loans serviced pursuant to subservicing
agreements. At September 30, 1994, 1993, and 1992, the Company subserviced
loans with an aggregate principal balance of $3.2 million, $1.2 billion and
$625 million, respectively, all but $3.2 million, $45 million and $130
million respectively, of which represented servicing rights which were sold
prior to period end, but which had not yet been transferred to the
purchaser as of the period end. No loans were subserviced by the Company at
September 30, 1996 or September 30, 1995.
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
General Overview. For the year ended September 30, 1996 ("Fiscal 1996"), the
Company recorded net earnings of $348,000 or $0.07 per share, all from the
continuing operations of its investment management business, compared to a net
loss for the fiscal year ended September 30, 1995 ("Fiscal 1995") of $5.9
million or $1.19 per share, of which $550,000 or $0.11 per share, was from the
continuing operations of the newly acquired investment management business,
$14,000 from the loss on operations of the discontinued mortgage business, and
$5.3 million from the loss on the discontinuance of its remaining mortgage
banking operations. The net loss for Fiscal 1995 compares to a net loss of $8.5
million for the fiscal year ended September 30, 1994 ("Fiscal 1994"), all of
which was from the discontinued mortgage banking operations. The Company
commenced its investment management operations on April 7, 1995, when it
consummated the Acquisition of certain investment management assets. On February
28, 1995, the Company announced the discontinuance of its remaining mortgage
banking operations (see "Item 1. Business--General").
Fiscal 1996 net earnings include a $1.75 million income tax benefit
recognized in the fourth quarter. The Company recorded this tax benefit because
the Company believes that it is more likely than not that it will generate
sufficient taxable income in future periods to allow for the realization of the
recorded benefit. As of September 30, 1996 the Company had net operating loss
carryforwards of $19.5 million, which expire between the fiscal year ending
September 30, 1997 and the fiscal year ending September 30, 2010. Regulations
promulgated by Internal Revenue Code ("IRC") section 382 substantially restrict
the ability of the Company to use its net operating loss carryforwards to offset
future income upon a "change of control". Generally, a change of control is
deemed to occur if the cumulative percentage of ownership change of a company's
common shares is greater than 50 percent during a prescribed measurement period.
For purposes of IRC section 382, the Company's cumulative change of control, as
of September 30, 1996, was approximately 24 percent.
Due to the Acquisition and the discontinuance of its mortgage banking
operations in Fiscal 1995, the Company does not believe that results of
operations for Fiscal 1995 and Fiscal 1996 are comparable to the results of
operations for the same periods in Fiscal 1994. Accordingly, the results of
continuing operations are discussed herein separately from the results of the
Company's discontinued operations. Furthermore, because Fiscal 1996 represented
the first full year of the Company's investment management operations, changes
in the financial results of continuing operations from Fiscal 1995 to Fiscal
1996 are primarily attributable to the increased period of operations in Fiscal
1996 (one year) compared to approximately six months of operations in Fiscal
1995, except where otherwise discussed below.
INVESTMENT MANAGEMENT (CONTINUING) OPERATIONS
Year Ended September 30, 1996 compared to Year Ended September 30, 1995
Revenues for Fiscal 1996 totaled $14.5 million, an increase of $8.1 million
over Fiscal 1995 revenues, all of which were realized after April 7, 1995. The
major components of the Company's revenues from continuing operations are
management and administrative fees and distribution fees. Management and
administrative fees for Fiscal 1996, net of subadvisory fees of $387,000 (see
"Item 1. Business--General"), were $12.6 million, an increase of $6.9 million
over Fiscal 1995 which were net of subadvisory fees of $22,000. These fees are
based on the average net assets of the Funds plus any borrowings of Pilgrim
America Prime Rate Trust (in aggregate, "Assets") (see "Item 1.
Business--Pilgrim America Funds"). Assets of the Funds totaled $1.70 billion at
September 30, 1996 versus $1.35 billion at September 30, 1995, an increase of
$356.9 million. Distribution fees were $1.1 million for Fiscal 1996, an increase
of $766,000 over Fiscal 1995. Distribution fees are based on the average net
assets of the Company's Open-end Funds, which totaled $412.7 million as of
September 30, 1996 compared to $277.3 million at September 30, 1995, an increase
of $135.4 million.
The increase of $356.9 million in Assets under management during Fiscal 1996
resulted primarily from a $188.2 million increase in the market value of managed
assets and an increase in Pilgrim America
16
<PAGE>
Prime Rate Trust borrowings of $179.0 million, substantially all of which
occurred during the fourth quarter of Fiscal 1996. Additionally, direct sales of
Open-end Funds accounted for $121.6 million of the increase, while redemptions
(including exchanges into a money market fund for which the Company acts as
servicing agent) totaled $44.1 million and distributions paid in cash to
shareholders of both Open-end and Closed-end Funds totaled $87.8 million.
For Fiscal 1995, Assets increased by $50.6 million between the Acquisition
date and September 30, 1995. This increase resulted primarily from a $99.5
million increase in the market value of managed assets. Direct sales of mutual
funds were $10.8 million for the period, while redemptions totaled $21.4 million
and distributions paid in cash to shareholders totaled $40.4 million.
Additionally, the Company invested $2.1 million in order to seed three funds
introduced during the period.
The Company's operating expenses of $15.9 million for Fiscal 1996, an
increase of $9.0 million over Fiscal 1995, include general and administrative
expense, selling expense and amortization. General and administrative expense,
which totaled $7.4 million and $4.0 million in Fiscal 1996 and Fiscal 1995,
respectively, include compensation and related expenses, occupancy and other
operating expenses related to the Company's investment management operations and
general corporate operations. Additionally, pursuant to agreements between the
Company and certain of the Funds, the Company has agreed to limit certain
expense ratios of such Funds, and reimburses the Funds for amounts that exceed
specified ratios. During Fiscal 1996 and Fiscal 1995, such reimbursements
totaled $606,000 and $94,000, respectively, and are included in general and
administrative expense.
Selling expenses are related to the distribution of the Open-end Funds, and
include salaries of sales and marketing personnel, costs related to the
production of marketing materials, and commissions and fees paid to various
Authorized Dealers in connection with the sale of Fund shares. Selling expenses
were $6.5 million in Fiscal 1996 compared to $2.0 million in Fiscal 1995. The
increase is due to a full year of operations in Fiscal 1996 compared to
approximately six months in Fiscal 1995 as well as an increase in sales and
marketing efforts during Fiscal 1996, as the Company continued to develop its
emphasis on marketing its Open-end Funds.
Amortization and depreciation of $2.0 in Fiscal 1996, an increase of $1.1
million over Fiscal 1995, was primarily due to amortization of costs of
management contracts acquired in connection with the Acquisition, depreciation
of furniture, fixtures and equipment and amortization of commissions paid to
authorized dealers in connection with the sale of Class B share sales (See "Item
1. Business--Distribution of Open-end Fund Shares").
MORTGAGE BANKING (DISCONTINUED) OPERATIONS
The Company announced the discontinuance of its mortgage banking operations
on February 28, 1995 (the "Announcement Date"). The activities of the Company's
mortgage banking operations for Fiscal 1994 and Fiscal 1995 through the
Announcement Date therefore have been reflected as "Loss from operations of
discontinued mortgage business" in the Company's consolidated statements of
operations for the respective periods. As of the Announcement Date, the Company
also recorded a provision of $986,000 for the estimated net loss from the
discontinuance of its mortgage banking operations. The provision included the
anticipated mortgage banking revenues and expenses, including severance expense
and all other costs, that the Company estimated would be incurred to phase out
these operations. Subsequent to the Announcement Date, during Fiscal 1995 the
Company increased the provision to $5.3 million, reflected as "Loss on
discontinuance of mortgage operations" in the Company's consolidated statement
of operations, based on reevaluation of its allowances for Discontinued
Operations, including an accrual of $3.0 million for estimated legal costs
relating to legal proceedings (see "Item 3. Legal Proceedings"). Based on
continued evaluation of the allowances, management believes that no additional
provision was required for Fiscal 1996.
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
The Company recorded a loss of $14,000 from discontinued operations in Fiscal
1995, compared to a loss of $8.5 million in Fiscal 1994.
17
<PAGE>
Total revenues from the mortgage banking operations decreased to $3.1 million
in Fiscal 1995 from $76.5 million in Fiscal 1994. The decrease resulted
primarily from (i) the sale of substantially all of the Company's loan servicing
portfolio on September 30, 1994; (ii) a decrease in loan origination volume
which reduced loan origination income; (iii) a reduction in the level of sales
of servicing rights relating to loans originated by the Company; (iv) the
discontinuation of the mortgage banking operations on February 28, 1995,
resulting in the inclusion of only five months of operating results for Fiscal
1995; and (v) losses incurred on the sale of originated loans.
Total expenses of the Company's discontinued operations were $6.2 million in
Fiscal 1995 compared to $80.7 million for Fiscal 1994. The decline in all items
of expense was attributable primarily to the sale of the Company's servicing
portfolio and the volume decline in its originations prior to the discontinuance
of those operations, as well as the inclusion of only five months of mortgage
banking operating results in Fiscal 1995.
The Company also recorded an income tax benefit, related to the mortgage
banking operations, of $3.0 million in Fiscal 1995, which is included in the
loss from discontinued operations, compared with a $2.9 million tax provision in
Fiscal 1994. The benefit resulted primarily from the utilization of a net
operating loss carry back to offset a previously recorded tax liability.
In Fiscal 1994, the Company had also recorded an extraordinary loss on early
extinguishment of debt of $1.3 million.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1994, the Company sold substantially all of its mortgage
loan servicing assets (the "Servicing Sale"), realizing cash proceeds of $84.0
million and a five year note in the amount of $4.2 million. The Company used
$47.7 million of such proceeds to repay term debt related to the servicing
assets. The remainder of the proceeds of $36.3 million was applied to
temporarily reduce borrowings under the Company's revolving warehouse line of
credit.
On April 7, 1995, the Company redeployed a substantial portion of the assets
from the Servicing Sale to complete the Acquisition (See "Item 1.
Business--General").
As of September 30, 1996 and September 30, 1995, the Company owned mortgage
loans and foreclosed real estate with principal balances aggregating
approximately $3.5 million and $2.4 million, respectively. The Company's
investments in these loans and real estate are funded with the Company's working
capital and with borrowings under a warehousing credit agreement (see discussion
below) until they are sold. The Company also had an allowance of $1.9 million
and $3.2 million to provide, at September 30, 1996 and September 30, 1995,
respectively, for estimated losses to be incurred upon repurchase and resale of
loans originated and indemnified by the Company. An increase in repurchase
activity beyond that forecasted by the Company may have an adverse effect on the
Company's liquidity.
On January 25, 1996, the Company and its lender entered into a warehousing
credit agreement (the "Warehousing Agreement"), whereby the lender has agreed to
provide the Company with up to $2.5 million in financing to repurchase certain
mortgage loans relating to the Company's discontinued mortgage banking business.
Under the terms of the Warehousing Agreement, the Company may borrow up to 80%
of the lesser of: (i) the repurchase price of the related mortgage loan; (ii)
the remaining principal balance of the mortgage loan; and (iii) the fair market
value of the mortgage loan. Borrowings are collateralized by the related
mortgage instruments and certain other of the Company's assets.
As of September 30, 1996 the Company has borrowed $1.3 million under the
Warehousing Agreement. The borrowings are included in "Net liabilities of
discontinued operations" in the Company's consolidated balance sheet as of
September 30, 1996.
On April 28, 1995, the Company and its lender entered into a credit agreement
(as amended, the "Pilgrim America Credit Agreement" or "Agreement") to finance
the Company's fund management operations. Under the Pilgrim America Credit
Agreement, the lender agreed to provide the Company with $16 million of term
loans ("Term Loans") and up to $10 million of loans to finance the sale of Fund
shares subject to a contingent deferred sales charge.
18
<PAGE>
On July 31, 1996, the Company and its lender amended and restated the Pilgrim
America Credit Agreement. The restated Agreement allows PAG to borrow up to $15
million to be used for various purposes including: (i) general corporate
purposes; (ii) acquisition of investment management contracts; and (iii)
financing of commissions paid by the Company in connection with sales of Fund
shares subject to a contingent deferred sales charge. The Agreement contains
restrictive covenants which require PAG and the Company to maintain certain
financial ratios and prohibits "restricted payments" (including dividends and
other payments) from PAG to the Company. Borrowings under the Agreement are
collateralized by assets of PAG, PAS and PAI, and guaranteed by the Company.
Loans may be drawn down until July 31, 1997 and are repayable quarterly
beginning on September 30, 1997 and ending on September 30, 2001. Additionally,
the Company is obligated to pay a monthly commitment fee of 0.375%, annualized,
of any unused borrowing availability.
As of September 30, 1996 the Company had borrowed $3.6 million under the
Agreement. There were no borrowings under the Agreement at September 30, 1995.
Between November 1994 and January 1995, the Company repurchased 500,000
shares of its common stock at a total purchase price of $2.0 million. These
purchases were made in open market transactions pursuant to a previously
announced authorization by the Company's board of directors to repurchase up to
500,000 shares of common stock based upon market conditions.
On September 27, 1996, the Company repurchased 1,017,730 shares of its common
stock from two institutional stockholders at a price of $6.50 per share for a
total of $6.6 million. These purchases were funded with borrowings under the
Agreement, $3.0 of which was borrowed on September 27, 1996 and the balance,
$3.6 million, borrowed on October 2, 1996.
During Fiscal 1996 and 1995, the Company redeemed 3,384 and 6,768 shares,
respectively, of its Series A Preferred Stock at the liquidation value of $100
per share, for an aggregate redemption price of $338,000 and $677,000,
respectively. As of September 30, 1995 there were 3,384 such shares issued and
outstanding. The remaining shares were redeemed at their liquidation value on
March 31, 1996.
As discussed in "Item 3. Legal Proceedings", the Company and certain of its
current and former officers are named as defendants in a complaint filed by the
RTC alleging violations relating to the Company's acquisition of Wesav Mortgage
Corporation in 1991. Although the Company believes that its officers acted
properly and that it has strong meritorious defenses, an unfavorable
determination by the court may have a material adverse effect on the Company's
operations and liquidity.
ECONOMIC FACTORS
Economic changes, including changes in inflation, interest rates, and
financial market conditions, may cause investors to decide against purchasing,
or to redeem investments in, certain types of mutual funds, including those
offered by the Company. To the extent investors refrain from purchasing the
shares of the Company's Funds, or redeem significant amounts from the Funds, the
Company's revenues, and growth in such revenues which are derived from assets
under management, may be adversely affected.
Additionally, the Company relies on borrowings to finance the payment of
commissions on sales of shares sold with a contingent deferred sales charge ("B
shares"). To the extent interest rates increase substantially or the Company is
not able to secure adequate financing, sales of B shares, and related revenues
therefrom, may be adversely affected.
The investment management business is not generally capital intensive. Except
for the effect on revenues as described above, the financial results of
continuing operations would not be significantly affected by inflation and price
changes.
NEWLY ADOPTED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset
19
<PAGE>
may not be recoverable. In addition, SFAS No. 121 requires that long-lived
assets and certain identified intangibles to be disposed of be reported at the
lower of carrying amount or fair value less costs to sell. SFAS No. 121 must be
adopted for financial statements for fiscal years beginning after December 15,
1995. The impact on the Company of adopting SFAS No. 121 is not expected to be
material.
SFAS No. 123, "Accounting for Stock-Based Compensation", issued by the FASB
in October 1995, applies to all transactions in which an entity acquires goods
or services by issuing equity instruments or by incurring liabilities where the
payment amounts are based on the entity's common stock price, except for
employee stock ownership plans (ESOPs). A new method of accounting for
stock-based compensation arrangements with employees is established by the
Statement. The new method is a fair value based method rather than the intrinsic
value based method that is contained in APB Opinion No. 25 ("Opinion 25").
SFAS No. 123 fair value based method will result in higher compensation costs
than the Opinion 25 intrinsic value based method for fixed stock option
compensation plans and will result in a different compensation cost for variable
stock option compensation plans. Also, many employee stock purchase plans that
are considered noncompensatory under Opinion 25 will be compensatory and result
in the recognition of compensation costs under the fair value based method.
SFAS No. 123 does not require an entity to adopt the new fair value based
method for purposes of preparing its basic financial statements. Entities are
allowed (i) to continue to use the Opinion 25 method or (ii) to adopt the
Statement No. 123 fair value based method. The Company is intending to use the
former method upon implementation of SFAS 123, with the attendant disclosures
required by the statement.
The financial statement disclosures required under SFAS No. 123 are to be
adopted for financial statements for fiscal years beginning after December 15,
1995. The impact on the Company of adopting SFAS No. 123 is not expected to be
material.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are based
on consistent application of a financial components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. SFAS 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS 125 requires that liabilities and
derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practicable. It also
requires that servicing assets and other retained interests in the transferred
assets be measured by allocating the previous carrying amount between the assets
sold, if any, and retained interest, if any, based on their relative fair values
at the date of the transfers. SFAS 125 includes specific provisions to deal with
servicing assets or liabilities. SFAS 125 will be effective for transactions
occurring after December 31, 1996. It is not anticipated that the financial
impact of this statement will have a material effect on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of the Company as of September 30, 1996 and for each of
the years in the three-year period ended September 30, 1996, together with the
related notes and the Report of KPMG Peat Marwick LLP, independent certified
public accountants, are set forth on the following pages. Other required
financial information and schedules are set forth herein, as more fully
described in Item 14.
20
<PAGE>
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, CA 90017
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Express America Holdings Corporation:
We have audited the accompanying consolidated balance sheets of Express America
Holdings Corporation and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Express America
Holdings Corporation and subsidiaries as of September 30, 1996 and 1995 and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
October 23, 1996
[LOGO Member Firm of
OMITTED] Klynveld Peat Marwick Goerdeler
21
<PAGE>
<TABLE>
EXPRESS AMERICA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 238 $ 1,858
Investments 2,462 2,100
Accounts receivable 216 1,253
Notes receivable 3,587 3,504
Costs assigned to management contracts acquired, less
accumulated amortization of $1,943 and $638 30,320 31,744
Furniture, fixtures and equipment, less accumulated depreciation
of $1,378 and $868 1,144 1,540
Deferred taxes 1,750 --
Deferred acquisition costs, less accumulated amortization of $131
and $1 1,939 65
Other assets 899 1,431
-------- --------
TOTAL ASSETS $ 42,555 $ 43,495
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Net liabilities of discontinued operations 3,392 4,138
Notes payable 3,600 --
Accounts payable and accrued expenses 5,775 3,297
-------- --------
Total liabilities 12,767 7,435
-------- --------
Commitment and contingencies
Redeemable preferred stock -- 338
Stockholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized,
5,377,860 shares issued, with 3,860,130 and 4,877,860
shares outstanding at September 30, 1996 and September 30, 1995 54 54
Less: Treasury stock, 1,517,730 shares at September 30, 1996 and
500,000 shares at September 30, 1995 (8,623) (2,008)
Additional paid-in capital 48,759 48,759
Unrealized gain on investments 333 --
Accumulated deficit (10,735) (11,083)
-------- --------
Total stockholders' equity 29,788 35,722
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,555 $ 43,495
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
22
<PAGE>
<TABLE>
EXPRESS AMERICA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
For the Years Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Management and administrative fees $ 12,556 $ 5,668 $ --
Distribution fees 1,143 377 --
Investment and other income 786 318 --
----------- ----------- -----------
Total revenues 14,485 6,363 --
----------- ----------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General and administrative 7,367 4,004 --
Selling 6,530 2,012 --
Amortization and depreciation 1,990 897 --
----------- ----------- -----------
Total expenses 15,887 6,913 --
----------- ----------- -----------
Loss from continuing operations before taxes (1,402) (550) --
----------- ----------- -----------
Income tax benefit 1,750 -- --
----------- ----------- -----------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 348 (550) --
----------- ----------- -----------
DISCONTINUED OPERATIONS
Loss from operations of discontinued mortgage business -- (14) (8,490)
Loss on discontinuance of mortgage operations,
including $5,307 for operating losses
during the phase out period -- (5,307) --
----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS -- (5,321) (8,490)
----------- ----------- -----------
NET EARNINGS (LOSS) $ 348 $ (5,871) $ (8,490)
=========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share from
continuing operations $ 0.07 $ (0.11) --
=========== =========== ===========
Net earnings (loss) per common share $ 0.07 $ (1.19) $ (1.58)
=========== =========== ===========
Shares used in per share calculation 4,866,737 4,950,044 5,377,860
=========== =========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
23
<PAGE>
<TABLE>
EXPRESS AMERICA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
For the Years Ended September 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 348 $ (5,871) $(8,490)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Loss from discontinued operations -- 5,321 8,490
Amortization and depreciation 1,990 891 --
(Increase) decrease in accounts receivable 954 (1,437) --
Increase (decrease) in operating liabilities 2,478 (344) --
Increase in other operating assets (3,148) (1,177) (3,421)
-------- -------- --------
Net cash provided by (used in) operating activities 2,622 (2,617) (3,421)
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business -- (29,271) --
Investment in Pilgrim America Funds (29) (2,100) --
Sales of furniture, fixtures and equipment 130 68 --
Purchases of furniture, fixtures and equipment (244) (135) --
Cash provided by (used in) discontinued operations (746) 34,669 135
-------- -------- --------
Net cash provided by (used in) investing activities (889) 3,231 135
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt borrowing 3,600 -- --
Redemption of preferred stock (338) (677) (677)
Purchase of treasury stock (6,615) (2,008) --
-------- -------- --------
Net cash used in financing activities (3,353) (2,685) (677)
-------- -------- --------
Net decrease in cash and cash equivalents (1,620) (2,071) (3,963)
Cash and cash equivalents, beginning of period 1,858 3,929 7,892
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 238 $ 1,858 $ 3,929
======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Interest paid $ 186 $ 1,343 $ 16,652
Income taxes paid 2 98 47
Income tax refunds received 12 269 4,522
Liabilities assumed relating to acquisition of business -- 3,536 --
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
24
<PAGE>
<TABLE>
EXPRESS AMERICA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Retained
Additional Unrealized Earnings Total
Common Treasury Paid-in Gain on (Accumulated Stockholders'
Stock Stock Capital Investments Deficit) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, SEPTEMBER 30, 1993 $ 54 $ -- $ 48,759 $ -- $ 3,278 $ 52,091
Net loss -- -- -- -- (8,490) (8,490)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1994 54 -- 48,759 -- (5,212) 43,601
Repurchase of treasury stock -- (2,008) -- -- -- (2,008)
Net loss -- -- -- -- (5,871) (5,871)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1995 54 (2,008) 48,759 -- (11,083) 35,722
Repurchase of treasury stock -- (6,615) -- -- -- (6,615)
Unrealized gain on investments -- -- -- 333 -- 333
Net earnings -- -- -- -- 348 348
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1996 $ 54 $ (8,623) $ 48,759 $ 333 $(10,735) $ 29,788
======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
25
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) CORPORATE BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Corporate Background. On April 7, 1995, Express America Holdings
Corporation and certain newly formed subsidiaries acquired investment management
assets and became engaged principally in the mutual fund management business
(see Note 2).
(b) Consolidation. The consolidated financial statements include the accounts
of Express America Holdings Corporation's wholly-owned subsidiary, Pilgrim
America Group, Inc. ("PAG") and PAG's subsidiaries, Pilgrim America Investments,
Inc. ("PAI"), a registered investment advisor and Pilgrim America Securities,
Inc. ("PAS"), a registered broker-dealer (collectively "Pilgrim America"). PAG
commenced operations upon the Company's acquisition (the "Acquisition") of
certain assets of Atlas Holdings, formerly the Pilgrim Group, Inc. and its
subsidiaries on April 7, 1995. The consolidated financial statements also
include the accounts of the Express America Holdings Corporation's wholly- owned
subsidiaries, Express America Funding Corporation ("EAFC"), Express America
Mortgage Corporation ("EAMC"), EAMC's wholly-owned subsidiaries, Wesav
Investment Corporation and Wesav Investments Inc.-2, the Company's wholly-owned
mortgage banking subsidiaries (collectively, the "Company" unless the context
otherwise requires). All significant intercompany accounts and transactions are
eliminated in consolidation.
Prior to April 7, 1995, the Company's principal business consisted of
mortgage banking activities, including the origination, sale, and servicing of
loans collateralized by first mortgages on residential real estate. On February
28, 1995 the Company announced the discontinuance of its remaining mortgage
banking operations (see Note 14). Consequently, the Company's mortgage banking
activities are reported as discontinued operations.
Subsequent to the Acquisition on April 7, 1995, the continuing operating
activities of the Company consisted principally of providing investment
management and related services to various open-end and closed-end investment
companies currently operating under the Pilgrim and Pilgrim America names (the
"Funds"). Accordingly, the results of continuing operations reported in the
consolidated financial statements reflect only such activities.
(c) Cash and Cash Equivalents. Cash and cash equivalents include all cash
balances and highly liquid investments with an original maturity of three months
or less, including money market funds which are readily convertible into cash.
(d) Fair Value of Financial Instruments. Substantially all of the Company's
financial instruments are carried at fair value or amounts approximating fair
value. Assets including cash and cash equivalents, investments and certain
receivables are carried at fair value or contracted amounts, which approximate
fair value. Similarly, liabilities including notes payable, certain payables and
accrued expenses are carried at amounts approximating fair value.
(e) Marketable Securities. Upon acquisition, the Company classified its
securities into one of three categories: held to maturity securities, trading
securities or available for sale securities. Held to maturity securities are
those securities the Company has the positive intent and ability to hold to
maturity and are carried at amortized cost. Trading securities are those
securities that are bought and held principally for the purpose of selling them
in the near term and are reported at fair value, with unrealized gains and
losses included in operations. Available for sale securities are those
securities that do not fall into the other two categories and are reported at
fair value, with unrealized gains and losses excluded from earnings and reported
in a separate component of stockholders' equity. The Company classified all of
its marketable securities as available for sale securities.
PAS values all of its investments at market in accordance with broker-dealer
industry practice. Unrealized gains and losses are included in income.
All realized gains and losses on security transactions are recorded on the
average cost method.
26
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(f) Furniture, Fixtures and Equipment. Furniture, fixtures and equipment are
stated at cost, less accumulated depreciation. The Company provides for
depreciation over the estimated useful lives of the related assets using the
straight line method.
(g) Costs Assigned to Management Contracts Acquired. Costs assigned to
management contracts acquired represents the fair value of the investment
management rights acquired in connection with the Acquisition and also
represents the excess of the purchase price (including liabilities assumed) over
the fair value of net assets acquired and resulting costs from the Acquisition.
Such amounts are being amortized on a straight-line basis over 25 years.
The Company analyzes Costs Assigned to Management Contracts Acquired
periodically to determine whether any impairment has occurred in its value.
Based upon anticipated future income from operations, in the opinion of Company
management, there has been no impairment.
(h) Deferred Acquisition Costs. The Company pays commissions of up to 4.00%
to authorized broker-dealers at the time that Fund shares with contingent
deferred sales charges (Class B shares) are sold. These payments are capitalized
and amortized over a six-year period, which is the period in which the
contingent deferred sales charge is effective.
(i) Management Fees and Administrative Fees. The Company receives fees from
the Funds for investment management and administrative services performed as set
forth in the related agreements between the Company and each Fund. Such fees,
net of sub-advisor fees, are recorded as income when earned.
(j) Distribution Fee Income and Expenses. Distribution plan payments received
by the Company from the Funds are recorded as income when earned. Costs
associated with the marketing and sale (distribution) of the Funds' shares are
expensed as incurred.
(k) Distribution Costs--Managed Funds. Certain of the Funds' distribution
plans (the "reimbursement plans") reimburse the Company for distribution costs,
but limit the reimbursement to between .25% and .30% of the respective Fund's
average daily net assets determined on an annual basis. Unreimbursed costs may
be carried over for a three-year period subject to the same annual percentage
limitations. Distribution costs are expected to exceed reimbursements for the
three-year period. Therefore, no receivable is currently recorded for any
unreimbursed amounts.
(l) Debt Issuance Costs. Costs incurred in obtaining debt financing for
acquisitions, operations and payment of sales commissions on back-end load
mutual funds managed and distributed by the Company are deferred and amortized
on a straight-line basis over the terms of the related loan agreements.
(m) Income Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(n) Net Earnings (Loss) Per Common Share. Net earnings (loss) per common
share is computed using the weighted average number of common shares and
dilutive common stock equivalents outstanding during the period. No effect has
been given to stock options outstanding for the years ended September 30, 1996,
1995, and 1994, as such options would have had an anti-dilutive effect.
(o) Reclassifications. Certain prior year balances have been reclassified to
conform to current presentation.
(p) Use of Estimates. Management has made certain estimates and assumptions
relating to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
27
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(2) ACQUISITION
On April 7, 1995, the Company acquired certain assets of Pilgrim Group, Inc.
for $28.1 million in cash and assumed certain operating liabilities. The
Acquisition was accounted for under the purchase method. The Company recorded
costs assigned to management contracts acquired in connection with the
Acquisition of $32.3 million, which included provisions for transaction costs
and the cost of moving the acquired operations to Phoenix, Arizona. In
connection with the Acquisition, the Company entered into investment advisory
and other contracts with five mutual funds with combined net assets of $1.3
billion. The Company also acquired the right to the name "Pilgrim" and certain
other operating assets. The Funds include two closed-end funds with shares
traded on the New York Stock Exchange: Pilgrim America Prime Rate Trust
(NYSE:PPR) and Pilgrim America Bank and Thrift Fund, Inc. (NYSE:PBS); and three
open-end funds: Pilgrim America MagnaCap Fund, Pilgrim America High Yield Fund
and Pilgrim Government Securities Income Fund.
Pilgrim America's results of operations from April 7, 1995, have been
included in the Company's consolidated statements of operations.
Following are selected unaudited pro forma results of operations for 1995 and
1994 respectively, as if the Acquisition had occurred at the beginning of Fiscal
1994:
Pro Forma for the
Years Ended
September 30,
(Unaudited)
---------------------------
Description 1995 1994
- ------------------------------------------------ ---------- ---------
(In thousands, except
per share amounts)
Revenues $ 12,005 $ 10,848
======== ========
Loss from continuing operations $ (1,744) $ (3,423)
======== ========
Loss per common share from continuing operations $ (0.35) $ (0.64)
======== ========
(3) NOTE RECEIVABLE
On September 30, 1994, the Company sold its mortgage loan servicing
operations, including the rights to service $6.3 billion in mortgage loans, to
NationsBanc Mortgage Corporation. The Company received $88.2 million at closing,
comprised of $84.0 million in cash and a promissory note in the amount of $4.2
million. The principal on this note is due on September 30, 1999. The note is
subject to the right of offset with respect to certain indemnifications made by
the Company in connection with the sale. The Company had an allowance of
$618,000 and $701,000 at September 30, 1996 and September 30, 1995,
respectively, to cover potential claims made in connection with the
indemnification provisions.
(4) INVESTMENTS
Investments in marketable securities are carried at market value and consist
of investments in certain Funds managed by the Company. The cost basis of the
Company's investments was $2.1 million as of September 30, 1996 and 1995. Gross
unrealized gains thereon were $333,000 and $0, respectively.
(5) TERM LOAN COMMITMENT
On July 31, 1996, the Company and its lender amended and restated an existing
credit agreement dated April 28, 1995, used to finance the Company's fund
management operations (the "Pilgrim America Credit Agreement" or "Agreement").
The restated Agreement allows PAG to borrow up to $15 million to be used for
various purposes including: (i) general corporate purposes; (ii) acquisition of
investment management contracts; and (iii) financing of commissions paid by the
Company in connection with sales
28
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
of Fund shares subject to a contingent deferred sales charge. Borrowings are
collateralized by assets of PAG, PAS and PAI, and guaranteed by the Company.
Loans may be drawn down until July 31, 1997 and are repayable quarterly
beginning on September 30, 1997 and ending on September 30, 2001.
In connection with the Pilgrim America Credit Agreement, the Company paid the
lender a closing fee of $260,000 in April 1995, which has been capitalized and
is being amortized over the term of the Agreement. Additionally, the Company is
obligated to pay a commitment fee of 0.375%, annualized, of any unused borrowing
availability.
As of September 30, 1996, the Company had borrowed $3.6 million under the
Agreement. There were no borrowings as of September 30, 1995. The weighted
average interest rate on borrowings outstanding during Fiscal 1996 was 7.14%.
(6) REDEEMABLE PREFERRED STOCK
During Fiscal 1996, 1995 and 1994 the Company redeemed 3,384, 6,768 and 6,768
shares, respectively, of its Series A Preferred Stock at the liquidation value
of $100 per share, for an aggregate redemption price of $338,000, $677,000, and
$677,000, respectively. As of September 30, 1995 there were 3,384 such shares
issued and outstanding and all such remaining shares were redeemed on March 31,
1996.
(7) INCOME TAXES
Deferred tax assets are initially recognized for temporary differences
between the consolidated financial statement carrying amount and the tax bases
of assets and liabilities which will result in future deductible amounts and
operating loss and tax credit carryforwards. A valuation allowance is then
established to reduce that deferred tax asset to the level at which it is "more
likely than not" that the tax benefits will be realized. Realization of tax
benefits of deductible temporary differences and operating loss or credit
carryforwards depends on having sufficient taxable income of an appropriate
character within the carryback and carryforward periods. Sources of taxable
income that may allow for the realization of tax benefits include (i) taxable
income in the current year or prior years that is available through carryback,
(ii) future taxable income that will result from the reversal of existing
taxable temporary differences, and (iii) future taxable income generated by
future operations. Based on an evaluation of the realizability of the deferred
tax asset, as of September 30, 1996 management has determined that it is more
likely than not that the Company will realize a tax benefit of $1.75 million.
Therefore, a valuation allowance has been established for the remaining deferred
tax assets. The net change in the valuation allowance for deferred tax assets in
1996 was $1.4 million.
29
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
As of September 30, 1996 and September 30, 1995, the Company had a deferred
tax asset before valuation allowance of $10.7 million and $9.8 million (as
adjusted for filed tax returns), respectively. The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets
and deferred tax liabilities at September 30, 1996 and 1995 are presented below
(in thousands):
September 30,
-----------------------
1996 1995
--------- ---------
DEFERRED TAX ASSETS:
Net operating loss carryforward $ 7,802 $ 6,120
Allowance for contingency 1,022 1,281
Repurchase allowance 772 1,272
Deferred compensation 355 173
Allowance for discontinued operations 290 25
Allowance for receivables 247 280
Allowance for foreclosure losses 95 441
Other 83 251
-------- --------
Total gross deferred tax assets 10,666 9,843
Less valuation allowance (7,765) (9,134)
-------- --------
Total deferred tax assets 2,901 709
-------- --------
DEFERRED TAX LIABILITIES:
Goodwill (878) (564)
Depreciation (145) (145)
Unrealized gain on investments (128) --
-------- --------
Total deferred tax liabilities (1,151) (709)
-------- --------
Net deferred tax assets $ 1,750 $ --
======== ========
At September 30, 1996, the Company had net operating loss carryforwards
("NOL's") for federal income tax purposes of $19.5 million which are available
to offset future federal taxable income through the fiscal year ending September
30, 2010.
The total income tax provision (benefit) differs from the amount computed by
applying the statutory Federal income tax rate for the following reasons (in
thousands):
Years Ended September 30,
Description 1996 1995
- --------------------------------------------------- ---------- ---------
Expected tax benefit on loss from continuing
operations $ (477) $ (187)
Increase in income taxes resulting from meals and 45 20
entertainment
State income taxes, net of federal taxes (76) --
Change in valuation allowance (1,242) 167
------- -------
Total $(1,750) $ --
======= =======
(8) STOCKHOLDERS' EQUITY
On September 27, 1996, the Company repurchased 1,017,730 shares of its common
stock from two institutional stockholders at a price of $6.50 per share for a
total of $6.6 million. The Company used funds borrowed under the Pilgrim America
Credit Agreement to finance the repurchase (see Note 5).
30
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Between November 1994 and January 1995, the Company repurchased 500,000
shares of its common stock at a total purchase price of $2.0 million. These
purchases were made in open market transactions pursuant to a previously
announced authorization by the Company's board of directors to repurchase up to
500,000 shares of common stock based upon market conditions.
(9) STOCK OPTION AND PERFORMANCE SHARE PLANS
Pursuant to the Company's Stock Option Plan (the "Plan"), the Company's board
of directors has granted to certain officers and employees incentive stock
options to purchase 536,000 shares of the Company's common stock as of September
30, 1996. Under the Plan, total options of up to 537,786 shares are available to
be granted. Additionally, as of September 30, 1996 the Company had issued to
non- employee directors non-statutory stock options to purchase 50,000 shares of
common stock. All options outstanding at September 30, 1996 were issued with an
exercise price of $5.75 per share. The options vest at a rate of 33 1/3 % on
each anniversary of the date of grant. Stock option activity for the three years
ended September 30, 1996 is shown below (in thousands, except per share data):
Fiscal Year
---------------------------
1996 1995 1994
------- ------- ------
Options outstanding at beginning of year 581 334 386
Options granted 326 385 --
Options exercised -- -- --
Options canceled (321) (138) (52)
---- ---- ----
Options outstanding at end of year 586 581 334
==== ==== ====
Options exercisable at end of year 87 196 194
==== ==== ====
On August 30, 1996, the Company adopted the 1996 Performance Share Plan (the
"Plan"), approved and administered by the Company's board of directors, in which
certain officers and employees were granted interests that entitle them to
compensation amounts directly related to the market price of the Company's
common stock ("Performance Shares"). The compensation cost attributable to the
performance shares is equivalent to the market value of the Company's common
stock less the value assigned on grant date. Such compensation cost is amortized
into operations over the vesting period of the performance shares.
The Performance Shares vest over a five-year period. The maximum aggregate
number of Performance Shares that may be issued under the plan is 250,000.
Cancelled and forfeited shares may be reissued under the Plan. As of September
30, 1996, 182,500 Performance Shares were outstanding, each with an assigned
value of $5.75.
(10) EMPLOYEE BENEFITS
In July 1991, EAHC established a tax deferred savings plan under Section
401(k) of the Internal Revenue Code. The plan, which was amended May 1, 1995,
covers all full time employees and allows for a maximum contribution of $9,500
and $9,240 (the "Maximum") by each employee in 1996 and 1995, respectively.
Prior to May 1, 1995, employees were allowed to contribute up to 20 percent of
their salary, subject to the Maximum. Employees were immediately vested in their
contributions. Matching contributions made by the Company were voluntary and any
matching contributions made through May 1, 1995 are fully vested.
Subsequent to May 1, 1995, pursuant to the amended plan, employees may
contribute up to 10% of their salary, subject to the Maximum, and the Company
automatically matches the employee's contributions, up to 7% of the employee's
salary. Employees vest in the plan over a three-year period.
31
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
During the year ended September 30, 1996 and September 30, 1995, the Company
contributed $273,000 and $131,000, respectively, to the plan.
(11) COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in a complaint filed by the
Resolution Trust Corporation (the "RTC"). The outcome of this suit cannot be
predicted, but the Company believes it has strong meritorious defenses and
intends to vigorously defend itself in this action (see Note 15).
The Company is also involved in various other legal proceedings which arose
in the course of its discontinued mortgage operations. Management is of the
opinion that such proceedings are not material in nature and will not have a
material adverse effect on the Company.
The Company is obligated under certain non-cancelable operating leases for
equipment and office facilities. In addition, as of September 30, 1996 and
September 30, 1995 the Company has provided $196,000 and $377,000, respectively,
for net discounted future minimum lease payments relating to lease obligations
acquired from Pilgrim Group, Inc. The Company's operations have been relocated
and the facilities subleased. Net undiscounted future minimum lease payments of
$276,000 are included in the loss from discontinued operations in Fiscal 1995
relating to office space subleased on mortgage branches.
Future minimum lease payments under the Company's operating leases for its
offices in Phoenix, Arizona and for the offices in Los Angeles, California
(which lease was acquired from Pilgrim Group, Inc. pursuant to the Acquisition),
as well as the sublease income related to the Los Angeles office, are as
follows:
Lease Sublease Net
September 30, Payments Income Payments
-------------- ---------- ------- -------
1997 $ 964 $ 525 $ 439
1998 890 525 365
1999 890 525 365
2000 720 350 370
Thereafter 629 -- 629
------ ------ ------
$4,093 $1,925 $2,168
====== ====== ======
Rent expense included in continuing operations for the years ended September
30, 1996, 1995 and 1994 were $333,000, $292,000, and $0, respectively.
(12) RELATED PARTY TRANSACTIONS
Investment Advisory Agreements. Pursuant to investment management agreements
(the "Agreements"), the Company provides investment management services to the
Funds. Following an initial two-year term, the Agreements are renewable annually
based upon approval by the Fund's Board, including approval by a majority of the
respective Fund's disinterested directors.
Additionally, each Agreement may be terminated prior to its expiration upon
60 days notice by either the Company or the Fund.
As provided in the Agreements, the Company receives management fees ranging
from .50% to 1.25% on an annual basis of the respective Fund's average daily net
assets. Management fees received from the Funds, net of sub-advisory fees,
amounted to $11.2 million during Fiscal 1996 and $5.1 million for the period
from April 7, 1995 to September 30, 1995. Some of the Agreements also contain,
or the Company has otherwise agreed to, expense limitation provisions whereby
the Company has agreed to reimburse certain Funds annually, under certain
conditions, an amount equal to all or a portion of its investment
32
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
advisory fees. Fund expense reimbursements under these provisions were $606,000
and $94,000, respectively, for Fiscal Years 1996 and 1995, and amounts payable
to the Funds under such provisions as of September 30, 1996 and September 30,
1995 were $56,290 and $94,000, respectively.
In addition the Company acts as administrator for Pilgrim America Prime Rate
Trust (the "Trust"). Under the terms of the related Agreement, the Company
receives annual administrative fees ranging from .10% to .15% of the average
daily net assets plus any borrowings of the Trust. The fees are computed daily
and payable monthly.
During Fiscal 1996 and Fiscal 1995, the Company recognized administrative fee
income of $1.3 million and $608,000, respectively, in connection with this
Agreement.
The Company also serves as the principal distributor for Pilgrim America
MagnaCap Fund, Pilgrim America High Yield Fund, Pilgrim Government Securities
Income Fund, Pilgrim America Masters Asia- Pacific Equity Fund, Pilgrim America
Masters MidCap Value Fund and Pilgrim America Masters LargeCap Value Fund,
open-end management investment companies (collectively, the "Open-end Funds")
managed by the Company (see Note 13). Distribution fees earned from the Open-end
Funds amounted to $1.1 million and $377,000 for Fiscal 1996 and Fiscal 1995,
respectively.
(13) DISTRIBUTION PLANS
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, as principal
distributor for the Open-end Funds, the Company receives distribution fees
ranging from .25% to 1.00% on an annual basis of the respective Open-end Fund's
average daily net assets. Also under Rule 12b-1, the Company makes ongoing
payments on a quarterly basis to authorized dealers for distribution and
shareholder servicing at annual rates ranging from .25% to .65% of the Fund's
average daily net assets.
The Company is entitled to contingent deferred sales charges which are
imposed upon the redemption of certain classes of shares of the Open-end Funds.
Such charges are paid by the redeeming shareholder and are imposed at the rate
of 5% for redemptions in the first year after purchase, declining to 4%, 3%, 3%,
2% and 1% in the second, third, fourth, fifth and sixth years, respectively.
(14) DISCONTINUED OPERATIONS
Historically, the Company had been engaged in the mortgage banking business.
On June 9, 1994, the Company sold its rights to service $305.5 million of
Government National Mortgage Association ("GNMA") loans. On September 30, 1994,
the Company's mortgage servicing portfolio and operations were sold (see Note
3). On February 28, 1995, the Company discontinued the remainder of its mortgage
banking operations and recorded a provision for loss on discontinuance of
mortgage banking operations of $986,000. This provision included the anticipated
mortgage banking related revenues and expenses, including severance expense and
all other costs that will be incurred to phase out these operations. Subsequent
to February 28, 1995, during Fiscal 1995 the Company increased the loss
provision to $5.3 million, based on reevaluation of its allowances for
discontinued operations, including legal fees and other costs relating to recent
legal proceedings (see Note 15). During Fiscal 1996, no additional provisions
were made for discontinued operations and as of September 30, 1996 the Company
believes that the remaining allowances are adequate to complete the
discontinuance of the remaining mortgage banking operations. The Company
believes that it has substantially wound down its mortgage banking operations,
but anticipates that mortgage loan related issues will continue to arise through
at least Fiscal 1997.
Balance Sheet. The balance sheet presentation included in the accompanying
consolidated financial statements as of September 30, 1996 and 1995 has been
adjusted to reflect the assets and liabilities relating to the Company's
mortgage banking operations as net liabilities of discontinued operations.
33
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following table sets forth certain balance sheet information related to
these operations as of September 30, 1996 and 1995:
NET LIABILITIES OF DISCONTINUED OPERATIONS
(in thousands)
September 30
------------
1996 1995
-------- --------
ASSETS
Other receivables $ 157 $ 3,186
Mortgage loans held for sale 3,516 2,352
------- -------
TOTAL ASSETS 3,673 5,538
------- -------
LIABILITIES
Accounts payable and accrued expenses 3,191 6,676
Allowances for contingencies (see Notes 11 and 15) 2,554 3,000
Notes payable 1,320 --
------- -------
TOTAL LIABILITIES 7,065 9,676
------- -------
NET LIABILITIES OF DISCONTINUED OPERATIONS $(3,392) $(4,138)
======= =======
Operations. The statements of operations presentation included in the
accompanying consolidated financial statements for the fiscal years ended
September 30, 1996, 1995, and 1994 have been adjusted to reflect the results of
the mortgage banking operations as discontinued operations.
Restructuring Charges. Beginning in March 1994, interest rates increased
significantly, causing a sudden decline in the level of refinancing activities
both industry-wide and for the Company. As a result, the Company's loan
origination activity and revenues precipitously declined. To offset the decline
in origination revenue and to enhance productivity, the Company adopted a plan
to consolidate its wholesale loan origination business from eight hub offices to
four hub offices which functions were centralized in the Company's Scottsdale,
Arizona headquarters. The Company recorded a $1.7 million charge during the
third quarter in 1994 to cover the cost of consolidating operations.
With the continual decline in the Company's loan origination activity and
revenues, the Company adopted another restructuring plan during the fourth
quarter of Fiscal 1994 to consolidate its wholesale loan origination business
into one hub office in Scottsdale, Arizona while maintaining sales offices in
areas where the other hub offices existed. As a result of this restructuring
plan, the Company recorded another $3.4 million charge during the fourth quarter
of Fiscal 1994.
The total $5.1 million restructuring charge for Fiscal 1994 was recorded as
an allowance of which $4.7 million remained at September 30, 1994, included in
the net liabilities of discontinued operations in the accompanying consolidated
financial statements. The components of the restructuring allowance at September
30, 1994 were as follows (in thousands):
Balance at
Charge September 30,
Recorded Usage 1994
-------- -------- ------
Losses on office and equipment leases $ 2,850 $ (178) $ 2,672
Loss on fixed assets 1,447 -- 1,447
Termination benefits 427 (117) 310
Travel, moving and other costs 326 (94) 232
------- ------- -------
$ 5,050 $ (389) $ 4,661
======= ======= =======
34
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The losses on office and equipment leases of $2.9 million were based on the
estimated costs of terminating certain lease agreements. If under any of the
lease agreements a termination cost could not be negotiated with the lessor, the
loss was calculated using the total of the undiscontinued future sublease
payments to be received under estimated sublease agreements. Such leases expire
prior to September 30, 1997.
The $427,000 of termination benefits was calculated based upon the benefits
that were paid to approximately 130 loans origination employees terminated under
the restructuring plans.
<TABLE>
The components of the restructuring allowance at September 30, 1995 and 1994
are as follows (in thousands):
<CAPTION>
Balance Change in Balance at
September 30, Less Restructuring September 30,
1994 Usage Estimates 1995
--------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Losses on office and equipment leases $ 2,672 $(2,548) $ 204 $ 328
Loss on fixes assets 1,447 (1,098) (349) --
Termination benefits 310 (136) (174) --
Travel, moving and other costs 232 (82) (150) --
------- ------- ------- -------
$ 4,661 $(3,864) $ (469) $ 328
======= ======= ======= =======
</TABLE>
Usage of the allowance for losses on office and equipment leases was $127,000
during Fiscal 1996 and the balance remaining at September 30, 1996 was $201,000.
The Company has loss allowances, included in accrued expenses (of
discontinued operations), in the amount of $237,000 and $1.0 million at
September 30, 1996 and 1995, respectively, to provide for estimated losses to be
incurred upon foreclosure of loans in the servicing portfolio and for VA
no-bids. Additionally, as of September 30, 1996 and 1995, the Company had
established repurchase allowances of $1.9 million and $3.2 million, also in
accrued expenses, respectively, to provide for estimated losses to be incurred
upon repurchase and resale of loans originated by the Company.
(15) LEGAL PROCEEDINGS
The Company acquired its now discontinued mortgage banking operations from
the Resolution Trust Corporation ("RTC") on May 16, 1991 following a competitive
marketing process. The RTC filed a complaint in the United States District
Court, District of Arizona on December 8, 1995, against the Company, Rauscher
Pierce Refsnes, Inc., Smith Barney, Harris Upham & Co., Incorporated and five
individuals and their spouses including the current CEO and CFO of the Company
and two former officers of the Company. The complaint alleges various
irregularities in the bidding process and the closing of the acquisition. The
RTC has asked for an aggregate at least $20 million in actual damages and at
least $60 million in punitive damages from all defendants. The RTC ceased
operating on December 31, 1995 and the Federal Deposit Insurance Corporation
(the "FDIC") assumed responsibility for this case.
The Company filed an Answer and a Motion to Dismiss with respect to the FDIC
action on February 16, 1996. The Motion to Dismiss stated that most of the
claims asserted by the FDIC including the claim for punitive damages are
defective as a matter of law and must be dismissed. The Court heard oral
arguments by all parties regarding each of their Motions to Dismiss in June 1996
and rendered a decision in August 1996 in which it generally found that the FDIC
had properly pled its claims or that the FDIC needed to amend its complaint to
restate certain claims. The only claims dismissed were contract claims against
the Company's CEO and CFO and all claims against the CEO's current spouse. The
FDIC filed an amended complaint in September 1996 and the Company filed an
amended Answer. The Answer contains both denials and affirmative defenses to the
remaining claims asserted by the FDIC. The Company believes it has meritorious
defenses to the claims brought by the FDIC and it will vigorously defend itself
against all claims.
35
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company notified its Officer and Director liability carrier of the FDIC
action in January 1996 seeking coverage as permitted by the policy in connection
with losses which it may incur in connection with this action. To date, the
insurance carrier has not responded with respect to its determination as to
whether the policy permits recovery of any losses incurred in connection with
this action.
The accompanying financial statements include, in discontinued operations, an
accrual of $2.6 million and $3.2 million (allowance for contingencies) at
September 30, 1996 and September 30, 1995 related to the litigation. The accrual
is based on management's assessment, after consultation with outside legal
counsel, of all estimated costs relating to the matter. The ultimate outcome of
the litigation cannot presently be determined.
The Company is also involved in various other legal proceedings which arose
in the course of its discontinued mortgage operations. Management is of the
opinion that such proceedings are not material in nature and will not have a
material adverse effect on the Company.
(16) SUBSEQUENT EVENT
On November 19, 1996, Pilgrim America Prime Rate Trust issued 18,122,963
additional shares of beneficial interest in the Fund ("Common Shares") pursuant
to a one for five non-transferable rights offering (the "Offering") which was
completed on November 12, 1996. Total net proceeds to the Fund were $157.7
million, after the deduction of Offering expenses.
As a result of the Offering, the Fund is anticipating increasing its
borrowings proportionately with the increase in its net assets and is currently
negotiating with outside lenders to increase borrowing capacity. Additionally,
the Company has agreed to reduce its management fees on net assets plus
borrowings in the Fund over $1.15 billion to .60% for a period of three years
following the Offering.
<TABLE>
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
<CAPTION>
Fiscal 1996 Quarter Ended
---------------------------------------------------------------------
December 31, March 31, June 30, September 30,
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues
Management and administrative fees ................. $ 2,981 $ 3,011 $ 3,084 $ 3,480
Distribution fees .................................. 213 254 307 369
Investment and other income ........................ 129 224 214 219
----------- ----------- ----------- -----------
Total revenues ................................ 3,323 3,489 3,605 4,068
----------- ----------- ----------- -----------
Expenses
General and administrative ......................... 2,056 1,874 1,903 1,534
Selling ............................................ 1,347 1,777 1,818 1,588
Amortization and depreciation ...................... 469 482 526 513
----------- ----------- ----------- -----------
Total expenses ................................ 3,872 4,133 4,247 3,635
----------- ----------- ----------- -----------
Earnings (loss) from continuing
operations before taxes ............................. (549) (644) (642) 433
Tax benefit ............................................. -- -- -- 1,750
----------- ----------- ----------- -----------
Net earnings (loss) ..................................... $ (548) $ (643) $ (642) $ 2,183
=========== =========== =========== ===========
Net earnings (loss) per share ........................... $ (0.11) $ (0.13) $ (0.13) $ 0.45
=========== =========== =========== ===========
Shares used in per share calculation .................... 4,877,860 4,877,860 4,877,860 4,833,611
=========== =========== =========== ===========
</TABLE>
36
<PAGE>
EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information respecting (a) continuing directors and nominees of the Company
is set forth under the caption "Information Concerning Directors and Nominees"
and (b) disclosure of delinquent filters pursuant to Item 405 of Regulation S-K
is set forth under the caption "Compliance with Section 16(a) under The Exchange
Act," in the Company's Proxy Statement relating to its 1997 Annual Meeting of
Stockholders incorporated by reference into this Form 10-K Report, which will be
filed with the Securities and Exchange Commission in accordance with Rule
14a-6(c) promulgated under the Securities Exchange Act of 1934 (the "1997 Proxy
Statement"). With the exception of the foregoing information and other
information specifically incorporated by reference into this Form 10-K Report,
the Company's 1997 Proxy Statement is not being filed as a part hereof.
Information respecting executive officers of the Company who are not continuing
directors or nominees is set forth at the end of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information respecting executive compensation is set forth under the caption
"Executive Compensation" in the 1997 Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information respecting security ownership of certain beneficial owners and
management is included under the caption "Principal Stockholders and
Stockholdings of Management" in the 1997 Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information respecting certain relationships and transactions of management
is set forth under the caption "Certain Transactions" in the 1997 Proxy
Statement, which information is incorporated herein by reference.
37
<PAGE>
<TABLE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<CAPTION>
Page or
Method of Filing
------------------------------
<S> <C> <C>
(a) FINANCIAL STATEMENTS.
(1) Report of KPMG Peat Marwick LLP Page 21
(2) Consolidated Financial Statements and Notes thereto of the Company, Page 22
including Consolidated Balance Sheets as of September 30, 1996 and
1995 and related Consolidated Statements of Operations, Cash Flows
and Stockholders' Equity for the years ended September 30, 1996,
1995 and 1994.
(b) FINANCIAL STATEMENT SCHEDULES.
(1) Report of KPMG Peat Marwick LLP Filed herein
(2) Schedule I-- Condensed Financial Information Filed herein
(3) Schedule II--Valuation and Qualifying Accounts Filed herein
(c) EXHIBITS. The following exhibits are filed as part of this
Report.
3.1 Restated Certificate of Incorporation of Registrant Incorporated by reference to
Exhibit 3.1 of the
Registrant's Annual Report on
Form 10-K for the Fiscal Year
Ended September 30, 1993 (the
"1993 Form 10-K")
3.2 Amended and Restated Bylaws of Registrant Incorporated by reference to
Exhibit 3.2 of the 1993 Form
10-K
3.3 Certificate of Ownership and Merger Merging Registrant into Incorporated by reference to
First Western Corporation Exhibit 3.3 of the 1993 Form
10-K
4.1 Form of Certificate for Common Stock Incorporated by reference to
Exhibit 4.1 of the 1993 Form
10-K
4.2.1 Stock Option Plan of the Registrant (as amended through Incorporated by reference to
November 1993) Exhibit 4.2.1 of the 1993 Form
10-K
4.2.2 Form of Incentive Stock Option Agreement for the Stock Incorporated by reference to
Option Plan Exhibit 4.2 of Form S-8
Registration Statement No.
33-61274 ("S-8 No. 33-61274")
4.2.3 Form of Nonstatutory Stock Option Agreement for the Stock Incorporated by reference to
Option Plan Exhibit 4.3 of S-8 No.
33-61274
4.3 Form of Stock Option Agreement for Non-Employee Directors Incorporated by reference to
Exhibit 4 of Form S-8 No.
33-64738
38
<PAGE>
Page or
Method of Filing
------------------------------
4.4 Registration Rights Agreement between Registrant and its Incorporated by reference to
stockholders, dated February 28, 1992 Exhibit 4.5 of Form S-1
Registration Statement No.
33-45038 ("S-1 No. 33-45038")
4.5.1 Performance Share Plan Filed herein
4.5.2 Form of Performance Share Agreement Filed herein
10.1.1 Employment Agreement between Registrant and Robert W. Incorporated by Reference to
Stallings dated August 16, 1995 Exhibit 10.1.1 of the Report
on Form 10-K for the Fiscal
Year Ended September 30, 1995
(the "1995 Form 10-K")
10.1.2 Employment Agreement between Registrant and James R. Reis Incorporated by Reference to
dated August 16, 1995 Exhibit 10.1.2 of the 1995
Form 10-K
10.1.3 Employment Agreement between Registrant and James M. Hennessy Incorporated by Reference to
dated August 4, 1995 Exhibit 10.1.3 of the 1995
Form 10-K
10.1.4 Employment Agreement between Registrant, PAG and Daniel A. Incorporated by Reference to
Norman dated August 4, 1995 Exhibit 10.1.4 of the 1995
Form 10-K
10.2.1 Indemnity Agreement between the Registrant, Registrant and Incorporated by reference to
certain investors, dated May 16, 1991 Exhibit 10.14.1 of S-1 No.
33-45038
10.2.3 Form of Indemnity Agreement between the Registrant and each Incorporated by reference to
member of its Board of Directors Exhibit 10.9.3 of the 1992
Form 10-K
10.3 Asset Purchase Agreement dated August 27, 1994 between Incorporated by reference to
Registrant and NationsBanc Mortgage Corporation Exhibit 2 to Form 8-K relating
to an event of August 27, 1994
10.4 Acquisition Agreement among the Registrant, Pilgrim Group, Incorporated by reference to
Inc., Pilgrim Management Corporation, Pilgrim Distributors Exhibit 2 to Form 8-K relating
Corporation and Palomba Weingarten to an event of December 7,
1994
10.5.1 Amended and Restated Credit Agreement ("Credit Agreement") Filed herein
dated July 31, 1996, by and between PAG and First Bank
National Association ("First Bank")
10.15 Reaffirmation of Security Agreement dated July 31, 1996, by Filed herein
PAG to First Bank
10.16 Reaffirmation of Security Agreement dated July 31, 1996, PAI Filed herein
to First Bank
10.17 Reaffirmation of Security Agreement dated July 31, 1996, by Filed herein
PAS to First Bank
10.18 Reaffirmation of Guaranty and Pledge Agreement dated July 31, Filed herein
1996, by the Registrant in favor of First Bank
10.19 Reaffirmation of Guaranty dated July 31, 1996, by PAI in Filed herein
favor of First Bank
10.20 Reaffirmation of Pledge Agreement dated as of July 31, 1996, Filed herein
by PAG to First Bank
39
<PAGE>
Page or
Method of Filing
------------------------------
10.21 Portfolio Management Agreement among PAI, HSBC Asset Incorporated by reference to
Management Americas Inc. and HSBC Asset Management Hong Exhibit 10.22 of the 1995 Form
Kong Limited, dated April 27, 1995 10-K
10.22 Portfolio Management Agreement dated May 1, 1995, between Incorporated by reference to
PAI and CRM Advisors, LLC Exhibit 10.23 of the 1995 Form
10-K
10.23 Portfolio Management Agreement dated May 1, 1995, between Incorporated by reference to
PAI and Ark Asset Management Co., Inc. Exhibit 10.24 of the 1995 Form
10-K
10.24 Investment Management Agreement dated June 6, 1995, between Incorporated by reference to
PAI and Pilgrim America Masters Series, Inc. Exhibit 10.25 of the 1995 Form
10-K
10.25 Investment Management Agreement dated April 7, 1995, between Incorporated by reference to
PAI and Pilgrim America Investment Funds, Inc. on behalf of Exhibit 99.5 of Form 8-K/A
its Pilgrim America High Yield Fund series Amendment No. 2, Event dated
December 7, 1994
10.26 Investment Management Agreement dated April 7, 1995, between Incorporated by reference to
PAI and Pilgrim Government Securities Income Fund Exhibit 99.4 of Form 8-K/A
Amendment No. 2, Event dated
December 7, 1994
10.27 Investment Management Agreement dated April 7, 1995, between Incorporated by reference to
PAI and Pilgrim Prime Rate Trust Exhibit 99.1 of Form 8-K/A,
Amendment No. 2, Event dated
December 7, 1994
10.28 Investment Management Agreement dated April 7, 1995, between Incorporated by reference to
PAI and Pilgrim Regional BankShares Inc. Exhibit 99.3 of Form 8-K/A,
Amendment No. 2, Event dated
December 7, 1994
10.29 Investment Management Agreement dated April 7, 1995, between Incorporated by reference to
PAI and Pilgrim America Investment Funds, Inc. on behalf of Exhibit 99.2 of Form 8-K/A,
Pilgrim America MagnaCap Fund series Amendment No. 2, Event dated
December 7, 1994
10.30 Administration Agreement amended and restated as of April 7, Incorporated by reference to
1995, between PAG and Pilgrim Prime Rate Trust Exhibit 99.6 of Form 8-K/A,
Amendment No. 2, Event dated
December 7, 1994
10.31 Distribution Plan dated April 7, 1995, between PAI and Incorporated by reference to
Pilgrim America Investment Funds, Inc. on behalf of its Exhibit 99.7 of Form 8-K/A
Pilgrim America MagnaCap Fund series and PAS Amendment No. 2, Event dated
December 7, 1994
10.32 Distribution Plan dated April 7, 1995, between PAI and Incorporated by reference to
Pilgrim America Investment Funds, Inc. on behalf of its Exhibit 99.8 of Form 8-K/A,
Pilgrim America High Yield Fund series and PAS Amendment No. 2, Event dated
December 7, 1994
40
<PAGE>
Page or
Method of Filing
------------------------------
10.33 Distribution Plan dated April 7, 1995, between Pilgrim Incorporated by reference to
Government Securities Income Fund, Inc. and PAS Exhibit 99.9 of Form 8-K/A,
Amendment No. 2, Event dated
December 7, 1994
10.34 Warehousing Credit Agreement dated January 25, 1996 between Filed herein
Express America Mortgage Corporation and First Bank National
Association
21 Subsidiaries of Registrant Incorporated by reference to
Exhibit 21, 1995 Form 10-K
23 Consent of KPMG Peat Marwick LLP Included in Report at Financial Statement
Schedules
24 Powers of Attorney See Signature Page
(d) REPORTS ON FORM 8-K.
During the fiscal year ended September 30, 1996, the Company filed
one Current Report on Form 8-K dated February 27, 1996 relating to
an event that occurred on February 22, 1996.
</TABLE>
41
<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 of Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, this
twelfth day of December, 1996.
EXPRESS AMERICA HOLDINGS CORPORATION,
a Delaware corporation
By: /s/ Robert W. Stallings
------------------------------------------------------------
Robert W. Stallings
Chairman of the Board, Chief Executive Officer and President
42
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert W. Stallings and James R. Reis, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Form 10-K Annual
Report, and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully and to all intents and purposes as he might
or could do in person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert W. Stallings Chairman of the Board, Chief December 12, 1996
- ----------------------------- Executive Officer and President
Robert W. Stallings (Principal Executive Officer)
/s/ James R. Reis Vice Chairman and Chief Financial Officer December 12, 1996
- ----------------------------- (Principal Accounting Officer)
James R. Reis
/s/ John C. Cotton Director December 12, 1996
- -----------------------------
John C. Cotton
/s/ Roy A. Herberger, Jr. Director December 12, 1996
- -----------------------------
Roy A. Herberger, Jr.
/s/ John M. Holliman, III Director December 12, 1996
- -----------------------------
John M. Holliman, III
/s/ Stephen A McConnell Director December 12, 1996
- -----------------------------
Stephen A. McConnell
/s/ Paul J. Renze Director December 12, 1996
- -----------------------------
Paul J. Renze
</TABLE>
43
<PAGE>
Independent Auditors' Consent and Report on Schedules
-----------------------------------------------------
The Board of Directors
Express America Holdings Corporation:
The audits referred to in our report dated October 23, 1996, included the
related financial statement schedules as of September 30, 1996 and 1995, and for
each of the years in the three-year period ended September 30, 1996. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the incorporation by reference in the registration statements No.
33-61274 and No. 33-64738 on Form S-8 of Express America Holdings Corporation of
our report dated October 23, 1996 relating to the consolidated balance sheets of
Express America Holdings Corporation and subsidiaries as of September 30, 1996
and 1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 1996 and all related schedules, which reports appear in the
September 30, 1996, annual report of Form 10-K of Express America Holdings
Corporation.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Los Angeles, California
December 12, 1996
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
EXPRESS AMERICA HOLDINGS CORPORATION
in thousands
- --------------------------------------------------------------------------------
Condensed Balance Sheets
September 30, September 30,
1996 1995
------------ ------------
Assets:
Cash and cash equivalents ........... $ 3 $ 29
Investments ......................... 2,346 2,000
Investments in subsidiaries ......... 32,552 31,310
Due from subsidiaries ............... 942 2,513
Other assets ........................ 537 556
-------- --------
Total assets ........................ $ 36,380 $ 36,408
======== ========
Liabilities and Stockholders' Equity:
Other liabilities ................... $ 6,592 $ 348
Redeemable preferred stock .......... -- 338
Common stock ........................ 54 54
Less: Treasury stock .......... (8,623) (2,008)
Additional paid in capital .......... 48,759 48,759
Unrealized gain on investments ...... 333 --
Accumulated deficit ................. (10,735) (11,083)
-------- --------
Total stockholders' equity 29,788 35,722
-------- --------
Total liabilities and stockholders'
equity ................... $ 36,380 $ 36,408
======== ========
Condensed Statement of Operations
For the Years Ended September 30,
1996 1995 1994
------- ------- -------
Equity in undistributed earnings (loss) of
subsidiaries $ 588 $(5,811) $(8,440)
Other gain (loss) ........................ (240) (60) (50)
------- ------- -------
Net earnings (loss) ...................... $ 348 (5,871) $(8,490)
======= ======= =======
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended September 30,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net earnings (loss)
Adjustments to reconcile earnings (loss) to net cash provided by (used in)
operating activities 7,834 2,420 8,479
------- ------- -------
Net cash provided by (used in) operating activities ......................... 8,182 (3,451) (11)
------- ------- -------
Net cash provided by (used in) investing activities ......................... (1,255) 6,165 606
------- ------- -------
Redemption of preferred stock ............................................... (338) (677) (677)
Purchase of treasury stock .................................................. (6,615) (2,008) --
------- ------- -------
Net cash provided by (used in) financing activities ......................... (6,953) (2,685) (677)
------- ------- -------
Increase(decrease) in cash and cash equivalents ............................. (26) 29 (82)
Cash and cash equivalents, beginning of period .............................. 29 -- 82
------- ------- -------
Cash and cash equivalents, end of period .................................... $ 3 $ 29 $ --
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
EXPRESS AMERICA HOLDINGS CORPORATION
in thousands
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Column A Column B Column C Column D Column E
- -------------------------------------- ------------ ------------------------------- ---------------- --------------
Additions
-------------------------------
Balance at Charged to Charged from Balance
beginning costs and (to) other at end
Description of period expenses accounts Deductions (1) of period
- -------------------------------------- ------------ ------------ --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1996
Allowance for restructuring $ 328 $ -- $ -- $ (127) $ 201
Allowance for repurchases 3,171 -- -- (1,241) 1,930
Allowance for losses 1,003 -- 58 (168) 893
Allowance for contingencies (2) 3,000 -- 528 (974) 2,554
Year ended September 30, 1995
Allowance for restructuring 4,661 -- (469) (3,864) 328
Allowance for repurchases 1,747 2,826 271 (1,673) 3,171
Allowance for losses 1,738 334 (271) (798) 1,003
Allowance for contingencies (2) -- 3,000 -- 3,000
Year ended September 30, 1994
Allowance for restructuring -- 5,050 -- (389) 4,661
Allowance for purchased servicing 8,400 -- -- (8,400) --
Allowance for repurchases 826 1,220 -- (299) 1,747
Allowance for losses 2,509 698 -- (1,469) 1,738
</TABLE>
(1) Actual losses charged against allowance, net of recoveries and
reclassifications
(2) For estimated costs related to RTC action (see "Item 3. Legal
Proceedings" and "Item 8. Financial Statements and Supplementary Data -
Notes 11, 15").
EXPRESS AMERICA HOLDINGS CORPORATION
1996 PERFORMANCE SHARE PLAN
<PAGE>
1. Background and Purpose.
-----------------------
The purposes of this Plan are to attract and retain the best possible
personnel for positions of responsibility within the Company and its
Subsidiaries, to provide additional incentives to Employees, and to promote the
success of the Company's business through the grant of performance shares which
further the identity of interests of Employees with the long-term financial
success of the Company.
In connection with its recruitment of employees for its fund management
business, the Company undertook to review the desirability and feasibility of
establishing certain incentive compensation plans, including a performance share
plan. Accordingly, as is more fully set forth hereinafter, the Plan contemplates
awards to Employees in certain instances as though the date of grant of the
award occurred on April 7, 1995, the date that the Company commenced its fund
management business.
The Plan was approved on August 30, 1996 (the "Effective Date"), by the
Company's Board of Directors, including the Compensation of the Board (which on
the date of approval was comprised solely of Directors who were "non-employee
directors" within the meaning of the definition of that term set forth in the
rules and regulations adopted by the Securities and Exchange Commission pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended.
2. Definitions.
------------
As used herein, the following words shall have the following meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean (a) the failure by the Participant to
substantially perform the Participant's duties with the Company or a
Subsidiary (other than any such failure resulting from the
Participant's incapacity due to physical or mental illness), (b) the
willful engaging by the Participant in conduct which is materially
injurious to the Company or any Subsidiary, monetarily or otherwise, or
(c) termination by the Participant (as opposed to termination by the
Company or a Subsidiary) of his employment by the Company or the
Subsidiaries for any reason other than death or disability, including,
without limitation, any voluntary termination of employment.
(c) Change of Control" is defined in Section 7.1 hereof.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(e) "Committee" shall mean the Compensation Committee of the
Board or, if the Board shall so decide, the Board.
<PAGE>
(f) "Common Stock" shall mean the common stock of the Company
described in the Company's Certificate of Incorporation, as amended and
in effect from time to time.
(g) "Company" shall mean Express America Holdings Corporation,
a Delaware corporation.
(h) "Compensation Amount" shall mean an amount equal to (i)
the number of Performance Shares as to which an exercise of Performance
Shares relate, multiplied by (ii) the excess, if any, of the Share
Value of such Performance Shares on the date of exercise over the Share
Value of such Performance Shares on the date of the award thereof.
(i) "Effective Date" is defined in Section 1.
(j) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Subsidiary of the Company.
The payment of a director's fee shall not be sufficient to constitute
"employment" for purposes of the Plan.
(k) "Exchange Act" shall mean the Securities and Exchange Act
of 1934, as amended.
(l) "Expiration Date" is defined in Section 7.1 hereof.
(m) "Participant" shall mean an Employee who has been awarded
a grant of Performance Shares.
(n) "Performance Share" shall mean an interest awarded under
the Plan that entitles its holder to receive the Compensation Amount
related thereto, in accordance with the terms of the Plan.
(o) Performance Share Agreement" shall mean the written
agreement between the Company and the Participant relating to the award
of one or more Performance Shares. A Performance Share Agreement may be
in the form of Exhibit A attached to the Plan.
(p) "Plan" shall mean this 1996 Performance Share Plan, as
amended and in effect from time to time.
(q) "Share Value" shall mean, as of any date of determination,
(a) while the Common Stock is listed on a national stock exchange or
quoted on a national quotation system, the closing price per share (or
if no closing price is provided, the average of the high "bid" and low
"ask" prices) of the Common Stock on such
<PAGE>
exchange or quotation system on the date of grant or exercise, as the
case may be, of an award of Performance Shares, or (b) if the Common
Stock is not so listed or quoted, the per share value of the Common
Stock determined by the Committee or the Board, as the case may be, in
its sole discretion, as the case may be. Notwithstanding the foregoing,
the Share Value with respect to the initial awards of Performance
Shares shall be $5.75 (which amount exceeded the closing price per
share on the date of grant of such Performance Shares).
(r) "Subsidiary" shall mean any corporation or other entity a
majority of whose outstanding stock entitled to vote (or other
ownership interest) is owned, directly or indirectly, by the Company.
3. Performance Shares Subject To The Plan.
---------------------------------------
Awards under this Plan shall be granted to a Participant in the form of
Performance Shares, which shall be credited to a Performance Share account
maintained by the Company for such Participant. Each Performance Share shall be
deemed to be equivalent to one share of Common Stock for purposes of the Plan.
The award of Performance Shares under the Plan shall not entitle the recipient
to any dividend or voting rights or any other rights of a stockholder with
respect to such Performance Shares, nor shall any such award be deemed to impose
upon the Board or the Committee, or upon any member thereof, any fiduciary duty
to any Participant.
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of Performance Shares that may be awarded under the Plan is
250,000. If any Performance Shares awarded under the Plan shall be forfeited or
cancelled, such Performance Shares may again be awarded under the Plan.
4. Administration Of The Plan.
---------------------------
4.1 Procedure. The Plan shall be administered by the Compensation
Committee of the Board or, in the absence of a Compensation Committee, by the
Board. As used in this herein, the term "Committee" shall mean the Committee or
the Board, whichever is then administering the Plan.
4.2 Powers Of The Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion to: (i) award grants of
Performance Shares to Employees and to determine the terms thereof; (ii)
determine, upon review of relevant information, the Share Value of Performance
Shares; (iii) determine the Employees to whom, and the time or times at which,
Performance Shares shall be granted; (iv) determine whether, upon a
Participant's exercise of a Performance Share, the Participant shall receive the
Compensation Amount in cash or in shares of Common Stock (or a combination of
cash and shares); (v) interpret the Plan; (vi) prescribe, amend and rescind
rules and regulations relating to the Plan; (vii) determine the terms and
provisions of each award of Performance Shares granted (which need not be
identical) and, with the consent of
<PAGE>
the grantee thereof, modify or amend such terms and provisions; (viii)
accelerate or (with the consent of the grantee) defer the payment date of any
Performance Share; (ix) authorize any person to execute on behalf of the Company
Performance Share Agreements and any instrument required to effectuate the award
of a grant of Performance Shares previously granted under the Plan; and (x) make
all other determinations necessary or advisable in the judgment of the Committee
for the administration of the Plan.
4.3 Effect Of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Participants.
5. Eligibility.
------------
Consistent with the Plan's purposes, awards of Performance Shares may
be granted only to Employees as determined by the Committee. An Employee who has
been granted Performance Shares may be granted awards of additional Performance
Shares.
6. Effective Date.
---------------
The Plan shall be effective on the Effective Date and shall terminate
on the tenth anniversary of the Effective Date, unless earlier terminated by the
Board; provided, however, that the Plan and all outstanding Performance Shares
shall remain in effect until such Performance Shares have expired or are
canceled. Notwithstanding the foregoing, the Committee may, in its discretion,
fix as the effective date of an award of Performance Shares a date which
precedes the Effective Date, so long as such date is not earlier than April 7,
1995 (and any such date so fixed shall be deemed to be the date of grant of such
Performance Shares for the purposes of vesting under Section 7 hereof and
termination under Section 8 hereof.
<PAGE>
7. Performance Shares.
-------------------
7.1 Term Of Performance Shares and Vesting. The Committee in its sole
discretion shall determine the number of Performance Shares to be awarded to an
Employee and the Share Value of such Performance Shares on the grant date.
Unless determined otherwise by the Committee, one-fifth (20%) of the Performance
Shares awarded shall vest on each anniversary of the date of grant of the award
(or the deemed date of grant determined in accordance with Section 6) . The term
of a Performance Share shall expire on the date (the "Expiration Date")
established by the Committee, or, if no such date is established, on the tenth
(10th) annual anniversary of the date of grant.
All outstanding Performance Shares shall vest upon a Change of
Control. "Change of Control" shall be deemed to have occurred if (a) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act") other than the Company or a Subsidiary
or any employee benefit plan sponsored by the Company or any Subsidiary or any
mutual fund for which the Company or any Subsidiary performs any services shall
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act or any successor rule) directly or indirectly, of securities of the Company
representing in excess of 35% of the combined voting power of the Company's then
outstanding securities, or (b) during any period of two consecutive years,
individuals who at the beginning of the such period constitute the Board of
Directors of the Company cease for any reason to constitute a majority thereof
unless each new director was elected by, or on the recommendation of, a majority
of the directors then still in office who were directors at the beginning of the
period.
7.2 Exercise of and Payment for Performance Shares.
-----------------------------------------------
(a) Exercise. The exercise of Performance Shares shall entitle
the Participant (or the Participant's estate) to receive the
Compensation Amount, determined as of the date written notice of such
exercise is received by the Company. Subject to Section 8 hereof, a
Participant may exercise his vested Performance Shares, in whole or in
part, by written notice to the Company at any time and from time to
time before the Expiration Date applicable to such Performance Shares.
A Performance Share shall be deemed exercised on the date that the
Company receives written notice, addressed to the attention of its
Corporate Secretary, stating to the effect that the Participant
exercises his Performance Shares.
In no event shall a Performance Share be exercisable after its
Expiration Date.
(b) Payment. The Compensation Amount payable with respect to
Performance Shares as of the exercise date therefor shall be paid to
the Participant (or the Participant's estate), at the Company's sole
option, either in shares of Common Stock (on the basis of one share of
Common Stock for each Performance Share with respect to which the
Compensation Amount is paid in shares of Common
<PAGE>
Stock) or in cash, or any combination of such shares and cash. Payment
of the Compensation Amount, following due exercise of Performance
Shares, in whatever form payment shall be made, shall be made as soon
as practicable after an exercise date; provided, however, that if such
payment (or any portion of such payment) shall be in cash the Company,
in its sole discretion, may elect to pay the cash portion of the
Compensation Amount in four equal installments, in which case the
Company shall pay one-fourth of such Compensation Amount as soon as
practicable after such exercise date and the remaining three-fourths,
plus interest on the unpaid amount at the prime rate in effect from
time to time (as determined by the Company in good faith), in equal
annual installments on the anniversary dates (or, if an anniversary
date is not a business day, on the next succeeding business day of such
exercise date). Any such unpaid amount may be prepaid by the Company at
any time without penalty.
Notwithstanding any other provision set forth in this Plan,
the Company shall not have the right to elect to pay any portion of the
Compensation Amount by delivery of shares of its Common Stock prior to
the date that this Plan has been submitted to and approved by the
stockholders of the Company at an annual or special meeting of such
stockholders. Until such stockholder approval, no option or other right
to acquire shares of Common Stock shall exist in any person with
respect to any grant or award of Performance Shares.
Shares of Common Stock delivered by the Company need only be
delivered pursuant to an effective registration statement covering such
shares in the event that such shares may not otherwise be delivered
lawfully. The Company shall have no obligation to cause an registration
to be in effect with respect to such shares upon a Participant's sale
or other disposition of the shares.
Exercise of the right to receive the Compensation Amount with
respect to a Performance Share shall result in a decrease in the number
of Performance Shares in the Participant's Performance Share account.
8. Effect of Termination Of Status As An Employee.
-----------------------------------------------
Unless otherwise determined by the Committee, if a Participant's
employment by the Company or a Subsidiary is terminated (such that the
Participant is thereupon not employed by the Company or any Subsidiary), the
Participant may exercise vested Performance Shares within the following periods
after termination:
(a) Termination Of Status As An Employee. Except as otherwise
provided in subsection (b) or (c) below, if a Participant's employment
by the Company or a Subsidiary is terminated by the Company or such
Subsidiary, except if such termination occurs due to Cause, then the
Participant may exercise his vested Performance Shares at any time
within thirty (30) days after the date he ceases to be an Employee, but
only to the extent that he was entitled to exercise it on the date of
<PAGE>
such termination. If such termination of employment is due to Cause,
all of the Participant's Performance Shares, vested and unvested, shall
terminate simultaneously with termination of employment, unless
otherwise expressly determined by the Board or the Committee.
(b) Disability. If a Participant is unable to continue his
employment with the Company as a result of his permanent and total
disability (as defined in Section 22(e)(3) of the Code), he may
exercise his vested Performance Shares at any time within twelve (12)
months from the date of termination.
(c) Death. If a Participant dies during the term of the
Performance Shares and is at the time of his death an Employee who
shall have been in continuous status as an Employee since the date of
grant of award of Performance Shares, the vested Performance Shares
standing to the account of such Participant may be exercised at any
time within twelve (12) months following the date of death by the
decedent estate or by a person who acquired the right to exercise the
Performance Shares by bequest or inheritance, but only to the extent
that decedent was entitled to exercise the Performance Shares on the
date of death.
9. Adjustments Upon Changes In Capitalization Or Merger.
-----------------------------------------------------
In the event of any change in the number of outstanding shares of
Common Stock of the Company by reason of any stock dividend, stock split,
spinoff, recapitalization, merger, consolidation, combination, exchange of
shares or otherwise, the terms and the number of any outstanding Performance
Shares shall be equitably adjusted by the Board in its sole discretion to
preserve the benefit of the award Performance Shares for the Company and the
Participants.
10. Non-Transferability Of Performance Shares.
------------------------------------------
No Performance Share, nor any right, title or interest therein, may be
sold, pledged, assigned, hypothecated, transferred or otherwise disposed of in
any manner other than by will or by the laws of descent or distribution, or
pursuant to a "qualified domestic relations order" (a "QDRO") under the Code and
the Employee Retirement Income Security Act of 1974, as amended, or to a trust
of which the Participant is a beneficiary. A Performance Share may be exercised,
during the lifetime of the Participant, only by the Participant or, if the
Performance Share has been transferred pursuant to a QDRO, by the person who
receives the Performance Share pursuant to the QDRO.
11. Amendment And Termination Of The Plan.
--------------------------------------
The Board may at any time and in any way amend, suspend or terminate
the Plan; provided, however, that no such amendment, suspension or termination
shall impair the rights of any Participant (which for purposes of this Section
shall not include any transferee
<PAGE>
of any Participant) with respect to awards previously granted under the Plan
without the consent of the Participant so affected.
Notwithstanding the foregoing, the Board may, without the consent of
any Participant, amend the Plan in such manner as the Board may from time to
time determine to be necessary, advisable or appropriate to permit the Company
to issue shares of its Common Stock in full or partial payment of the
Compensation Amount.
12. Miscellaneous Provisions.
-------------------------
12.1 Plan Expense. Any expenses of administering this Plan shall be
borne by the Company.
12.2 Governing Law. The validity, construction, inter-pretation
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined in accordance with the laws of
the State of Delaware without regard to conflict of law principles and, where
applicable, in accordance with the Code.
12.3 Taxes. The Company shall be entitled if necessary or advisable in
its determination to pay or withhold the amount of any withholding and other
taxes attributable to Compensation Amount from the amount of payments under the
Plan or from other amounts payable to a Participant.
12.4 Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members of the
Board and of the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Performance
Shares, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such action, suit
or proceeding, except a judgment based upon a finding of bad faith; provided
that upon the institution of any such action, suit or proceeding a Board member
or Committee member shall give the Company notice thereof and an opportunity, at
its own expense, to handle and defend the same before such Board member or
Committee member undertakes to handle and defend it on his own behalf.
12.5 No Employment Agreement. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or other
relationship with the Company or any Subsidiary, nor shall it interfere in any
way with his right or the Company's or any Subsidiary right to terminate his
employment or other relationship at any time.
<PAGE>
12.6 Gender. For purposes of this Plan, words used in the masculine
gender shall include the feminine and neuter, and the singular shall include the
plural and vice versa, as appropriate.
EXPRESS AMERICA HOLDINGS CORPORATION
PERFORMANCE SHARE AGREEMENT
---------------------------
BY THIS PERFORMANCE SHARE AGREEMENT ("Agreement") made and entered into
as of this 30th day of August, 1996, EXPRESS AMERICA HOLDINGS CORPORATION, a
Delaware corporation (the "Company"), and ___________, (the "Participant"),
hereby state, confirm, represent, warrant and agree as follows:
I
RECITALS
--------
1.1 The Company has adopted the 1996 Performance Share Plan (the "Plan").
The Plan is administered by the Compensation Committee of the Board of Directors
of the Company or by the Board (as applicable, hereafter referred to as the
"Committee").
1.2 By this Agreement, the Company and the Participant desire to
establish the terms upon which the Company will grant to the Participant, and
the Participant will accept from the Company, an award of Performance Shares
(such term, and other capitalized terms used without definition herein, having
the meaning attributed to such term in the Plan) under the Plan.
1.3 The "Grant Date" for all purposes of this Agreement is August 30,
1996. The Company and the Participant acknowledge and agree that the Grant Date
may be a date earlier than the date of this Agreement, and that the Performance
Shares evidenced by this Agreement shall vest in five equal annual installments
beginning on the first anniversary of the Grant Date notwithstanding that the
Grant Date may be earlier than the date of this Agreement.
II
AGREEMENTS
----------
2.1 Grant of Performance Shares. The Company grants to the Participant
____ Performance Shares, said Performance Shares being subject to all of the
terms and conditions set forth in the Plan, which terms and conditions are
hereby incorporated herein by reference.
<PAGE>
2.2 Exercise of Performance Shares. Exercise of the Performance Shares
shall entitle the Participant to receive for each Participant Share the
Compensation Amount, which will equal the difference between $5.75 and the price
of the Company's Common Stock determined in accordance with the Plan terms as of
the date written notice of such exercise is received by the Company. Subject to
Section 8 of the Plan, the Participant may exercise his or her vested
Performance Shares, in whole or in part, by delivering to the Company written
notice of exercise, specifying the number of vested Performance Shares to which
the exercise relates.
2.3 Payment of Compensation Amount. The Compensation Amount payable by
the Company with respect to an exercise of Performance Shares may be paid, at
the Company's sole election, in cash or in shares of the Company's Common Stock
(or in a combination of cash and Common Stock), in accordance with the
provisions of the Plan.
2.4 Vesting and Exercise of Performance Shares. Subject to the provisions
of Paragraph 2.5 of this Agreement, the Performance Shares shall vest (and
thereby first become exercisable) with respect to one-fifth (20%) of the
Performance Shares evidenced hereby on each of the first five anniversaries of
the Grant Date.
2.5 Termination of Performance Shares. Except as otherwise provided
herein, the Performance Shares subject to this Agreement, to the extent not
theretofore duly exercised, shall terminate upon the first to occur of the
following dates:
(a) On the tenth (10th) anniversary of the Grant Date;
(b) Except as otherwise provided in clause (c) below, expiration
of thirty (30) days from the date the Participant's employment with the
Company or a subsidiary terminates for any reason other than Cause; if
such termination is due to Cause, all unexercised Performance Shares
shall terminate immediately upon such termination of employment; and
(c) Expiration of twelve (12) months from the date the
Participant's employment with the Company or a Subsidiary terminates due
to the Participant's death or disability (within the meaning of Section
22(e) (3) of the Internal Revenue Code).
2.6 Notices. Any notices to be given under the terms of this Agreement
("Notice") shall be addressed to the Company in care of its secretary at its
then current corporate headquarters. Notice to be given to the Participant shall
be addressed to the Participant's address shown on the books and records of the
Company, or at such other address as the Participant shall designate by Notice.
<PAGE>
Notice to the Company shall be deemed duly given when received by
the Company. Notice to the Participant shall be deemed duly given when deposited
by certified or registered mail, postage paid and return receipt requested, in a
post office or branch post office regularly maintained by the United States
Government.
2.7 Participant Not a Shareholder. The Participant shall not be deemed
for any purposes to be a shareholder of the Company with respect to any of the
Performance Shares, except to the extent that Performance Shares herein granted
shall have been exercised and with respect thereto the Company has elected to
pay the Compensation Amount in shares of Common Stock and a stock certificate
has been issued therefor.
2.8 Disputes or Disagreements. As a condition of the granting of the
Performance Shares herein granted, the Participant agrees, for himself, his
heirs and his personal representatives, that any disputes or disagreements which
may arise under or as a result of or pursuant to this Agreement shall be
determined by the Committee in its sole discretion, and that any such
determination shall be final, binding and conclusive. In the event of any
conflict between this Agreement and the Plan, the Plan shall control.
2.9 Miscellaneous. This Agreement (together with the Plan) sets forth the
complete agreement between the parties with respect to the Performance Shares
granted hereby, and supersedes any and all prior agreements, both oral and
written. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware and the terms set forth in the Plan, which
terms are incorporated herein by this references.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the Participant and by the Company through its duly authorized officer.
DATE: August 30, 1996
EXPRESS AMERICA HOLDINGS CORPORATION
By:___________________________________________________
Robert W. Stallings
Its Chairman, President and Chief Executive Officer
"COMPANY"
___________________________________________________
"OPTIONEE"
AMENDED AND RESTATED CREDIT AGREEMENT
by and between
PILGRIM AMERICA GROUP, INC.
and
FIRST BANK NATIONAL ASSOCIATION
dated as of July 31, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS ....................................................... 1
Section 1.1 Defined Terms ....................................................... 1
Section 1.2 Accounting Terms and Calculations ................................... 15
Section 1.3 Computation of Time Periods ......................................... 15
Section 1.4 Other Definitional Terms ............................................ 16
ARTICLE II
TERMS OF THE CREDIT FACILITIES
Part A -- Terms of Lending ............................................................. 16
Section 2.1 Lending Commitments ................................................ 16
Section 2.2 Procedure for Loans ................................................ 17
Section 2.3 Notes .............................................................. 18
Section 2.4 Conversions and Continuations ...................................... 18
Section 2.5 Interest Rates, Default Interest and Payments ...................... 19
Section 2.6 Repayment .......................................................... 20
Section 2.7 Optional Prepayments ............................................... 20
Section 2.8 Letters of Credit .................................................. 21
Section 2.9 Procedures for Letters of Credit ................................... 21
Section 2.10 Terms of Letters of Credit ......................................... 21
Section 2.11 Agreement to Repay Letter of Credit Drawings ....................... 21
Section 2.12 Obligations Absolute ............................................... 22
Section 2.13 Increased Cost for Letters of Credit ............................... 23
Section 2.14 Optional Reduction of Commitment Amount or Termination of Commitment 23
Section 2.15 Loans to Cover Unpaid Drawings ..................................... 24
Section 2.16 Fees ............................................................... 24
Section 2.17 Computation ........................................................ 24
Section 2.18 Payments ........................................................... 24
Section 2.19 Use of Loan Proceeds ............................................... 25
Section 2.20 Interest Rate Not Ascertainable, Etc ............................... 25
Section 2.21 Increased Cost ..................................................... 26
Section 2.22 Illegality ......................................................... 27
Section 2.23 Increased Capital Requirements ..................................... 27
Section 2.24 Funding Losses; CD Rate Advances and Eurodollar Rate Advances ...... 28
Section 2.25 Discretion of Bank as to Manner of Funding ......................... 28
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<S> <C>
ARTICLE III
CONDITIONS PRECEDENT ................................................................... 29
Section 3.1 Conditions Precedent to Term Loan .................................. 29
Section 3.3 Conditions Precedent to all Loans .................................. 31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES ......................................................... 32
Section 4.1 Organization, Standing, Etc ........................................ 32
Section 4.2 Authorization and Validity ......................................... 33
Section 4.3 No Conflict; No Default ............................................ 33
Section 4.4 Government Consent ................................................. 33
Section 4.5 Financial Statements and Condition ................................. 34
Section 4.6 Litigation ......................................................... 34
Section 4.7 ERISA .............................................................. 34
Section 4.8 Federal Reserve Regulations ........................................ 34
Section 4.9 Title to Property; Leases; Liens; Subordination .................... 35
Section 4.10 Taxes .............................................................. 35
Section 4.11 Trademarks, Patents ................................................ 35
Section 4.12 Burdensome Restrictions ............................................ 35
Section 4.13 Force Majeure ...................................................... 35
Section 4.14 Investment Company Act ............................................. 36
Section 4.15 Public Utility Holding Company Act ................................. 36
Section 4.16 Retirement Benefits ................................................ 36
Section 4.17 Subsidiaries ....................................................... 36
Section 4.18 Fund Agreements .................................................... 36
Section 4.19 Full Disclosure .................................................... 36
ARTICLE V
AFFIRMATIVE COVENANTS .................................................................. 37
Section 5.1 Financial Statements and Reports ................................... 37
Section 5.2 Corporate Existence ................................................ 39
Section 5.3 Insurance .......................................................... 39
Section 5.4 Payment of Taxes and Claims ........................................ 40
Section 5.5 Inspection ......................................................... 40
Section 5.6 Maintenance of Properties .......................................... 40
Section 5.7 Books and Records .................................................. 40
Section 5.8 Compliance ......................................................... 40
Section 5.9 Notice of Litigation ............................................... 41
Section 5.10 ERISA .............................................................. 41
Section 5.11 Fund Agreements .................................................... 41
Section 5.12 Advisory Subsidiaries .............................................. 41
Section 5.13 Pledge of Stock of Advisory Subsidiaries ........................... 43
</TABLE>
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<TABLE>
<S> <C>
Section 5.14 Further Assurances ................................................ 43
ARTICLE VI
NEGATIVE COVENANTS .................................................................... 44
Section 6.1 Merger ............................................................ 44
Section 6.2 Disposition of Assets ............................................. 44
Section 6.3 Plans ............................................................. 45
Section 6.4 Change in Nature of Business ...................................... 45
Section 6.5 Subsidiaries ...................................................... 45
Section 6.6 Negative Pledges; Subsidiary Restrictions ......................... 45
Section 6.7 Restricted Payments ............................................... 45
Section 6.8 Transactions with Affiliates ...................................... 46
Section 6.9 Accounting Changes ................................................ 46
Section 6.10 Capital Expenditures .............................................. 46
Section 6.11 Investments ....................................................... 46
Section 6.12 Indebtedness ...................................................... 47
Section 6.13 Liens ............................................................. 47
Section 6.14 Contingent Obligations ............................................ 49
Section 6.15 Net Worth ......................................................... 49
Section 6.16 Leverage Ratio .................................................... 49
Section 6.17 Funded Debt Leverage Ratio ........................................ 49
Section 6.18 Fixed Charge Coverage Ratio ....................................... 49
Section 6.19 Minimum Fund Balances ............................................. 49
Section 6.20 EBITDA ............................................................ 49
Section 6.21 Loan Proceeds ..................................................... 50
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES ........................................................ 50
Section 7.1 Events of Default ................................................. 50
Section 7.2 Remedies .......................................................... 53
Section 7.3 Offset ............................................................ 53
ARTICLE VIII
MISCELLANEOUS ......................................................................... 54
Section 8.1 Modifications ..................................................... 54
Section 8.2 Expenses; Amendment or Waiver Fee ................................. 54
Section 8.3 Waivers, etc ...................................................... 54
Section 8.4 Notices ........................................................... 54
Section 8.5 Taxes ............................................................. 55
Section 8.6 Successors and Assigns; Disposition of Loans; Transferees.......... 55
Section 8.7 Confidentiality of Information .................................... 56
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Section 8.8 Governing Law and Construction .................................... 56
Section 8.9 Consent to Jurisdiction ........................................... 56
Section 8.10 Waiver of Jury Trial .............................................. 57
Section 8.11 Survival of Agreement ............................................. 57
Section 8.12 Indemnification ................................................... 57
Section 8.13 Captions .......................................................... 58
Section 8.14 Entire Agreement .................................................. 58
Section 8.15 Counterparts ...................................................... 58
Section 8.16 Borrower Acknowledgements ......................................... 58
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement"),
dated as of July 31, 1996 is by and between PILGRIM AMERICA GROUP, INC., a
Delaware corporation (the "Borrower"), and FIRST BANK NATIONAL ASSOCIATION, a
national banking association (the "Bank").
WHEREAS, the Borrower and the Bank are the parties to that
certain Credit Agreement dated as of April 28, 1995, as amended by that certain
First Amendment to Credit Agreement dated as of May 31, 1995, that certain
Second Amendment to Credit Agreement dated as of August 28, 1995, that certain
Third Amendment to Credit Agreement dated April 19, 1996 and that certain Fourth
Amendment to Credit Agreement dated as of June 21, 1996 (as so amended, the
"Existing Credit Agreement"); and
WHEREAS, the Borrower and the Bank desire to further amend and
restate the Existing Credit Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
---------
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
Section 1.1 Defined Terms. As used in this Agreement the
following terms shall have the following respective meanings (and such meanings
shall be equally applicable to both the singular and plural form of the terms
defined, as the context may require):
"Adjusted CD Rate": With respect to each Interest Period
applicable to a CD Rate Advance, the sum (rounded upward, if necessary, to the
next one hundredth of one percent) of (a) the rate per annum obtained by
dividing (i) the CD Rate as of the first day of the Interest Period, by (ii)
1.00 minus the Domestic Reserve Percentage, plus (b) the annual rate most
recently estimated by the Bank as the then current net annual assessment rate
payable by the Bank to the Federal Deposit Insurance Corporation (or any
successor) for insuring time deposits made in Dollars at the Bank's domestic
offices, plus (c) the cost (converted to an equivalent rate per annum) of
customary brokerage fees incurred by the Bank in obtaining funds by the sale of
its negotiable certificates of deposit.
<PAGE>
"Adjusted Fixed Eurodollar Rate": With respect to each
Interest Period applicable to a Fixed Eurodollar Rate Advance, the rate (rounded
upward, if necessary, to the next one hundredth of one percent) determined by
dividing the Eurodollar Rate as of the first day of such Interest Period by 1.00
minus the Eurodollar Reserve Percentage.
"Adjusted Floating Eurodollar Rate": On any date of
determination, the rate (rounded upward, if necessary, to the next one-hundredth
of one percent) determined by dividing the Eurodollar Rate on such date by 1.00
minus the Eurodollar Reserve Percentage.
"Advance": Any portion of the outstanding Loans as to which
the Borrower has elected one of the available interest rate options and, if
applicable, an Interest Period. An Advance may be a Fixed Eurodollar Rate
Advance, a Floating Eurodollar Rate Advance, a CD Rate Advance or a Reference
Rate Advance.
"Advisory Contracts": Contracts of the type described in 15
U.S.C. ss. 80a-15(a).
"Advisory Fund": Any Fund for which an Advisory Subsidiary
acts as investment adviser and is entitled to receive fees out of the assets of
such Fund, pursuant to an Advisory Contract.
"Advisory Subsidiary": PAII and any other Subsidiary of the
Borrower that acts as investment adviser for any Advisory Fund and, as such, is
party to Advisory Contracts.
"Affiliate": When used with reference to any Person, (a) each
Person that, directly or indirectly, controls, is controlled by or is under
common control with, the Person referred to, (b) each Person which beneficially
owns or holds, directly or indirectly, twenty-five percent or more of any class
of voting stock of the Person referred to (or if the Person referred to is not a
corporation, twenty-five percent or more of the equity interest), (c) each
Person, twenty-five percent of more of the voting stock (or if such Person is
not a corporation, twenty-five percent or more of the equity interest) of which
is beneficially owned or held, directly or indirectly, by the Person referred
to, and (d) each of such Person's officers, directors, joint venturers and
partners. The term control (including the terms "controlled by" and "under
common control with") means the possession, directly, of the power to direct or
cause the direction of the management and policies of the Person in question.
"Applicable Margin": With respect to each Reference Rate
Advance, 0.50%. With respect to each CD Rate Advance or Eurodollar Rate Advance
(i) from the Closing Date until July 31, 1997, 1.50%; and (ii) from and after
August 1, 1997, the
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<PAGE>
Applicable Margin set forth in the table below as in effect on any date of
determination for a Floating Eurodollar Advance and on the first day of each
Interest Period for such CD Rate Advance or Fixed Eurodollar Rate Advance for
such Interest Period, in each case determined based on the Fixed Charge Coverage
Ratio calculated as of the end of the Measurement Period ended on the last day
of the most recently completed fiscal quarter for which the Borrower has
furnished the financial statements and reports required under Section 5.1(c)
(adjustments to the Applicable Margin to become effective on the first day of
the first month after the date the Borrower is required to deliver its financial
statements for such quarterly period under Section 5.1(c)).
Fixed Charge Fixed and Floating
Coverage Ratio CD Rate Eurodollar
(in each case, to 1.00) Advances Rate Advances
--------------------- -------- -------------
3.00 or greater 1.25% 1.25%
2.50 to 2.99 1.50% 1.50%
Less than 2.50 1.75% 1.75%
Notwithstanding the foregoing, if the Borrower has not furnished the financial
statements and reports required under Section 5.1(c) for the last month of any
fiscal quarter by the first day of the first month after such financial
statements and reports were required to be delivered, the Applicable Margin
shall be calculated as if the Fixed Charge Coverage Ratio as of the end of the
Measurement Period ended on the last day of the most recently completed fiscal
quarter was less than 2.50 to 1.00 for the period from the first day of the
first month after such financial statements and reports were required to be
delivered until the first day of the month following the month in which such
financial statements and reports are delivered.
"B Share Fund": Any Fund for which PASI acts as principal
distributor and in which B Shares will be sold.
"B Shares": In respect of any B Share Fund, any shares of such
Fund not subject to any Conversion Feature which are sold pursuant to a
distribution plan adopted under the Investment Company Act, and with respect to
which a Contingent Deferred Sales Charge on terms no less favorable than those
set forth on Schedule 1.1(a) is payable to PASI.
"Board": The Board of Governors of the Federal Reserve System
or any successor thereto.
"Business Day": Any day (other than a Saturday, Sunday or
legal holiday in the State of Minnesota) on which national banks are permitted
to be open in Minneapolis, Minnesota.
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<PAGE>
"Capital Expenditures": For any period, the sum of all amounts
that would, in accordance with GAAP, be included as additions to property, plant
and equipment on a consolidated statement of cash flow for the Borrower during
such period.
"Capitalized Lease": A lease of (or other agreement conveying
the right to use) real or personal property with respect to which at least a
portion of the rent or other amounts thereon constitute Capitalized Lease
Obligations.
"Capitalized Lease Obligations": As to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board), and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
"Cash Balances": As of any date of determination, on a
consolidated basis, cash balances as reflected on the books of the Borrower and
its Subsidiaries, giving effect to any checks drawn on any accounts.
"Cash Equivalents": Investments of the Borrower of the type
described in Sections 6.11(c), (d), (e) and (f).
"CD Rate": With respect to any CD Rate Advance for any
Interest Period applicable thereto, the rate of interest determined by the Bank
for the relevant Interest Period to be the average (rounded upward, if
necessary, to the next 1/100th of 1%) of the rates quoted to the Bank at
approximately 8:00 a.m., Minneapolis time (or as soon thereafter as
practicable), or at the option of the Bank at approximately the time of the
request for a CD Rate Advance if such request is made later than 8:00 a.m.,
Minneapolis time, in each case on the first day of the applicable Interest
Period by certificate of deposit dealers selected by the Bank, in its sole
discretion, for the purchase from the Bank, at face value, of certificates of
deposit issued by the Bank in an amount and maturity comparable to the amount
and maturity of the requested CD Rate Advance, or at the option of the Bank
determined for such amount and maturity based on published composite quotations
of certificate of deposit rates selected by the Bank.
"CD Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Adjusted CD Rate.
"Change of Control": The occurrence, after the Closing Date,
of any of the following circumstances: (a) EAHC not owning, directly or
indirectly, all equity
- 4 -
<PAGE>
securities of the Borrower; or (b) the Borrower not owning, directly or
indirectly, all equity securities of any Subsidiary that has executed and
delivered a Security Agreement; or (c) any Person or two or more Persons acting
in concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act of
1934), directly or indirectly, of securities of EAHC (or other securities
convertible into such securities) representing twenty-five percent or more of
the combined voting power of all securities of EAHC entitled to vote in the
election of directors; or (d) during any period of up to twelve consecutive
months, whether commencing before or after the Closing Date, individuals who at
the beginning of such twelve-month period were directors of the Borrower or EAHC
ceasing for any reason to constitute a majority of the Board of Directors of the
Borrower or EAHC, respectively (other than by reason of death, disability or
scheduled retirement).
"Closing Date": The Business Day on which all the conditions
precedent to the obligation of the Bank to make the initial Revolving Loan, as
set forth in Article III, have been satisfied.
"Closing Fee": As defined in Section 2.16(a).
"Code": The Internal Revenue Code of 1986, as amended.
"Commitment": The obligation of the Bank to make Revolving
Loans to the Borrower in an aggregate principal amount outstanding at any time
not to exceed the Commitment Amount, and on the Transformation Date to convert
the outstanding principal balance thereof to a Term Loan, upon the terms and
subject to the conditions and limitations of this Agreement.
"Commitment Amount": $15,000,000, as the same may be reduced
pursuant to Section 2.14.
"Commitment Fees": As defined in Section 2.16(b).
"Contingent Deferred Sales Charge": With respect to any Fund,
the contingent deferred sales charges payable, either directly or by withholding
from the proceeds of the redemption of the shares of such Fund, by the
shareholders of such Fund on any redemption of shares of such Fund in accordance
with the Prospectus relating to such Fund and the Rules of Fair Practice.
"Contingent Obligation": With respect to any Person at the
time of any determination, without duplication, any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "primary obligor" ) in
any manner, whether directly or otherwise; provided, that the term "Contingent
Obligation" shall not
- 5 --
<PAGE>
include endorsements for collection or deposit, in each case in the ordinary
course of business.
"Conversion Feature": With respect to any share of any Fund, a
mandatory or elective provision (including, without limitation, a provision
which permits or requires such share to be converted into a share of a different
class) which may result in a reduction or termination of any Contingent Deferred
Sales Charge owing from such Fund or the shareholder to PASI, except to the
extent such reduction or termination arises from the exchange of such share for
shares of another Fund with respect to which such Contingent Deferred Sales
Charge will be owing.
"Default": Any event which, with the giving of notice (whether
such notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
"Domestic Reserve Percentage": As of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board for determining the maximum reserve requirement (including without
limitation any basic, supplemental or emergency reserves) for a member bank of
the Federal Reserve System, with deposits comparable in amount to those held by
the Bank, in respect of new non-personal time deposits in dollars having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The rate of interest applicable to any outstanding CD Rate Advance
shall be adjusted automatically on and as of the effective date of any change in
the Domestic Reserve Percentage.
"EAHC": Express America Holdings Corporation, a Delaware
corporation.
"EBITDA": For any period of determination, the consolidated
net income of the Borrower before deductions for income taxes, interest expense,
depreciation and amortization, all as determined in accordance with GAAP.
"EBITDA Margin": For any Measurement Period, the ratio
(expressed as a percentage) (a) EBITDA bears to (b) the total revenue of the
Borrower and its Subsidiaries on a consolidated basis.
"ERISA": The Employee Retirement Income Security Act of 1974,
as amended.
- 6 -
<PAGE>
"ERISA Affiliate": Any trade or business (whether or not
incorporated) that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Business Day": A Business Day which is also a day
for trading by and between banks in United States dollar deposits in the
interbank Eurodollar market and a day on which banks are open for business in
New York City.
"Eurodollar Rate": With respect to each Eurodollar Rate
Advance on any date of determination, the average offered rate for deposits in
United States dollars (rounded upward, if necessary, to the nearest 1/16 of 1%)
for delivery of such deposits on such date, for 30 days, in the case of a
Floating Eurodollar Advance or the number of days in the Interest Period in the
case of a Fixed Eurodollar Rate Advance, which appears on the Reuters Screen
LIBO page as of 11:00 a.m., London time (or such other time as of which such
rate appears) two Eurodollar Business Days prior to such date, or the rate for
such deposits determined by the Bank at such time based on such other published
service of general application as shall be selected by the Bank for such
purpose; provided, that in lieu of determining the rate in the foregoing manner,
the Bank may determine the rate based on rates at which United States dollar
deposits are offered to the Bank in the interbank Eurodollar market at such time
for delivery in Immediately Available Funds on such date in an amount
approximately equal to the Advance by the Bank to which such Interest Period is
to apply (rounded upward, if necessary, to the nearest 1/16 of 1%). "Reuters
Screen LIBO page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rate Screen (or such other page as may replace the LIBO page on
such service for the purpose of displaying London interbank offered rates of
major banks for United States dollar deposits).
"Eurodollar Rate Advance": A Fixed Eurodollar Rate Advance or
a Floating Eurodollar Rate Advance.
"Eurodollar Reserve Percentage": As of any day, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board for determining the maximum reserve requirement
(including any basic, supplemental or emergency reserves) for a member bank of
the Federal Reserve System, with deposits comparable in amount to those held by
the Bank, in respect of "Eurocurrency Liabilities" as such term is defined in
Regulation D of the Board. The rate of interest applicable to any outstanding
Eurodollar Rate Advances shall be adjusted automatically on and as of the
effective date of any change in the Eurodollar Reserve Percentage.
"Event of Default": Any event described in Section 7.1.
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<PAGE>
"Exchange Act": The Securities Exchange Act of 1934, as
amended.
"Fixed Charge Coverage Ratio": For any Measurement Period, the
ratio that (a) EBITDA for such Measurement Period bears to (b) the sum of
interest expense for such Measurement Period plus aggregate scheduled payments
on Indebtedness for the 12 fiscal months immediately following the last day of
such Measurement Period, determined on a consolidated basis for the Borrower and
its Subsidiaries.
"Fixed Eurodollar Rate Advance": An Advance with respect to
which the interest rate is determined by reference to the Adjusted Fixed
Eurodollar Rate.
"Fixed Rate Advance": A CD Rate Advance or a Fixed Eurodollar
Rate Advance.
"Floating Eurodollar Rate Advance": An Advance with respect to
which the interest rate is determined by reference to the Adjusted Floating
Eurodollar Rate.
"Fund": Each open-end or close-end investment company
registered under the Investment Company Act, or separate series of shares of any
such company representing interests in a separate pool of Investments.
"Fund Agreements": All investment advisory agreements,
distribution agreements and other agreements under which the Borrower or any
Subsidiary is entitled to compensation (including, without limitation,
Contingent Deferred Sales Charges) for services rendered to any Fund.
"Funded Debt": At the time of any determination, the sum of
(a) that portion of Total Indebtedness with a final maturity in excess of one
year after such time of determination (including any current portion thereof),
plus (b) any Indebtedness of the Borrower or any Subsidiary excluded in
calculating Total Indebtedness and having a final maturity in excess of one year
after such time of determination (including the current portion thereof).
"GAAP": Generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of any
date of determination.
"Guaranty": The guaranty of EAHC and PAII, both dated April
28, 1995 (as the same may be amended, modified, supplemented or restated) and
any
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<PAGE>
acknowledgments or affirmations thereof, or a guaranty of any Advisory
Subsidiary in the form of Exhibit B.
"Holding Account": A deposit account belonging to the Bank
into which the Borrower may be required to make deposits pursuant to the
provisions of this Agreement, such account to be under the sole dominion and
control of the Bank and not subject to withdrawal by the Borrower, with any
amounts therein to be held for application toward payment of any outstanding
Letters of Credit when drawn upon.
"Immediately Available Funds": Funds with good value on the
day and in the city in which payment is received.
"Indebtedness": With respect to any Person at the time of any
determination, without duplication, all obligations, contingent or otherwise, of
such Person which in accordance with GAAP should be classified upon the balance
sheet of such Person as liabilities, but in any event including: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Capitalized Lease Obligations of such
Person, (h) all obligations of such Person in respect of interest rate
protection agreements, (i) all obligations of such Person, actual or contingent,
as an account party in respect of letters of credit or bankers' acceptances, (j)
all obligations of any partnership or joint venture as to which such Person is
or may become personally liable, and (k) all Contingent Obligations of such
Person.
"Interest Period": With respect to each Fixed Eurodollar Rate
Advance, the period commencing on the date of such Advance or on the last day of
the immediately preceding Interest Period, if any, applicable to an outstanding
Advance and ending one, two, three or six months thereafter, and with respect to
such CD Rate Advance, the period commencing on the date of such Advance or on
the last day of the immediately preceding Interest Period, if any, applicable to
an outstanding Advance and ending twelve or twenty-four months thereafter, as
the Borrower may elect in the applicable notice of borrowing, continuation or
conversion; provided that:
(a) Any Interest Period applicable to a CD Rate
Advance that would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day;
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(b) Any Interest Period applicable to a Fixed
Eurodollar Rate Advance that would otherwise end on a day which is not
a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Eurodollar Business Day;
(c) Any Interest Period applicable to a Fixed
Eurodollar Rate Advance that begins on the last Eurodollar Business Day
of a calendar month (or a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Eurodollar Business Day of a calendar
month;
(d) No Interest Period with respect to the Revolving
Loans shall end after the Transformation Date; and
(e) Interest Periods shall be selected so that the
scheduled principal payments on the Term Loan can be made without
having to pay a Fixed Rate Advance prior to the last day of the
Interest Period applicable thereto.
"Investment": The acquisition, purchase, making or holding of
any stock or other security, any loan, advance, contribution to capital,
extension of credit (except for trade and customer accounts receivable for
inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms), any acquisitions of real or
personal property (other than real and personal property acquired in the
ordinary course of business) and any purchase or commitment or option to
purchase stock or other debt or equity securities of or any interest in another
Person or any integral part of any business or the assets comprising such
business or part thereof. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment.
"Investment Advisers Act": The Investment Advisers Act of
1940, as amended.
"Investment Company Act": The Investment Company Act of 1940,
as amended.
"Letter of Credit": An irrevocable letter of credit issued by
the Bank pursuant to this Agreement for the account of the Borrower.
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"Letter of Credit Fee": As defined in Section 2.16(c).
"Letter of Credit Usage": As of any date, the sum of (a) the
amount of all Unpaid Drawings plus (b) the amount available to be drawn under
all outstanding Letters of Credit.
"Leverage Ratio": At the time of any determination, the ratio
of (a) Total Indebtedness to (b) Net Worth.
"Lien": With respect to any Person, any security interest,
mortgage, pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device (including the interest of each lessor under any
Capitalized Lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Loan": A Revolving Loan or the Term Loan.
"Loan Documents": This Agreement, the Note, the Security
Documents and the Guaranties.
"Maturity Date": The earlier of (a) the sixteenth Quarterly
Payment Date occurring after the Transformation Date and (b) the date on which
the Obligations become due and payable pursuant to Section 7.2 hereof.
"Measurement Period": The twelve consecutive months or four
consecutive fiscal quarters, as applicable, ending on the last day of any month
or fiscal quarter.
"Multiemployer Plan": A multiemployer plan, as such term is
defined in Section 4001 (a) (3) of ERISA, which is maintained (on the Closing
Date, within the five years preceding the Closing Date, or at any time after the
Closing Date) for employees of the Borrower or any ERISA Affiliate.
"NASD": The National Association of Securities Dealers, Inc.,
and any successor thereto or to the functions thereof.
"NationsBanc": NationsBanc Mortgage Corporation, a Texas
corporation.
"Net Asset Value": With respect to any Fund, as of the date of
any determination, the net asset value of such Fund computed in the manner net
asset value was computed for purposes of its reports to the shareholders of such
Funds.
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"Net Worth": As of any date of determination, with respect to
any Person, the sum of the amounts set forth on a consolidated balance sheet of
such Person as the sum of the common stock, preferred stock, additional paid-in
capital and retained earnings of such Person, but excluding any amounts
attributable to receivables, notes or other obligations owed by Affiliates of
such Person that are not otherwise eliminated in determining consolidated net
worth.
"Note": A promissory note of the Borrower in the form of
Exhibit A.
"Obligations": The Borrower's obligations in respect of the
due and punctual payment of principal and interest on the Note when and as due,
whether by acceleration or otherwise and all fees (including Commitment Fees),
expenses, indemnities, reimbursements and other obligations of the Borrower
under this Agreement or any other Loan Document, in all cases whether now
existing or hereafter arising or incurred.
"PAII": Pilgrim America Investments, Inc., a Delaware
corporation.
"PASI": Pilgrim America Securities, Inc., a Delaware
corporation.
"PBGC": The Pension Benefit Guaranty Corporation, established
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.
"Person": Any natural person, corporation, partnership,
limited partnership, limited liability company, joint venture, firm,
association, trust, unincorporated organization, government or governmental
agency or political subdivision or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Plan": Each employee benefit plan (whether in existence on
the Closing Date or thereafter instituted), as such term is defined in Section 3
of ERISA, maintained for the benefit of employees, officers or directors of the
Borrower or of any ERISA Affiliate.
"Pledge Agreements": The Pledge Agreement of EAHC and the
Pledge Agreement of the Borrower, both dated as of April 28, 1995, as the same
may be supplemented, amended or otherwise modified and in effect from time to
time.
"Prohibited Transaction": The respective meanings assigned to
such term in Section 4975 of the Code and Section 406 of ERISA.
"Prospectus": With respect to any Fund, the prospectus and
related statement of additional information filed with the SEC under the
Securities Act in
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respect of the shares of such Fund, as the same may be amended or supplemented
from time to time.
"Quarterly Payment Date": The last Business Day of each of
March, June, September and December.
"Reference Rate": The rate of interest from time to time
publicly announced by the Bank as its "reference rate." The Bank may lend to its
customers at rates that are at, above or below the Reference Rate. For purposes
of determining any interest rate hereunder or under any other Loan Document
which is based on the Reference Rate, such interest rate shall change as and
when the Reference Rate shall change.
"Reference Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Reference Rate.
"Regulatory Change": Any change after the Closing Date in
federal, state or foreign laws or regulations or the adoption or making after
such date of any interpretations, directives or requests applying to a class of
banks including the Bank under any federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"Reportable Event": A reportable event as defined in Section
4043 of ERISA and the regulations issued under such Section, with respect to a
Plan, excluding, however, such events as to which the PBGC by regulation has
waived the requirement of Section 4043(a) of ERISA that it be notified within 30
days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any waiver in
accordance with Section 412(d) of the Code.
"Restricted Payments": With respect to the Borrower,
collectively, all dividends or other distributions of any nature (cash,
securities other than common stock of the Borrower, assets or otherwise), and
all payments on any class of equity securities (including warrants, options or
rights therefor) issued by the Borrower, whether such securities are authorized
or outstanding on the Closing Date or at any time thereafter and any redemption
or purchase of, or distribution in respect of, any of the foregoing, whether
directly or indirectly.
"Revolving Loan": As defined in Section 2.1(a).
"Revolving Loan Date": The date of the making of any Revolving
Loans hereunder.
"Revolving Loan Period" The period from the Closing Date to
and including the day preceding the Transformation Date, and if there is no
Transformation Date, from the Closing Date to and including the date on which
the Note is paid in full and the Commitment has expired or been terminated.
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"Rules of Fair Practice": The Rules of Fair Practice of the
NASD, as amended, and the rules, regulations and interpretations of the NASD in
respect thereto.
"SEC": The Securities and Exchange Commission, and any
successor thereto or to the functions thereof.
"Securities Act": The Securities Act of 1933, as amended.
"Security Agreements": The Security Agreements of the
Borrower, PAII and PASI, all dated as of April 28, 1995; any Security Agreement
of an Advisory Subsidiary in the form of Exhibit C; and any Security Agreement
of any other Subsidiary in the form of Exhibit D entered into thereafter, in
each case as the same may be supplemented, amended or otherwise modified and in
effect from time to time.
"Security Documents": The Security Agreements, the Pledge
Agreements, the Trademark Assignment and all other agreements, documents and
instruments delivered hereto or thereto or in connection herewith or therewith
creating, perfecting or otherwise providing for any Lien to secure the
Obligations, in each case as amended, supplemented, restated or otherwise
modified and in effect from time to time.
"Selling Agent": Each Person which acts as any Subsidiary's
direct or indirect distributor, underwriter, broker, dealer or agent for the
shares of any Fund.
"SIPA": The Securities Investor Protection Act of 1970, as
amended.
"SIPC": The Securities Investor Corporation established
pursuant to SIPA, or any successor thereto or to the functions thereof.
"Solvency Certificate": A certificate of the chief financial
officer of the Borrower substantially in the form of Exhibit L.
"Subsidiary": With respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power for the election of a majority of the board of directors or other
Persons
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performing similar functions are owned by such Person either directly or through
one or more Subsidiaries.
"Term Loan": As defined in Section 2.1.
"Termination Date": The earliest of (a) the Transformation
Date, (b) the date on which the Commitment is terminated pursuant to Section 7.2
or (c) the date on which the Commitment is terminated pursuant to Section 2.14.
"Term Loan Period": The period from the Transformation Date to
and including the Maturity Date.
"Total Indebtedness": At the time of any determination, the
amount, on a consolidated basis, of all obligations, liabilities and
indebtedness of the Borrower and its Subsidiaries as determined in accordance
with GAAP.
"Total Outstandings": As of any date of determination, the sum
of (a) the aggregate unpaid principal balance of Loans outstanding on such date,
(b) the Letter of Credit Usage on such date.
"Trademark Assignment": The Collateral Assignment of
Trademarks of the Borrower dated as of April 28, 1995, as the same may be
supplemented, amended, or otherwise modified and in effect from time to time.
"Transformation Date": July 31, 1997.
"Unpaid Drawing": As defined in Section 2.11.
"Unused Commitment": As of any date of determination, the
amount by which the Commitment Amount exceeds the Total Outstandings on such
date.
Section 1.2 Accounting Terms and Calculations. Except as may
be expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP. To the extent any change in GAAP affects any
computation or determination required to be made pursuant to this Agreement,
such computation or determination shall be made as if such change in GAAP had
not occurred unless the Borrower and the Bank agree in writing on an adjustment
to such computation or determination to account for such change in GAAP.
Section 1.3 Computation of Time Periods. In this Agreement, in
the computation of a period of time from a specified date to a later specified
date, unless otherwise stated the word "from" means "from and including" and the
word "to" or "until" each means "to but excluding".
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Section 1.4 Other Definitional Terms. The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. References to Sections, Exhibits, Schedules and like references
are to this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or".
ARTICLE II
----------
TERMS OF THE CREDIT FACILITIES
Part A -- Terms of Lending
--------------------------
Section 2.1 Lending Commitments.
2.1(a) Revolving Credit. On the Closing Date, each
"Loan" outstanding under the Existing Credit Agreement shall become a
Revolving Loan hereunder, each "Reference Rate Advance," "Floating
Eurodollar Rate Advance," Fixed Eurodollar Rate Advance" and "CD Rate
Advance" outstanding under the Existing Credit Agreement shall become a
Reference Rate Advance, a Floating Eurodollar Rate Advance, a Fixed
Eurodollar Rate Advance or a CD Rate Advance, respectively, hereunder
(and, with respect to Fixed Eurodollar Rate Advances and CD Rate
Advances, the "Interest Periods" in effect under the Existing Credit
Agreement shall remain in effect). On the terms and subject to the
conditions hereof, the Bank agrees to make a revolving credit facility
available as loans (each, a "Revolving Loan" and, collectively, the
"Revolving Loans") to the Borrower on a revolving basis at any time and
from time to time from the Closing Date to the Termination Date, during
which period the Borrower may borrow, repay and reborrow in accordance
with the provisions hereof, provided, that no Revolving Loan will be
made in any amount which, after giving effect thereto, would cause the
Total Outstandings to exceed the Commitment Amount. Revolving Loans may
be obtained and maintained, at the election of the Borrower but subject
to the limitations hereof, as Reference Rate Advances, Floating
Eurodollar Rate Advances, Fixed Eurodollar Rate Advances or CD Rate
Advances.
2.1(b) Conversion to Term Loan. On the Transformation
Date, provided that no Default or Event of Default has occurred and is
continuing, the aggregate outstanding principal balance on such date of
the Revolving Loans shall be converted into a term loan (the "Term
Loan") on the terms
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and subject to the conditions set forth herein. The Term Loan or
portions thereof may be maintained, at the election of the Borrower but
subject to the limitations hereof, as Reference Rate Advances, Floating
Eurodollar Rate Advances, Fixed Eurodollar Rate Advances or CD Rate
Advances.
Section 2.2 Procedure for Loans.
2.2(a) Procedure for Revolving Loans. Any request by
the Borrower for Revolving Loans hereunder shall be in writing or by
telephone and must be given so as to be received by the Bank not later
than 12:00 noon (Minneapolis time) two Eurodollar Business Days prior
to the requested Revolving Loan Date if the Revolving Loans are
requested as Eurodollar Rate Advances and not later than 12:00 noon
(Minneapolis time) on the requested Revolving Loan Date if the
Revolving Loans are requested as CD Rate Advances or Reference Rate
Advances. Each request for Revolving Loans hereunder shall be
irrevocable and shall be deemed a representation by the Borrower that
on the requested Revolving Loan Date and after giving effect to the
requested Revolving Loans, the applicable conditions specified in
Article III have been and will be satisfied. Each request for Revolving
Loans hereunder shall specify (i) the requested Revolving Loan Date,
(ii) the aggregate amount of Revolving Loans to be made on such date,
which shall be in a minimum amount of $100,000 or, if more, an integral
multiple thereof, (iii) whether such Revolving Loans are to be funded
as Reference Rate Advances, Floating Eurodollar Rate Advances, Fixed
Eurodollar Rate Advances or CD Rate Advances and (iv) in the case of CD
Rate Advances or Fixed Eurodollar Rate Advances, the duration of the
initial Interest Period applicable thereto. The Bank may rely on any
telephone request for Revolving Loans hereunder which it believes in
good faith to be genuine; and the Borrower hereby waives the right to
dispute the Bank's record of the terms of such telephone request.
Unless the Bank determines that any applicable condition specified in
Article III has not been satisfied, the Bank will make available to the
Borrower at the Bank's principal office in Minneapolis, Minnesota in
Immediately Available Funds not later than 3:00 p.m. (Minneapolis time)
on the requested Revolving Loan Date the amount of the requested
Revolving Loans.
2.2(b) Procedure for Conversion to Term Loan. Not
later than 12:00 noon (Minneapolis time) two Eurodollar Business Days
prior to the Transformation Date if the Borrower elects to maintain all
or any portion of the Term Loan as Eurodollar Rate Advances, and not
later than 12:00 noon (Minneapolis time) one Business Day prior to the
Transformation Date if the Borrower elects to maintain all of the Term
Loan as CD Rate Advances or Reference Rate Advances, the Borrower shall
deliver to the Bank a written notice electing the type of Advances into
which the Term Loan will be
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converted on the Transformation Date. Such notice shall specify (i)
whether the Term Loan is to be funded as Floating Eurodollar Rate
Advances, Fixed Eurodollar Rate Advances, CD Rate Advances or Reference
Rate Advances, and (ii) in the case of CD Rate Advances or Fixed
Eurodollar Rate Advances, the duration of the initial Interest Period
applicable thereto.
Section 2.3 Notes. The Loans shall be evidenced by a single
Note payable to the order of the Bank in a principal amount equal to the
Commitment Amount originally in effect. The Bank shall enter in its ledgers and
records the amount of each Loan, the various Advances made, converted or
continued and the payments made thereon, and the Bank is authorized by the
Borrower to enter on a schedule attached to its Note a record of such Loans,
Advances and payments; provided, however that the failure by the Bank to make
any such entry or any error in making such entry shall not limit or otherwise
affect the obligation of the Borrower hereunder and on the Note, and, in all
events, the principal amounts owing by the Borrower in respect of the Note shall
be the aggregate amount of all Loans made by the Bank less all payments of
principal thereof made by the Borrower.
Section 2.4 Conversions and Continuations. On the terms and
subject to the limitations hereof, the Borrower shall have the option at any
time and from time to time to convert all or any portion of the Advances into
Reference Rate Advances, CD Rate Advances, Fixed Eurodollar Rate Advances or
Floating Eurodollar Rate Advances, or to continue a Eurodollar Rate Advance or a
CD Rate Advance as such; provided, however that (a) a Fixed Eurodollar Rate
Advance or a CD Rate Advance may be converted or continued only on the last day
of the Interest Period applicable thereto, and (b) no Advance may be converted
to or continued as a Eurodollar Rate Advance or a CD Rate Advance if a Default
or Event of Default has occurred and is continuing on the proposed date of
continuation or conversion. Advances may be converted to, or continued as,
Eurodollar Rate Advances and CD Rate Advances only in integral multiples of
$100,000. The Borrower shall give the Bank written notice of any continuation or
conversion of any Advances and such notice must be given so as to be received by
the Bank not later than 12:00 noon (Minneapolis time) two Eurodollar Business
Days prior to requested date of conversion or continuation in the case of the
continuation of, or conversion to, Fixed Eurodollar Rate Advances and on the
date of the requested conversion to Reference Rate Advances, Floating Eurodollar
Rate Advances or CD Rate Advances. Each such notice shall specify (a) the amount
to be continued or converted, (b) the date for the continuation or conversion
(which must be (i) the last day of the preceding Interest Period for any
continuation or conversion of Fixed Eurodollar Rate Advances or CD Rate
Advances, and (ii) a Eurodollar Business Day in the case of continuations as or
conversion to Fixed Eurodollar Rate Advances and a Business Day in the case of
conversions to Reference Rate Advances, Floating Eurodollar Rate Advances or CD
Rate Advances), and (c) in the case of conversions to or
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continuations as Fixed Eurodollar Rate Advances or CD Rate Advance, the Interest
Period applicable thereto. Any notice given by the Borrower under this Section
shall be irrevocable. If the Borrower shall fail to notify the Bank of the
continuation of any Fixed Eurodollar Rate Advances or CD Rate Advances within
the time required by this Section, such Advances shall, on the last day of the
Interest Period applicable thereto, automatically be converted into Reference
Rate Advances of the same principal amount.
Section 2.5 Interest Rates, Default Interest and Payments.
Interest shall accrue and be payable on the Advances as follows:
(a) Each Fixed Eurodollar Rate Advance shall bear
interest on the unpaid principal amount thereof during the Interest
Period applicable thereto at a rate per annum equal to the sum of (i)
the Adjusted Fixed Eurodollar Rate for such Interest Period, plus (ii)
the Applicable Margin.
(b) Each Floating Eurodollar Rate Advance shall bear
interest on the unpaid principal amount thereof at a floating rate per
annum equal to the sum of (A) the Adjusted Floating Eurodollar Rate,
plus (B) the Applicable Margin.
(c) Each Reference Rate Advance shall bear interest
on the unpaid principal amount thereof at a floating rate per annum
equal to the sum of (A) the Reference Rate, plus (B) the Applicable
Margin.
(d) Each CD Rate Advance shall bear interest on the
unpaid principal amount thereof during the Interest Period applicable
thereto at a rate per annum equal to the sum of (i) the Adjusted CD
Rate for such Interest Period, plus (ii) the Applicable Margin.
(e) Any Advance not paid when due, whether at the
date scheduled therefor or earlier upon acceleration, shall bear
interest until paid in full (A) during the balance of any Interest
Period applicable to any Fixed Eurodollar Rate Advance, at a rate per
annum equal to the sum of the rate applicable to such Advance during
such Interest Period plus 2.0%, and (B) otherwise, at a rate per annum
equal to the sum of (1) the Reference Rate, plus (2) the Applicable
Margin for Reference Rate Advances, plus (3) 2.0%.
(f) Interest shall be payable (A) with respect to
each Fixed Rate Advance, on the last day of the Interest Period
applicable thereto and on each day that would have been the last day of
the Interest Period for such Advance had successive Interest Periods of
three months duration been applicable to such Advance; (B) with respect
to each Reference Rate Advance and Floating Eurodollar Rate Advance, in
arrears on the Quarterly Payment
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Date; and (C) with respect to any Loan, on the date such Loan becomes
due and payable in full; provided that interest under Section 2.5 (e)
shall be payable on demand.
(g) Interest accrued under the Existing Credit
Agreement through the Closing Date shall be payable on the date
provided for herein for the type of Advance into which each Advance
outstanding thereunder is converted pursuant to Section 2.1(a).
Section 2.6 Repayment. The unpaid principal balance of the
Note, together with all accrued and unpaid interest thereon, shall be due and
payable on the Maturity Date. If a Letter of Credit is outstanding on the
Maturity Date, the Borrower shall deposit into the Holding Account an amount
sufficient to cause the amount deposited in the Holding Account to equal the
undrawn face amount of such outstanding Letter of Credit. At any time after such
deposit is made and all outstanding Obligations, other than Obligations with
respect to such outstanding Letters of Credit, have been paid in full, if such
outstanding Letter of Credit expires or is reduced without the full amount
thereof having been drawn, the Bank shall withdraw from the Holding Account and
deliver to the Borrower an amount equal to the amount by which the amount on
deposit in the Holding Account exceeds the aggregate undrawn face amount of
outstanding Letters of Credit (after giving effect to such expiration or
reduction). In addition, the outstanding principal balance of the Term Loan on
the Transformation Date shall be payable in sixteen quarterly installments, each
in an amount equal to one-sixteenth of the Total Outstandings as of the
Transformation Date, on each subsequent Quarterly Payment Date beginning with
the first Quarterly Payment Date after the Transformation Date.
Section 2.7 Optional Prepayments. The Borrower may prepay
Reference Rate Advances, in whole or in part, at any time, without premium or
penalty. Any such prepayment must be accompanied by accrued and unpaid interest
on the amount prepaid. Each partial prepayment shall be in an aggregate amount
for all the Banks of $100,000 or an integral multiple thereof. Except upon an
acceleration following an Event of Default or upon termination of the
Commitment, the Borrower may pay Fixed Rate Advances only on the last day of the
Interest Period applicable thereto. Amounts paid (unless following an
acceleration or upon termination of the Commitment) or prepaid under this
Section 2.7 during the Revolving Period may be reborrowed upon the terms and
subject to the conditions and limitations of this Agreement. Amounts paid or
prepaid on the Term Loan under this Section 2.7 shall be applied to the
installments due on the Term Loan in the inverse order of their maturities.
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Part B -- Terms of the Letter of Credit Facility
------------------------------------------------
Section 2.8 Letters of Credit. Upon the terms and subject to
the conditions of this Agreement, the Bank agrees to (a) issue Letters of Credit
for the account of the Borrower from time to time during the Revolving Loan
Period in such amounts as the Borrower shall request, and (b) renew existing
Letters of Credit during the Term Loan Period, in each case in an amount not
exceeding the lesser of (i) the amount of the Letter of Credit being renewed,
and (ii) the amount of the Total Outstandings on the date of such renewal minus
the amount of scheduled payments under Section 2.6 during the term of the
renewal Letter of Credit; provided that no Letter of Credit will be issued in
any amount which, after giving effect to such issuance, would cause (A) Total
Outstandings to exceed the Commitment Amount, or (B) the Letter of Credit Usage
to exceed $4,500,000.
Section 2.9 Procedures for Letters of Credit. Each request for
a Letter of Credit shall be made by the Borrower in writing, by telex, facsimile
transmission or electronic conveyance received by the Bank by 2:00 p.m.,
Minneapolis time, on a Business Day which is not less than one Business Day
preceding the requested date of issuance (which shall also be a Business Day).
Each request for a Letter of Credit shall be deemed a representation by the
Borrower that on the date of issuance of such Letter of Credit and after giving
effect thereto the applicable conditions specified in Article III have been and
will be satisfied. The Bank may require that such request be made on such letter
of credit application and reimbursement agreement form as the Bank may from time
to time specify, along with satisfactory evidence of the authority and
incumbency of the officials of the Borrower making such request.
Section 2.10 Terms of Letters of Credit. Letters of Credit may
be issued in support of obligations of EAHC to NationsBanc existing on the
Closing Date pursuant to the Asset Purchase Agreement dated as of August 7,
1994; provided that the Bank may require as a condition precedent to the
issuance of the first Letter of Credit that documents in form and substance
satisfactory to the Bank have been executed by NationsBanc releasing collateral
of EAHC pledged to NationsBanc to secure such obligation in an amount not less
than the face amount of such Letter of Credit. All Letters of Credit must expire
not later than the Maturity Date. No Letter of Credit may have a term longer
than 12 months.
Section 2.11 Agreement to Repay Letter of Credit Drawings. If
the Bank has received documents purporting to draw under a Letter of Credit that
the Bank believes conform to the requirements of the Letter of Credit, or if the
Bank has decided that it will comply with the Borrower's written or oral request
or authorization to pay a drawing on any Letter of Credit that the Bank does not
believe conforms to the requirements of the Letter of Credit, it will notify the
Borrower of that fact. The Borrower shall reimburse the Bank by 9:30 a.m.
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<PAGE>
(Minneapolis time) on the day on which such drawing is to be paid in Immediately
Available Funds in an amount equal to the amount of such drawing. Any amount by
which the Borrower has failed to reimburse the Bank for the full amount of such
drawing by 10:00 a.m. on the date on which the Bank in its notice indicated that
it would pay such drawing, until reimbursed from the proceeds of Loans pursuant
to Section 2.15 or out of funds available in the Holding Account, is an "Unpaid
Drawing."
Section 2.12 Obligations Absolute. The obligation of the
Borrower under Section 2.11 to repay the Bank for any amount drawn on any Letter
of Credit and to repay the Bank for any Advances made under Section 2.15 to
cover Unpaid Drawings shall be absolute, unconditional and irrevocable, shall
continue for so long as any Letter of Credit is outstanding notwithstanding any
termination of this Agreement, and shall be paid strictly in accordance with the
terms of this Agreement, under all circumstances whatsoever, including without
limitation the following circumstances:
(a) Any lack of validity or enforceability of any Letter of
Credit;
(b) The existence of any claim, setoff, defense or other right
which the Borrower may have or claim at any time against any
beneficiary, transferee or holder of any Letter of Credit (or any
Person for whom any such beneficiary, transferee or holder may be
acting), the Bank or any other Person, whether in connection with a
Letter of Credit, this Agreement, the transactions contemplated hereby,
or any unrelated transaction; or
(c) Any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever.
Neither the Bank nor its officers, directors or employees shall be liable or
responsible for, and the obligations of the Borrower to the Bank shall not be
impaired by:
(i) The use which may be made of any Letter of Credit or
for any acts or omissions of any beneficiary,
transferee or holder thereof in connection therewith;
(ii) The validity, sufficiency or genuineness of
documents, or of any endorsements thereon, even if
such documents or endorsements should, in fact, prove
to be in any or all respects invalid, insufficient,
fraudulent or forged;
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(iii) The acceptance by the Bank of documents that appear
on their face to be in order, without responsibility
for further investigation, regardless of any notice
or information to the contrary; or
(iv) Any other action of the Bank in making or failing to
make payment under any Letter of Credit if in good
faith and in conformity with U.S. or foreign laws,
regulations or customs applicable thereto.
Notwithstanding the foregoing, the Borrower shall have a claim against the Bank,
and the Bank shall be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential, damages suffered by the
Borrower which the Borrower proves were caused by the Bank's willful misconduct
or gross negligence in determining whether documents presented under any Letter
of Credit comply with the terms thereof.
Section 2.13 Increased Cost for Letters of Credit. If any
Regulatory Change shall either (a) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by the Bank, or (b) shall impose on the Bank any other conditions
affecting this Agreement or any Letter of Credit; and the result of any of the
foregoing is to increase the cost to the Bank of issuing or maintaining any
Letter of Credit, or reduce the amount of any sum received or receivable by the
Bank hereunder, then, upon demand (which demand shall be given by the Bank
promptly after it determines such increased cost or reduction), the Borrower
shall pay to the Bank the additional amount or amounts as will compensate the
Bank for such increased cost or reduction. A certificate submitted to the
Borrower by the Bank setting forth the basis for the determination of such
additional amount or amounts necessary to compensate the Bank as aforesaid shall
be conclusive and binding on the Borrower absent error.
Part C -- General
-----------------
Section 2.14 Optional Reduction of Commitment Amount or
Termination of Commitment. The Borrower may, at any time, upon not less than
thirty days prior written notice to the Bank, reduce the Commitment Amount, with
any such reduction in a minimum amount of $1,000,000, or, if more, in an
integral multiple of $250,000; provided, however, that the Borrower may not at
any time reduce the Commitment Amount below the Total Outstandings. The Borrower
may, at any time when there are no Letters of Credit outstanding, upon not less
than thirty days prior written notice to the Bank, terminate the Commitment in
its entirety.
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Section 2.15 Loans to Cover Unpaid Drawings. Whenever any
Unpaid Drawing exists for which there are not then funds in the Holding Account
to cover the same, the Bank is authorized (and the Borrower does here so
authorize the Bank) to, and shall, make a Revolving Loan or, after the
Transformation Date, increase the Term Loan to the Borrower in an amount equal
to the amount of the Unpaid Drawing. The Bank shall apply the proceeds of such
Revolving Loan or increase directly to reimburse itself for such Unpaid Drawing.
If at the time the Bank makes a Loan pursuant to the provisions of this Section,
the applicable conditions precedent specified in Article III shall not have been
satisfied, the Borrower shall pay to the Bank interest on the funds so advanced
at a floating rate per annum equal to the sum of the Reference Rate plus the
Applicable Margin plus two percent (2.00%).
Section 2.16 Fees.
2.16(a) Closing Fees. The Borrower shall pay to the
Bank on the date of this Agreement a closing fee (the "Closing Fee") in
an amount equal to $1,500.
2.16(b) Commitment Fee. The Borrower shall pay to the
Bank fees (the "Commitment Fees") in an amount determined by applying a
rate of three-eighths of one percent (0.375%) per annum to the average
daily Unused Commitment for the period from the Closing Date to the
Termination Date. Such Commitment Fees are payable in arrears on each
Quarterly Payment Date and on the Termination Date.
2.16(c) Letter of Credit Fees. For each Letter of
Credit issued, the Borrower shall pay to the Bank, in advance payable
on the date of issuance, a fee (a "Letter of Credit Fee") in an amount
determined by applying a per annum rate equal to the Applicable Margin
for CD Rate Advances then in effect to the original face amount of the
Letter of Credit for the period from the date of issuance to the
scheduled expiration date of such Letter of Credit. In addition to the
Letter of Credit Fee, the Borrower shall pay to the Bank, on demand,
all issuance, amendment, drawing and other fees regularly charged by
the Bank to its letter of credit customers and all out-of-pocket
expenses incurred by the Bank in connection with the issuance,
amendment, administration or payment of any Letter of Credit.
Section 2.17 Computation. Commitment Fees, Letter of Credit
Fees and interest on the Loans shall be computed on the basis of actual days
elapsed and a year of 360 days.
Section 2.18 Payments. Payments and prepayments of principal
of, and interest on, the Note and all fees, expenses and other obligations under
this
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Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 3:00 p.m. (Minneapolis time) on the
dates called for under this Agreement to the Bank at its main office in
Minneapolis, Minnesota. Funds received after such time shall be deemed to have
been received on the next Business Day. Whenever any payment to be made
hereunder or on the Note shall be stated to be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time, in the case of a payment of principal, shall be included
in the computation of any interest on such principal payment.
Section 2.19 Use of Loan Proceeds. The proceeds of the
Revolving Loans shall be used by the Borrower and the Subsidiaries (i) for their
general business purposes in a manner not in conflict with any of the Borrower's
covenants in this Agreement (including, subject to the terms and conditions
hereof, the making of Restricted Payments) and (ii) otherwise for (A) the
acquisition of Funds to be managed by the Borrower and the Subsidiaries, for
costs associated with starting new Funds to be managed by the Borrower and its
Subsidiaries, and for other costs associated with increasing assets under
management by the Borrower and its Subsidiaries, and (B) to finance the payment
of sales commissions on sales of B Shares in connection with which Contingent
Deferred Sales Charges are payable to PASI. For the proceeds of a Revolving Loan
to be applied pursuant to Section 2.19(ii), the Borrower shall provide to the
Bank documentation evidencing the costs to be paid, in form and substance
satisfactory to the Bank.
Section 2.20 Interest Rate Not Ascertainable, Etc. If, on or
prior to the date for determining the Adjusted CD Rate or the Adjusted
Eurodollar Rate for any CD Rate Advance or the Eurodollar Rate Advance, the Bank
determines (which determination shall be conclusive and binding, absent error)
that:
(a) deposits in dollars (in the applicable amount)
are not being made available to the Bank in the relevant market for
such Interest Period, or
(b) the Adjusted CD Rate or the Adjusted Eurodollar
Rate, as applicable, will not adequately and fairly reflect the cost to
the Bank of funding or maintaining CD Rate Advances and Eurodollar Rate
Advances for such Interest Period,
the Bank shall forthwith give notice to the Borrower of such determination,
whereupon the obligation of the Bank to make or continue, or to convert any
Advances to, CD Rate Advances or Eurodollar Rate Advances, as applicable, shall
be suspended until the Bank notifies the Borrower that the circumstances giving
rise to
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<PAGE>
such suspension no longer exist. While any such suspension continues, all
further Advances by the Bank as CD Rate Advances or Eurodollar Rate Advances, as
applicable, shall be made as Reference Rate Advances. No such suspension shall
affect the interest rate then in effect during the applicable Interest Period
for any CD Rate Advance or Eurodollar Rate Advance outstanding at the time such
suspension is imposed.
Section 2.21 Increased Cost. If any Regulatory Change:
(a) shall subject the Bank to any tax, duty or other
charge with respect to its CD Rate Advances or Eurodollar Rate
Advances, the Note, or its obligation to make CD Rate Advances or
Eurodollar Rate Advances or shall change the basis of taxation of
payment to the Bank of the principal of or interest on CD Rate Advances
or Eurodollar Rate Advances or any other amounts due under this
Agreement in respect of CD Rate Advances or Eurodollar Rate Advances or
its obligation to make CD Rate Advances or Eurodollar Rate Advances
(except for changes in the rate of tax on the overall net income of the
Bank imposed by the jurisdiction in which the Bank's principal office
is located); or
(b) shall impose, modify or deem applicable any
reserve, special deposit, capital requirement or similar requirement
(including, without limitation, any such requirement imposed by the
Board, but excluding with respect to any CD Rate Advance or Eurodollar
Rate Advance any such requirement to the extent included in calculating
the applicable Adjusted CD Rate or Adjusted Eurodollar Rate) against
assets of, deposits with or for the account of, or credit extended by,
the Bank's applicable lending office or shall impose on the Bank (or
its applicable lending office) or on the United States market for
certificates of deposit or the interbank Eurodollar market any other
condition affecting its CD Rate Advances or Eurodollar Rate Advances,
the Note or its obligation to make CD Rate Advances or Eurodollar Rate
Advances;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any CD Rate Advances or Eurodollar Rate Advance, or to
reduce the amount of any sum received or receivable by the Bank under this
Agreement or under the Note, then, within 30 days after demand by the Bank, the
Borrower shall pay to the Bank such additional amount or amounts as will
compensate the Bank for such increased cost or reduction; provided, that the
Borrower shall not be obligated to pay any such additional amount (i) unless the
Bank shall first have notified the Borrower in writing that it intends to seek
such compensation pursuant to this Section, or (ii) to the extent such
additional amount is
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<PAGE>
attributable to the period ending 91 days prior to the date of the first such
notice with respect to such Regulatory Change (the "Excluded Period"), except to
the extent any amount is attributable to the Excluded Period as a result of the
retroactive application of the applicable Regulatory Change. A certificate of
the Bank claiming compensation under this Section, setting forth the additional
amount or amounts to be paid to it hereunder and stating in reasonable detail
the basis for the charge and the method of computation, shall be conclusive in
the absence of error. In determining such amount, the Bank may use any
reasonable averaging and attribution methods. Failure on the part of the Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable with respect to any Interest Period shall not constitute a waiver of
the Bank's rights to demand compensation for any increased costs or reduction in
amounts received or receivable in any subsequent Interest Period.
Section 2.22 Illegality. If any Regulatory Change shall make
it unlawful or impossible for the Bank to make, maintain or fund any Eurodollar
Rate Advances or CD Rate Advances, the Bank shall notify the Borrower, whereupon
the obligation of the Bank to make or continue, or to convert any Advances to,
Eurodollar Rate Advances or CD Rate Advances shall be suspended until the Bank
notifies the Borrower that the circumstances giving rise to such suspension no
longer exist. If the Bank determines that it may not lawfully continue to
maintain any CD Rate Advances or Eurodollar Rate Advances to the end of the
applicable Interest Period, the affected Advances shall be automatically
converted to Reference Rate Advances as of the date of the Bank's notice, and
upon the conversion of any CD Rate Advances or Eurodollar Rate Advances the
Borrower shall indemnify the Bank in accordance with Section 2.24.
Section 2.23 Increased Capital Requirements. In the event
that, as a result of any Regulatory Change, compliance by the Bank with any
applicable law or governmental rule, requirement, regulation, guideline or order
(whether or not having the force of law) regarding capital adequacy has the
effect of reducing the rate of return on the Bank's capital as a consequence of
the Commitment or amounts outstanding under the Note to a level below that which
the Bank would have achieved but for such compliance (taking into consideration
the Bank's policies with respect to capital adequacy), then from time to time
the Borrower shall pay to the Bank, within thirty days after written demand by
the Bank, such additional amount or amounts as will compensate the Bank for such
reduction; provided that the Borrower shall not be obligated to pay any such
additional amount (i) unless the Bank shall first have notified the Borrower in
writing that it intends to seek such compensation pursuant to this Section, or
(ii) to the extent such additional amount is attributable to the period ending
91 days prior to the date of the first such notice with respect to such
Regulatory Change (the "Excluded Period"), except to the extent any amount is
attributable to the Excluded Period as a result of the retroactive application
of the applicable Regulatory Change. A certificate, which shall be conclusive
except for manifest error, as to the amount of any such reduction (including
calculations in reasonable detail showing how the Bank computed such
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reduction and a statement that the Bank has not allocated to the Commitment or
amounts outstanding under the Note a proportionately greater amount of such
reduction than is attributable to each of its other commitments to lend or to
each of its other outstanding credit extensions that are affected similarly by
such compliance by the Bank, whether or not the Bank allocates any portion of
such reduction to such other commitments or credit extensions, shall be
furnished promptly by the Bank to the Borrower.
Section 2.24 Funding Losses; CD Rate Advances and Eurodollar
Rate Advances. The Borrower shall compensate the Bank, upon its written request,
for all losses, expenses and liabilities (including any interest paid by the
Bank to lenders of funds borrowed by it to make or carry CD Rate Advances or
Eurodollar Rate Advances to the extent not recovered by the Bank in connection
with the re-employment of such funds and including loss of anticipated profits)
which the Bank may sustain: (i) if for any reason, other than a default by the
Bank, a funding of a CD Rate Advance or a Eurodollar Rate Advance does not occur
on the date specified therefor in the Borrower's request or notice as to such
Advance under Section 2.2 or 2.4, or (ii) if, for whatever reason (including,
but not limited to, acceleration of the maturity of Loans following an Event of
Default), any repayment of a CD Rate Advance or a Eurodollar Rate Advance, or a
conversion pursuant to Section 2.22, occurs on any day other than the last day
of the Interest Period applicable thereto. The Bank's request for compensation
shall set forth the basis for the amount requested and shall be final,
conclusive and binding, absent error.
Section 2.25 Discretion of Bank as to Manner of Funding. The
Bank shall be entitled to fund and maintain its funding of CD Rate Advances and
Eurodollar Rate Advances in any manner it may elect, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
(including, but not limited to, determinations under Section 2.24) shall be made
as if the Bank had actually funded and maintained each CD Rate Advance during
the Interest Period for such Advances through the issuance of its certificates
of deposit having a maturity corresponding to the last day of the Interest
Period and bearing an interest rate equal to the CD Rate, and as if the Bank had
actually funded and maintained each Fixed Eurodollar Rate Advance during the
Interest Period for such Advance through the purchase of deposits having a
maturity corresponding to the last day of the Interest Period and bearing an
interest rate equal to the Eurodollar Rate for such Interest Period.
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ARTICLE III
-----------
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to Term Loan. The making of
the initial Revolving Loan and the issuance of the initial Letter of Credit
shall be subject to the prior or simultaneous fulfillment of the following
conditions:
3.1(a) Documents. The Bank shall have received the
following:
(i) The Note, executed by the Borrower and dated the
date of this Agreement.
(ii) Reaffirmations of Security Agreement, in the
form of Exhibits E, F, G and executed by the Borrower, PAII and PASI,
respectively.
(iii) A Reaffirmation of the Pledge Agreement, in the
form of Exhibit H, executed by the Borrower.
(iv) Reaffirmation of Guaranty and Pledge Agreement,
in the form of Exhibit I, executed by EAHC.
(v) A Reaffirmation of Guaranty, in the form of
Exhibit J, executed by PAII.
(vi) Copies of the corporate resolutions of the
Borrower, PAII, PASI and EAHC authorizing the execution, delivery and
performance of the Loan Documents or reaffirmations thereof to which
each of them is a party, certified as of the Closing Date by the
respective Secretary or an Assistant Secretary of the Borrower, PAII,
PASI and EAHC.
(vii) Incumbency certificates showing the names and
titles and bearing the signatures of the officers of the Borrower,
PAII, PASI and EAHC authorized to execute the Loan Documents or
reaffirmations thereof to which each of them is a party and, in the
case of the Borrower, to request Loans and conversions and
continuations of Advances hereunder, certified as of the Closing Date
by the respective Secretary or an Assistant Secretary of the Borrower,
PAII, PASI and EAHC.
(viii) A certificate of the Secretary or Assistant
Secretary of each of the Borrower, EAHC, PAII and PASI certifying that
the Articles of Incorporation and Bylaws of the Borrower, EAHC, PAII
and PASI, respectively, have not been repealed, rescinded, amended or
otherwise
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<PAGE>
modified since copies of the same were delivered to the Bank on April
28, 1995.
(ix) Long-form certificates of good standing for the
Borrower, PAII, PASI and EAHC in the respective jurisdictions of their
incorporation, and for the Borrower, PAII and PASI in all of the
jurisdictions in which the character of the properties owned or leased
by it or the business conducted by it makes such qualification
necessary, certified by the appropriate governmental officials as of a
date not more than ten (10) days prior to the Closing Date.
(x) A certificate dated the Closing Date of the chief
executive officer or chief financial officer of the Borrower certifying
that:
(A) All representations and warranties set
forth in Article IV are true and correct as of the Closing
Date, and
(B) On the Closing Date, after giving effect
to the making of the initial Revolving Loan, no Event of
Default or Default shall have occurred or will exist.
(xi) Evidence of compliance with the insurance
requirements of Section 5.3.
(xii) A written opinion of Brown & Bain, P.A.,
counsel to the Borrower, PAII, PASI and EAHC, addressed to the Bank and
dated the Closing Date, covering the matters set forth in Exhibit K
hereto.
3.1(b) Additional Conditions. The following
conditions shall exist:
(i) The Borrower shall have performed and complied
with all agreements, terms and conditions contained in this Agreement
required to be performed or complied with by the Borrower prior to or
simultaneously with the Closing Date.
(ii) The Bank shall have received (A) the Closing Fee
and (B) all fees and other amounts due and payable by the Borrower on
or prior to the Closing Date, including the reasonable fees and
expenses of counsel to the Bank payable pursuant to Section 8.2.
3.1(c) Security Documents. All Security Documents (or
financing statements with respect thereto) shall have been appropriately filed
or recorded to the satisfaction of the Bank; any pledged collateral shall have
been duly
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delivered to the Bank; and the priority and perfection of the Liens created by
the Security Documents shall have been established to the satisfaction of the
Bank and its counsel.
Section 3.2 Conditions Precedent to the Obligation of the Bank
to issue Letters of Credit and to make certain Loans to Finance any Restricted
Payment. The obligation of the Bank to (i) issue any Letter of Credit hereunder
(other than a Letter of Credit that replaces, and does not increase the amount
available to be drawn under, an existing Letter of Credit), (ii) to make any
Loan the proceeds (or any part thereof) in an amount not less than $500,000 of
which are going to be used to finance any Restricted Payments, or (iii) to make
any other Loan the proceeds (or any part thereof) of which are going to be used
to finance any Restricted Payment if the Bank requests satisfaction of such
conditions (provided that a request under this clause (iii) shall not be made
more than once in any calendar quarter), shall be subject to the prior or
simultaneous fulfillment of each of the following conditions:
3.2(a) the Bank shall have received the following
documents and certificates, each in form and substance satisfactory to the Bank
and its counsel:
(i) a Solvency Certificate duly executed by the chief
financial officer of the Borrower; and
(ii) if requested by the Bank, a favorable written
opinion of counsel to the Borrower and EAHC acceptable to the Bank, as to such
matters and to such effect as may be requested by the Bank.
3.2(b) The Borrower shall have performed and complied
with all agreements, terms and conditions contained in this Agreement required
to be performed or complied with by the Borrower prior to or simultaneously with
the date of the making of such Loan or the issuance of such Letter of Credit.
Section 3.3 Conditions Precedent to all Loans. The obligation
of the Bank to make any Loans or issue any Letters of Credit hereunder shall be
subject to the fulfillment of the following conditions:
3.3(a) Representations and Warranties. The
representations and warranties contained in Article IV shall be true and correct
on and as of each Revolving Loan Date, with the same force and effect as if made
on such date.
3.3(b) No Default. No Default or Event of Default
shall have occurred and be continuing on any Revolving Loan Date, or will exist
after giving effect to the Loans made on such date.
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<PAGE>
3.3(c) Notices and Requests. The Bank shall have
received the Borrower's request for such Loan as required under Section 2.2.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make
Loans hereunder, the Borrower represents and warrants to the Bank:
Section 4.1 Organization, Standing, Etc. The Borrower is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into the Loan Documents or reaffirmations thereof to which it is a party
and to perform its obligations under the Loan Documents to which it is a party.
EAHC is a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into the Loan Documents or reaffirmations thereof to which it is a party,
and to perform its obligations under the Loan Documents to which it is a party.
Each Subsidiary is a corporation duly incorporated and validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted. Each of EAHC, the Borrower and the Subsidiaries (a) holds all
certificates of authority, licenses and permits necessary to carry on the
business as now conducted in each jurisdiction in which it is carrying on such
business, except where the failure to hold such certificates, licenses or
permits would not have a material adverse effect on the business, operations,
property, assets or condition, financial or otherwise, of the Borrower and the
Subsidiaries taken as a whole, and (b) is duly qualified and in good standing as
a foreign corporation in each jurisdiction in which the character of the
properties owned, leased or operated by the Borrower or the business conducted
by the Borrower makes such qualification necessary and the failure so to qualify
would permanently preclude EAHC, the Borrower or such Subsidiary from enforcing
its rights with respect to any assets or expose EAHC, the Borrower or such
Subsidiary to any liability, which in either case would be material to the
Borrower and the Subsidiaries taken as a whole. PASI is duly registered with the
SEC as a broker-dealer, is a member in good standing of the NASD, and is not in
arrears with respect to any assessment made on it by the SIPC. Each Advisory
Subsidiary is duly registered with the SEC as an investment adviser. PASI
maintains procedures and internal controls reasonably adapted to insure that it
does not extend or maintain credit to or for its customers other than in
accordance with the provisions of Regulation T of the Board, and officers of
PASI regularly supervise its activities and the activities of employees of PASI
to reasonably ensure that PASI does not extend
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<PAGE>
or maintain credit to or for customers other than in accordance with the
provisions of Regulation T of the Board.
Section 4.2 Authorization and Validity. The execution,
delivery and performance by each of the Borrower, each Subsidiary and EAHC of
the Loan Documents to which it is a party or reaffirmations thereof have been
duly authorized by all necessary corporate action, and Loan Documents when
executed will constitute the legal, valid and binding obligations of the
Borrower, each Subsidiary and EAHC, enforceable against each of them in
accordance with their respective terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and general principles
of equity.
Section 4.3 No Conflict; No Default. The execution, delivery
and performance by the Borrower, each Subsidiary and EAHC of the Loan Documents
to which each of them is a party or reaffirmations thereof will not (a) violate
any provision of any law, statute, rule or regulation or any order, writ,
judgment, injunction, decree, determination or award of any court, governmental
agency or arbitrator presently in effect having applicability to the Borrower,
such Subsidiary or EAHC, (b) violate or contravene any provision of the Articles
of Incorporation or bylaws of the Borrower, such Subsidiary or EAHC, or (c)
result in a breach of or constitute a default under any agreement, lease or
instrument to which the Borrower, such Subsidiary or EAHC is a party or by which
they or any of their properties may be bound or result in the creation of any
Lien thereunder. None of EAHC, the Borrower or any Subsidiary is in default
under or in violation of any such law, statute, rule or regulation, order, writ,
judgment, injunction, decree, determination or award or any such indenture, loan
or credit agreement or other agreement, lease or instrument in any case in which
the consequences of such default or violation could have a material adverse
effect on the business, operations, properties, assets or condition (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole. Without
limiting the foregoing, the Borrower and each Subsidiary are in compliance with
all applicable capital requirements of all governmental authorities applicable
to them, including, without limitation, Rule 15c3-1 under the Exchange Act, as
the same is modified with respect to PASI in accordance with the undertaking
outlined in paragraph 2 of the letter dated March 2, 1995 from PASI to the NASD
District Committee for District No. 2, and as the same may be further modified
from time to time by the NASD.
Section 4.4 Government Consent. No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with, or exemption by, any governmental or public body or authority is required
on the part of EAHC, the Borrower or any Subsidiary to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding
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<PAGE>
effect or enforceability of, the Loan Documents, except for any necessary filing
or recordation of or with respect to any of the Security Documents.
Section 4.5 Financial Statements and Condition. The Borrower's
audited consolidated financial statements as at September 30, 1995 and its
unaudited financial statements as at March 31, 1996, as heretofore furnished to
the Bank, have been prepared in accordance with GAAP on a consistent basis
(except for the absence of footnotes and subject to year-end audit adjustments
as to the interim statements) and fairly present the financial condition of the
Borrower and its Subsidiaries as at such dates and the results of their
operations and changes in financial position for the respective periods then
ended. As of the dates of such financial statements, neither the Borrower nor
any Subsidiary had any material obligation, contingent liability, liability for
taxes or long-term lease obligation which is not reflected in such financial
statements or in the notes thereto.
Since September 30, 1995, there has been no material adverse change in the
business, operations, property, assets or condition, financial or otherwise, of
the Borrower and its Subsidiaries taken as a whole.
Section 4.6 Litigation. Except as described on Schedule 4.6,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting EAHC, the Borrower or any Subsidiary,
or any of their properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which, if determined
adversely to EAHC, the Borrower or any Subsidiary, would have a material adverse
effect on the business, operations, property or condition (financial or
otherwise) of the Borrower and the Subsidiaries taken as a whole or on the
ability of EAHC, the Borrower or any Subsidiary to perform its obligations under
the Loan Documents.
Section 4.7 ERISA. Each Plan is in substantial compliance with
all applicable requirements of ERISA and the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and the
Code setting forth those requirements. No Reportable Event has occurred and is
continuing with respect to any Plan. All of the minimum funding standards
applicable to such Plans have been satisfied and there exists no event or
condition which would reasonably be expected to result in the institution of
proceedings to terminate any Plan under Section 4042 of ERISA. With respect to
each Plan subject to Title IV of ERISA, as of the most recent valuation date for
such Plan, the present value (determined on the basis of reasonable assumptions
employed by the independent actuary for such Plan and previously furnished in
writing to the Bank) of such Plan' s projected benefit obligations did not
exceed the fair market value of such Plan's assets.
Section 4.8 Federal Reserve Regulations. Neither the Borrower
nor any Subsidiary is engaged principally or as one of its important activities
in the business of extending credit for the purpose of purchasing or carrying
margin stock
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(as defined in Regulation U of the Board). The value of all margin stock owned
by the Borrower does not constitute more than 25% of the value of the assets of
the Borrower.
Section 4.9 Title to Property; Leases; Liens; Subordination.
Each of the Borrower and the Subsidiaries has (a) good and marketable title to
its real properties and (b) good and sufficient title to, or valid, subsisting
and enforceable leasehold interest in, its other material properties, including
all real properties (other than property disposed of since the date of such
financial statements in the ordinary course of business). None of such
properties is subject to a Lien, except as allowed under Section 6.13. The
Borrower has not subordinated any of its rights under any obligation owing to it
to the rights of any other person.
Section 4.10 Taxes. Each of the Borrower and the Subsidiaries
has filed all federal, state and local tax returns required to be filed and has
paid or made provision for the payment of all taxes due and payable pursuant to
such returns and pursuant to any assessments made against it or any of its
property and all other taxes, fees and other charges imposed on it or any of its
property by any governmental authority (other than taxes, fees or charges the
amount or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in accordance with
GAAP have been provided on the books of the Borrower). The charges, accruals and
reserves on the books of the Borrower in respect of taxes and other governmental
charges are adequate and the Borrower knows of no proposed material tax
assessment against the Borrower, any Subsidiary or any of their assets or of any
basis therefor.
Section 4.11 Trademarks, Patents. Each of the Borrower and the
Subsidiaries possesses or has the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of its business, without known conflict with the rights of others.
Section 4.12 Burdensome Restrictions. None of EAHC, the
Borrower or any Subsidiary is a party to or otherwise bound by any indenture,
loan or credit agreement or any lease or other agreement or instrument or
subject to any charter, corporate or partnership restriction which would
foreseeably have a material adverse effect on the business, properties, assets,
operations or condition (financial or otherwise) of the Borrower and the
Subsidiaries taken as a whole or on the ability of EAHC or the Borrower to carry
out its obligations under any Loan Document.
Section 4.13 Force Majeure. Since the date of the most recent
financial statement referred to in Section 4.5, the business, properties and
other assets of the Borrower and the Subsidiaries have not been materially and
adversely affected in any way as the result of any fire or other casualty,
strike, lockout, or other labor
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trouble, embargo, sabotage, confiscation, condemnation, riot, civil disturbance,
activity of armed forces or act of God.
Section 4.14 Investment Company Act. Neither the Borrower nor
any Subsidiary is an "investment company" or a company "controlled" by an
investment company within the meaning of the Investment Company Act of 1940, as
amended.
Section 4.15 Public Utility Holding Company Act. Neither the
Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of
a holding company or an "affiliate" of a holding company or of a subsidiary
company of a holding company within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 4.16 Retirement Benefits. Except as required under
Section 4980B of the Code, Section 601 of ERISA or applicable state law, neither
the Borrower nor any Subsidiary is obligated to provide post-retirement medical
or insurance benefits with respect to employees or former employees.
Section 4.17 Subsidiaries. Schedule 4.17 sets forth as of the
date of this Agreement a list of all Subsidiaries and the number and percentage
of the shares of each class of capital stock owned beneficially or of record by
the Borrower or any Subsidiary therein, and the jurisdiction of incorporation of
each Subsidiary.
Section 4.18 Fund Agreements. Schedule 4.18 sets forth as of
the date of this agreement, a list of all Funds for which PAII acts as
investment adviser or PASI acts as principal distributor, and a list of all
related Fund Agreements. All Fund Agreements are in full force and effect.
Section 4.19 Full Disclosure. Subject to the following
sentence, neither the financial statements referred to in Section 4.5 nor any
other certificate, written statement, exhibit or report furnished by or on
behalf of the Borrower in connection with or pursuant to this Agreement contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained therein not misleading.
Certificates or statements furnished by or on behalf of the Borrower to the Bank
consisting of projections or forecasts of future results or events have been
prepared in good faith and based on good faith estimates and assumptions of the
management of the Borrower, and the Borrower has no reason to believe that such
projections or forecasts are not reasonable.
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ARTICLE V
---------
AFFIRMATIVE COVENANTS
Until any obligation of the Bank hereunder to make the
Revolving Loans and Term Loan shall have expired or been terminated and the Note
and all of the other Obligations have been paid in full, unless the Bank shall
otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Borrower
will furnish to the Bank:
5.1(a) As soon as available and in any event within
ninety days after the end of each fiscal year of the Borrower, the consolidated
financial statements of the Borrower and the Subsidiaries consisting of at least
statements of income, cash flow and changes in stockholders' equity, and a
consolidated balance sheet as at the end of such year, setting forth in each
case in comparative form corresponding figures from the previous annual audit,
certified without qualification by KPMG Peat Marwick or other independent
certified public accountants of recognized national standing selected by the
Borrower and acceptable to the Bank, together with (a) any management letters,
management reports or other supplementary written comments or reports to the
Borrower or its board of directors furnished by such accountants and (b) a
letter from such accountants addressed to the Bank acknowledging that the Bank
is extending credit in reliance on such financial statements and authorizing
such reliance.
5.1(b) Together with the audited financial statements
required under Section 5.1(a), a statement by the accounting firm performing
such audit to the effect that it has reviewed this Agreement and that in the
course of performing its examination nothing came to its attention that caused
it to believe that any Default or Event of Default exists, or, if such Default
or Event of Default exists, describing its nature.
5.1(c) As soon as available and in any event within
forty-five days after the end of each March, June, September and December, and
thirty days after the end of each other month, unaudited consolidated statements
of income, cash flow and changes in stockholders' equity for the Borrower and
its Subsidiaries for such month and for the period from the beginning of such
fiscal year to the end of such month, and a consolidated balance sheet of the
Borrower as at the end of such month, setting forth in comparative form figures
for the corresponding period for the preceding fiscal year, accompanied by a
certificate signed by the chief financial officer of the Borrower stating that
such financial statements present fairly the financial condition of the Borrower
and the Subsidiaries and that the same have been prepared in accordance with
GAAP.
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5.1(d) Together with the unaudited financial
statements required under Section 5.1(c), (i) a compliance certificate signed by
the chief financial officer of the Borrower demonstrating in reasonable detail
compliance (or noncompliance, as the case may be) with Sections 6.10, 6.11(h),
6.14 through 6.20, and 7.1(s) as at the end of such month and stating that as at
the end of such month there did not exist any Default or Event of Default or, if
such Default or Event of Default existed, specifying the nature and period of
existence thereof and what action the Borrower proposes to take with respect
thereto, and (ii) a report on the Net Asset Value of all Advisory Funds in form
acceptable to the Bank, signed by the chief financial officer of the Borrower.
5.1(e) As soon as practicable and in any event prior
to the beginning of each fiscal year of the Borrower, statements of forecasted
income and cash flow for the Borrower and the Subsidiaries for each month in
such fiscal year and a forecasted consolidated balance sheet of the Borrower and
the Subsidiaries, together with supporting assumptions, as at the end of each
month, all in reasonable detail and reasonably satisfactory in scope to the
Bank.
5.1(f) As soon as available and in any event within
ninety days after the end of each fiscal year of EAHC the consolidated and
consolidating financial statements of EAHC and its Subsidiaries consisting of at
least statements of income, cash flow and changes in stockholders' equity, and
consolidated and consolidating balance sheets as at the end of such year,
setting forth in each case in comparative form corresponding figures from the
previous annual audit, certified without qualification by KPMG Peat Marwick or
other independent certified public accountants of recognized national standing
selected by EAHC and acceptable to the Bank, together with (a) any management
letters, management reports or other supplementary written comments or reports
to EAHC or its board of directors furnished by such accountants and (b) a letter
from such accountants addressed to the Bank acknowledging that the Bank is
extending credit in reliance on such financial statements and authorizing such
reliance.
5.1(g) As soon as available and in any event within
forty-five days after the end of each March, June, September and December, and
thirty days after the end of each other month, unaudited consolidated and
consolidating statements of income, cash flow and changes in stockholders'
equity for the EAHC its Subsidiaries for such month and for the period from the
beginning of such fiscal year to the end of such month, and consolidated and
consolidating balance sheets of EAHC at the end of such month, setting forth in
comparative form figures for the corresponding period for the preceding fiscal
year, accompanied by a certificate signed by the chief financial officer of the
EAHC stating that such financial statements present fairly the financial
condition of the EAHC and the Subsidiaries
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and that the same have been prepared in accordance with GAAP (subject to
year-end adjustments and the absence of footnotes).
5.1(h) Immediately upon any officer of the Borrower
becoming aware of any Default or Event of Default, a notice describing the
nature thereof and what action the Borrower proposes to take with respect
thereto.
5.1(i) Immediately upon any officer of the Borrower
becoming aware of the occurrence, with respect to any Plan, of any Reportable
Event or any Prohibited Transaction, a notice specifying the nature thereof and
what action the Borrower proposes to take with respect thereto, and, when
received, copies of any notice from PBGC of intention to terminate or have a
trustee appointed for any Plan.
5.1(j) Promptly upon the mailing or filing thereof,
copies of all financial statements, reports and proxy statements mailed to the
shareholders of EAHC or any Fund, and copies of all registration statements,
periodic reports and other documents filed with the Securities and Exchange
Commission (or any successor thereto) or any national securities exchange.
5.1(k) Immediately upon any officer of the Borrower
becoming aware of any action by the Borrower, any Subsidiary or any Fund to make
any modification to, waive any provision of, or fail to renew any Fund
Agreement, to the extent such modification, waiver or non-renewal would have an
adverse effect on the amount of compensation payable to the Borrower or any
Subsidiary by any Fund in an amount exceeding $100,000, a notice describing the
same and what action the Borrower proposes to take with respect thereto.
5.1(l) From time to time, such other information
regarding the business, operation and financial condition of EAHC, the Borrower,
the Subsidiaries and the Funds as the Bank may reasonably request.
Section 5.2 Corporate Existence. The Borrower will maintain,
and cause each Subsidiary to maintain, its corporate existence in good standing
under the laws of its jurisdiction of incorporation and its qualification to
transact business in each jurisdiction where failure so to qualify would
permanently preclude the Borrower or such Subsidiary from enforcing its rights
with respect to any material asset or would expose the Borrower or such
Subsidiary to any material liability; provided, however, that nothing herein
shall prohibit the merger or liquidation of any Subsidiary allowed under Section
6.1.
Section 5.3 Insurance. The Borrower shall maintain, and shall
cause each Subsidiary to maintain, with financially sound and reputable
insurance companies such insurance as may be required by law and such other
insurance in
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such amounts and against such hazards as is customary in the case of reputable
firms engaged in the same or similar business and similarly situated.
Section 5.4 Payment of Taxes and Claims. The Borrower shall
file, and cause each Subsidiary to file, all tax returns and reports which are
required by law to be filed by it and will pay, and cause each Subsidiary to
pay, before they become delinquent all taxes, assessments and governmental
charges and levies imposed upon it or its property and all claims or demands of
any kind (including but not limited to those of suppliers, mechanics, carriers,
warehouses, landlords and other like Persons) which, if unpaid, might result in
the creation of a Lien upon its property; provided that the foregoing items need
not be paid if they are being contested in good faith by appropriate
proceedings, and as long as the Borrower's or such Subsidiary's title to its
property is not materially adversely affected, its use of such property in the
ordinary course of its business is not materially interfered with and adequate
reserves with respect thereto have been set aside on the Borrower's or such
Subsidiary's books in accordance with GAAP.
Section 5.5 Inspection. The Borrower shall permit any Person
designated by the Bank to visit and inspect any of the properties, corporate
books and financial records of the Borrower and the Subsidiaries, to examine and
to make copies of the books of accounts and other financial records of the
Borrower and the Subsidiaries, and to discuss the affairs, finances and accounts
of the Borrower and the Subsidiaries with, and to be advised as to the same by,
its officers at such reasonable times and intervals as the Bank may designate.
So long as no Event of Default exists, the expenses of the Bank for such visits,
inspections and examinations shall be at the expense of the Bank, but any such
visits, inspections and examinations made while any Event of Default is
continuing shall be at the expense of the Borrower.
Section 5.6 Maintenance of Properties. The Borrower will
maintain, and cause each Subsidiary to maintain, its properties used or useful
in the conduct of its business in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 5.7 Books and Records. The Borrower will keep, and
will cause each Subsidiary to keep, adequate and proper records and books of
account in which full and correct entries will be made of its dealings, business
and affairs.
Section 5.8 Compliance. The Borrower will comply, and will
cause each Subsidiary to comply, in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject;
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provided, however, that failure so to comply shall not be a breach of this
covenant if such failure does not have, or is not reasonably expected to have, a
materially adverse effect on the properties, business, prospects or condition
(financial or otherwise) of the Borrower or such Subsidiary and the Borrower or
such Subsidiary is acting in good faith and with reasonable dispatch to cure
such noncompliance.
Section 5.9 Notice of Litigation. The Borrower will give
prompt written notice to the Bank of the commencement of any action, suit or
proceeding before any court or arbitrator or any governmental department, board,
agency or other instrumentality affecting EAHC, the Borrower or any Subsidiary
or any property of EAHC, the Borrower or a Subsidiary or to which EAHC, the
Borrower or a Subsidiary is a party in which an adverse determination or result
could have a material adverse effect on the business, operations, property or
condition (financial or otherwise) of the Borrower and the Subsidiaries taken as
a whole or on the ability of EAHC or the Borrower to perform its obligations
under the Loan Documents, stating the nature and status of such action, suit or
proceeding.
Section 5.10 ERISA. The Borrower will maintain, and cause each
Subsidiary to maintain, each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all applicable rulings and
regulations issued under the provisions of ERISA and of the Code and will not
and not permit any of the ERISA Affiliates to (a) engage in any transaction in
connection with which the Borrower or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in either case in an amount
exceeding $50,000, (b) fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $50,000 or (c) fail to make any payments in an
aggregate amount exceeding $50,000 to any Multiemployer Plan that the Borrower
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.
Section 5.11 Fund Agreements. Subject to its fiduciary
obligations and except as may otherwise be required by law, the Borrower will
use its best efforts to cause each Fund for which a Subsidiary acts as
investment advisor or principal distributor to continue such Subsidiary in such
capacity and not to reduce the compensation payable to such Subsidiary for its
services to such Fund in any material respect.
Section 5.12 Advisory Subsidiaries. The Borrower will cause
PAII, on and at all times after the Closing Date, and any Advisory Subsidiary
acquired hereafter as a result of an Investment permitted under Section 6.11(h),
on and at all
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times after the Business Day following such acquisition, to comply with the
following requirements:
(a) not have any (i) business other than the business
of serving as investment adviser for Advisory Funds pursuant to
Advisory Contracts and receiving payments thereunder, (ii) assets other
than Advisory Contracts and assets necessary to the performance by such
Advisory Subsidiary of its obligations under such Advisory Contracts,
or (iii) liabilities other than liabilities under Advisory Contracts or
other agreements permitted pursuant to Section 5.12(b);
(b) not enter into any agreements or other
arrangements with any Affiliate or any unaffiliated Person, other than
(y) Advisory Contracts and (z) other agreements necessary to the
performance by such Advisory Subsidiary of its obligations under
Advisory Contracts; provided that such Advisory Contracts and other
agreements are entered into upon fair and reasonable terms no less
favorable to such Advisory Subsidiary than would obtain in a comparable
arm's-length available to a Person unaffiliated with the Borrower;
(c) distribute (by dividend or otherwise) all of its
revenue, less actual expenses incurred in performing its obligations
under Advisory Contracts, and subject to any restrictions applicable
under the Delaware General Corporation Act or other applicable
corporate statute, or the Investment Advisers Act or any state law
applicable to investment advisers, to the Borrower by means of a
deposit into an account of the Borrower with the Bank;
(d) be incorporated under the Delaware General
Corporation Act and provide in its Certificate or Articles of
Incorporation that, until the Obligations have been paid in full and
the Commitment has been terminated, no action of the types described in
Sections 7.1(e), (f) or (g) may be taken without the prior written
consent of the Bank;
(e) conduct its business solely in its own name
through its duly authorized officers or agents so as not to mislead
others as to the identity of the Person with which those others are
concerned, and use its best efforts to avoid the appearance of
conducting business on behalf of the Borrower or any other Subsidiary
or Affiliate of the Borrower, or that the assets of such Advisory
Subsidiary are available to pay the creditors of the Borrower or any
Subsidiary or Affiliate of the Borrower (without limiting the
generality of the foregoing, all oral and written communications,
including, without limitation, letters, invoices, purchase orders,
contracts and statements will be made solely in the name of such
Advisory Subsidiary);
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(f) maintain corporate records and books of account
separate from those of the Borrower and any Subsidiary or Affiliate of
the Borrower;
(g) obtain proper authorization from its board of
directors of all corporate action requiring such authorization, and
hold meetings of its board of directors and hold not less frequently
than four times per annum;
(h) obtain proper authorization from its shareholder
of all corporate action requiring shareholder approval;
(i) pay its operating expenses and liabilities from
its own funds;
(j) disclose in its annual and interim financial
statements the effects of such Advisory Subsidiary's transactions in
accordance with generally accepted accounting principles; and
(k) keep its assets and its liabilities wholly
separate from those of all other Persons, including, but not limited
to, the Borrower and any other Subsidiaries or Affiliates of the
Borrower.
Section 5.13 Pledge of Stock of Advisory Subsidiaries. The
Borrower will, within five (5) Business Days after it receives a "no action"
letter from the SEC confirming that the pledge of the stock of the Advisory
Subsidiaries to the Bank pursuant to the Pledge Agreement to which the Borrower
is a party will not constitute an assignment of the Advisory Contracts under the
Investment Company Act, deliver the certificates evidencing all of the stock of
the Advisory Subsidiaries, together with undated stock powers for such
certificates, duly executed in blank.
Section 5.14 Further Assurances. The Borrower will, and will
cause its Subsidiaries to, promptly correct any defect or error that may be
discovered in any Loan Document or in the execution, acknowledgment or
recordation thereof. Promptly upon request by the Bank, the Borrower also will,
and will cause it Subsidiaries to, do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register, any and all assignments,
estoppel certificates, financing statements and continuations thereof, notices
of assignment, transfers, certificates, assurances and other instruments as the
Bank may reasonable require from time to time in order: (a) to carry out more
effectively the purposes of the Loan Documents; (b) to perfect and maintain the
validity, effectiveness and priority of any Liens intended to be created by the
Loan Documents; and (c) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm unto the Bank the rights granted now or hereafter
intended to be granted to the Bank under any Loan Document or under any other
instrument executed in connection with any Loan Document or that the
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Borrower or any Subsidiary may be or become bound to convey, mortgage or assign
to the Bank in order to carry out the intention or facilitate the performance of
the provisions of any Loan Document. The Borrower will furnish to the Bank
evidence satisfactory to the Bank of every such recording, filing or
registration.
ARTICLE VI
----------
NEGATIVE COVENANTS
Until any obligation of the Bank hereunder to make the
Revolving Loans and the Term Loan shall have expired or been terminated and the
Note and all of the other Obligations have been paid in full, unless the Bank
shall otherwise consent in writing:
Section 6.1 Merger. The Borrower will not merge or consolidate
or enter into any analogous reorganization or transaction with any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution)
or permit any Subsidiary to do any of the foregoing; provided, however, any
Subsidiary, other than an Advisory Subsidiary, may be merged with or liquidated
into any wholly-owned Subsidiary (if such wholly-owned Subsidiary is the
surviving corporation).
Section 6.2 Disposition of Assets. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one transaction or a series
of transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
6.2(a) sales of Fund shares (i) underwritten by any
Subsidiary of the Borrower or (ii) in which the Borrower or any Subsidiary makes
an Investment permitted under Section 6.11(i), in the ordinary course of
business;
6.2(b) sales of rights to receive investment
distribution fees as provided in rule 12b-1 of the SEC under the Investment
Company Act, other than fees related to B Shares with respect to which the Bank
has made Revolving Loans pursuant to this Agreement, provided that, both before
and after giving effect thereto, no Default or Event of Default would have
occurred and be continuing; and
6.2(c) the sale of equipment to the extent that (i)
such equipment is no longer useful in the Borrower's or such Subsidiary's
business, (ii) is exchanged for credit against the purchase price of similar
replacement equipment, or (iii) the proceeds of such sale are applied with
reasonable promptness to the purchase price of similar replacement equipment.
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Section 6.3 Plans. The Borrower will not permit, and will not
allow any Subsidiary to permit, any event to occur or condition to exist which
would permit any Plan to terminate under any circumstances which would cause the
Lien provided for in Section 4068 of ERISA to attach to any assets of the
Borrower or any Subsidiary; and the Borrower will not permit, as of the most
recent valuation date for any Plan subject to Title IV of ERISA, the present
value (determined on the basis of reasonable assumptions employed by the
independent actuary for such Plan and previously furnished in writing to the
Bank) of such Plan's projected benefit obligations to exceed the fair market
value of such Plan's assets.
Section 6.4 Change in Nature of Business. The Borrower will
not (a) own any assets other than the stock of its Subsidiaries, Cash Balances
and Cash Equivalents held through the Bank or its Affiliates, the trademarks
subject to the Trademark Assignment, and fixed assets used in the business of
the Borrower and its Subsidiaries, (b) will not permit any Advisory Subsidiaries
to take any action that would cause, or authorize, any violation of Section
5.12, and (c) will not permit any Subsidiary to make any material change in the
nature of the business of such Subsidiary as carried on at the date hereof or,
if later, the date such Subsidiary is acquired.
Section 6.5 Subsidiaries. After the date of this Agreement,
the Borrower will not, and will not permit any Subsidiary to, form or acquire
any corporation which would thereby become a Subsidiary, except for Subsidiaries
acquired as a result of Investments permitted pursuant to Section 6.11(h).
Section 6.6 Negative Pledges; Subsidiary Restrictions. The
Borrower will not, and will not permit any Subsidiary to, enter into any
agreement, bond, note or other instrument with or for the benefit of any Person
other than the Bank which would (i) prohibit the Borrower or such Subsidiary
from granting, or otherwise limit the ability of the Borrower or such Subsidiary
to grant, to the Bank any Lien on any assets or properties of the Borrower or
such Subsidiary, or (ii) require the Borrower or such Subsidiary to grant a Lien
to any other Person if the Borrower or such Subsidiary grants any Lien to the
Bank. The Borrower will not permit any Subsidiary to place or allow any
restriction, directly or indirectly, on the ability of such Subsidiary to (a)
pay dividends or any distributions on or with respect to such Subsidiary's
capital stock or (b) make loans or other cash payments to the Borrower.
Section 6.7 Restricted Payments. The Borrower will not make
any Restricted Payments, except:
(a) provided that no Event of Default or Default
shall have occurred and be continuing, or shall result therefrom,
Restricted Payments consisting of cash dividends made with the proceeds
of Loans, provided that
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the Borrower delivers to the Bank, on or before the date it makes such
Restricted Payment, the items (if any) required pursuant to Section
3.2(a); and
(b) provided that no Event of Default or Default
shall have occurred and be continuing, or shall result therefrom, the
issuance of the Letters of Credit for the benefit of NationsBanc and
the incurrence by the Borrower of reimbursement obligations in respect
thereof.
Section 6.8 Transactions with Affiliates. The Borrower will
not, and will not permit any Subsidiary to, enter into any transaction with any
Affiliate of the Borrower, except upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate.
Section 6.9 Accounting Changes. The Borrower will not, and
will not permit any Subsidiary to, make any significant change in accounting
treatment or reporting practices, except as required by GAAP, or change its
fiscal year or the fiscal year of any Subsidiary.
Section 6.10 Capital Expenditures. The Borrower will not, and
will not permit any Subsidiary to, make Capital Expenditures in an amount
exceeding $500,000 on a consolidated basis in any fiscal year.
Section 6.11 Investments. The Borrower will not, and will not
permit any Subsidiary to, acquire for value, make, have or hold any Investments,
except:
6.11(a) Investments existing on the date of this
Agreement.
6.11(b) Travel and relocation advances to management
personnel and employees in the ordinary course of business.
6.11(c) Investments by the Borrower in readily
marketable obligations issued or guaranteed by the United States or any agency
thereof and supported by the full faith and credit of the United States.
6.11(d) Investments by the Borrower in certificates
of deposit or bankers' acceptances issued by the Bank or any other commercial
bank organized under the laws of the United States or any State thereof which
has (i) combined capital and surplus of at least $100,000,000, and (ii) a credit
rating with respect to its unsecured indebtedness from a nationally recognized
rating service that is satisfactory to the Bank.
6.11(e) Investments by the Borrower in commercial
paper given the highest rating by a nationally recognized rating service.
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6.11(f) Investments by the Borrower in repurchase
agreements relating to securities issued or guaranteed as to principal and
interest by the United States of America.
6.11(g) Investments by the Borrower in other readily
marketable Investments in debt securities which are reasonably acceptable to the
Bank.
6.11(h) Other Investments consisting of the
acquisition of all or substantially all of the capital stock of, or assets of,
Persons engaged in the business of serving as investment advisors to or
principal distributors for Funds, provided (i) the aggregate Net Asset Value of
all Funds with respect to which any Subsidiary becomes the investment advisor,
or the investment advisor becomes a Subsidiary, as a result of all such
Investments does not exceed $500,000,000, (ii) the aggregate consideration paid
for any such Investment does not exceed three percent (3%) of the Net Asset
Value of all Funds with respect to which any Subsidiary becomes the investment
advisor, or the investment advisor becomes a Subsidiary, as a result of such
Investments, and (iii) in the case of any Investment resulting in the
acquisition of new Subsidiary, such Subsidiary is or becomes a wholly-owned
Subsidiary and executes and delivers to the Bank a Security Agreement and, if
such Subsidiary is an Advisory Subsidiary, a Guaranty simultaneously with such
Investment.
6.11(i) Investments in Advisory Funds in an amount
not to exceed at any time (i) with respect to any Advisory Fund, $1,000,000 and
(ii) in the aggregate, $3,000,000.
Any Investments under clauses (c), (d), (e) or (f) above must mature within one
year of the acquisition thereof by the Borrower.
Section 6.12 Indebtedness. The Borrower will not, and will not
permit any Subsidiary to, incur, create, issue, assume or suffer to exist any
Indebtedness, except:
6.12(a) The Obligations.
6.12(b) Current liabilities, other than for borrowed
money, incurred in the ordinary course of business.
6.12(c) Indebtedness secured by Liens permitted under
Section 6.13(h) hereof in an amount not to exceed $1,000,000.
Section 6.13 Liens. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien, or enter
into, or make
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any commitment to enter into, any arrangement for the acquisition of any
property through conditional sale, lease-purchase or other title retention
agreements, with respect to any property now owned or hereafter acquired by the
Borrower or a Subsidiary, except:
6.13(a) Liens granted to the Bank under the Security
Documents to secure the Obligations.
6.13(b) Deposits or pledges to secure payment of
workers' compensation, unemployment insurance, old age pensions or other social
security obligations, in the ordinary course of business of the Borrower or a
Subsidiary.
6.13(c) Liens for taxes, fees, assessments and
governmental charges not delinquent or to the extent that payment therefor shall
not at the time be required to be made in accordance with the provisions of
Section 5.4.
6.13(d) Liens of carriers, warehousemen, mechanics
and materialmen, and other like Liens arising in the ordinary course of
business, for sums not due or to the extent that payment therefor shall not at
the time be required to be made in accordance with the provisions of Section
5.4.
6.13(e) Liens incurred or deposits or pledges made or
given in connection with, or to secure payment of, indemnity, performance or
other similar bonds.
6.13(f) Liens arising solely by virtue of any
statutory or common law provision relating to banker's liens, rights of set-off
or similar rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution; provided that (i) such -------- ----
deposit account is not a dedicated cash collateral account and is not subject to
restriction against access by the Borrower or a Subsidiary in excess of those
set forth by regulations promulgated by the Board, and (ii) such deposit account
is not intended by the Borrower or any Subsidiary to provide collateral to the
depository institution.
6.13(g) Encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of real
property and landlord's Liens under leases on the premises rented, which do not
materially detract from the value of such property or impair the use thereof in
the business of the Borrower or a Subsidiary.
6.13(h) The interest of any lessor under any
Capitalized Lease entered into after the Closing Date or purchase money Liens on
equipment acquired after the Closing Date; provided, that, (i) the Indebtedness
secured thereby is otherwise permitted by this Agreement and (ii) such Liens are
limited to the
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equipment acquired and do not secure Indebtedness other than the related
Capitalized Lease Obligations or the purchase price of such equipment.
6.13(i) A Lien in favor of the Borrower's landlord
covering tenant improvements located in the Borrower's office in Phoenix,
Arizona and financed by such landlord, to secure all of Borrower's obligations
under the lease for such office premises as in effect on May 31, 1995.
Section 6.14 Contingent Obligations. The Borrower will not,
and will not permit any Subsidiary to, be or become liable on any Contingent
Obligations.
Section 6.15 Net Worth. The Borrower will not permit its Net
Worth at any time to be less than the greater of (i) $25,000,000 plus ninety
percent (90%) of the aggregate amount of equity contributions made to the
Borrower after the Closing Date, or (ii) eighty-five percent (85%) of the
Borrower's Net Worth as at the end of its most recently completed fiscal year
or, with respect to the end of any fiscal year, as at the end of its preceding
fiscal year.
Section 6.16 Leverage Ratio. The Borrower will not permit the
Leverage Ratio to be more than 1.0 to 1.0 at any time.
Section 6.17 Funded Debt Leverage Ratio. The Borrower will not
permit the ratio of (i) Funded Debt as of the last day of any fiscal quarter of
the Borrower, beginning on September 30, 1997, to (ii) EBITDA, for the
Measurement Period ending on that date, to be more than 4.0 to 1.0.
Section 6.18 Fixed Charge Coverage Ratio. The Borrower will
not permit the Fixed Charge Coverage Ratio, as of the last day of any month
beginning with September 30, 1997, for the Measurement Period ending on that
date, to be less than 1.50 to 1.00.
Section 6.19 Minimum Fund Balances. The Borrower will not
permit the sum of the Net Asset Values of all Advisory Funds at any time to be
less than the greater of (a) $1,350,000,000 or (b) ninety percent of the sum of
such Net Asset Values at the end of the most recently completed fiscal quarter
(or, in the case of a measurement at the end of any fiscal quarter, the
preceding fiscal quarter).
Section 6.20 EBITDA
6.20(a) FY 1996 EBITDA. The Borrower and its
Subsidiaries, on a consolidated basis, shall not as at the end of any
month during the Borrower's fiscal year ending September 30, 1996, have
cumulative negative EBITDA of more than $1,500,000 for the period from
the beginning of such fiscal year through the end of such month.
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6.20(b) FY 1997 EBITDA. The Borrower and its
Subsidiaries, on a consolidated basis, shall at each date set forth
below have cumulative positive EBITDA for the period from October 1,
1996 through such date of not less than the amount set forth below
opposite such date:
Date Cumulative FYTD EBITDA
---- ----------------------
December 31, 1996 $ 250,000
March 31, 1997 $1,500,000
June 30, 1997 $3,000,000
September 30, 1997 $5,000,000
6.20(c) EBITDA Margin. The Borrower will not permit
the EBITDA Margin, as the last day of any month beginning with
September 30, 1997, for the Measurement Period ending on that date, to
be less than 25.0%.
Section 6.21 Loan Proceeds. The Borrower will not use any part
of the proceeds of the Loans directly or indirectly, and whether immediately,
incidentally or ultimately, (a) to purchase or carry margin stock (as defined in
Regulation U of the Board), other than to the extent used to make Restricted
Payments to EAHC to fund the repurchase of its outstanding capital stock, or to
extend credit to others for the purpose of purchasing or carrying margin stock
or to refund Indebtedness originally incurred for such purpose or (b) for any
purpose which entails a violation of, or which is inconsistent with, the
provisions of Regulations G, U or X of the Board.
ARTICLE VII
-----------
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default. The occurrence of any one or
more of the following events shall constitute an Event of Default:
7.1(a) The Borrower shall fail to make when due,
whether by acceleration or otherwise, any payment of principal of or interest on
either Note or any other Obligation required to be made to the Bank pursuant to
this Agreement.
7.1(b) Any representation or warranty made by or on
behalf of EAHC, the Borrower or any Subsidiary in this Agreement or any other
Loan Document or by or on behalf of EAHC, the Borrower or any Subsidiary in any
certificate, statement, report or document herewith or hereafter furnished to
the Bank pursuant to this Agreement or any other Loan Document shall prove to
have been false or misleading in any material respect on the date as of which
the facts set forth are stated or certified.
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7.1(c) The Borrower shall fail to comply with
Sections 5.2, 5.3, 5.12 or 5.13, any Section of Article VI, or the Borrower or
any Subsidiary shall fail to comply with Section 4, 6, 8 or 13, the first
sentence of Section 7 or the second sentence of Section 14 of the Security
Agreements to which it is a party.
7.1(d) The Borrower, EAHC or any Subsidiary shall
fail to comply with any other agreement, covenant, condition, provision or term
contained in this Agreement or any other Loan Document (other than those
hereinabove set forth in this Section 7.1) and such failure to comply shall
continue for thirty calendar days after whichever of the following dates is the
earliest: (i) the date the Borrower gives notice of such failure to the Bank,
(ii) the date the Borrower should have given notice of such failure to the Banks
pursuant to Section 5.1, or (iii) the date the Bank gives notice of such failure
to the Borrower.
7.1(e) EAHC, the Borrower or any Subsidiary shall
become insolvent or shall generally not pay its debts as they mature or shall
apply for, shall consent to, or shall acquiesce in the appointment of a
custodian, trustee or receiver of EAHC, the Borrower or such Subsidiary or for a
substantial part of the property thereof or, in the absence of such application,
consent or acquiescence, a custodian, trustee or receiver shall be appointed for
EAHC, the Borrower or a Subsidiary or for a substantial part of the property
thereof and shall not be discharged within 45 days, or EAHC, the Borrower or any
Subsidiary shall make an assignment for the benefit of creditors.
7.1(f) Any bankruptcy, reorganization, debt
arrangement or other proceedings under any bankruptcy or insolvency law shall be
instituted by or against EAHC, the Borrower or any Subsidiary, and, if
instituted against EAHC, the Borrower or any Subsidiary, shall have been
consented to or acquiesced in by EAHC, the Borrower or such Subsidiary, or shall
remain undismissed for 60 days, or an order for relief shall have been entered
against EAHC, the Borrower or such Subsidiary.
7.1(g) Any dissolution or liquidation proceeding not
permitted by Section 6.1 shall be instituted by or against EAHC, the Borrower or
a Subsidiary and, if instituted against EAHC, the Borrower or any Subsidiary,
shall be consented to or acquiesced in by EAHC, the Borrower or such Subsidiary
or shall remain for 45 days undismissed.
7.1(h) A judgment or judgments for the payment of
money in excess of the sum of $100,000 in the aggregate shall be rendered
against the Borrower or a Subsidiary and either (i) the judgment creditor
executes on such judgment or (ii) such judgment remains unpaid or undischarged
for more than 60 days from the date of entry thereof or such longer period
during which execution of such judgment shall be stayed during an appeal from
such judgment.
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7.1(i) The maturity of any material Indebtedness of
the Borrower (other than Indebtedness under this Agreement) or a Subsidiary
shall be accelerated, or the Borrower or a Subsidiary shall fail to pay any such
material Indebtedness when due (after the lapse of any applicable grace period)
or, in the case of such Indebtedness payable on demand, when demanded (after the
lapse of any applicable grace period), or any event shall occur or condition
shall exist and shall continue for more than the period of grace, if any,
applicable thereto and shall have the effect of causing, or permitting the
holder of any such Indebtedness or any trustee or other Person acting on behalf
of such holder to cause, such material Indebtedness to become due prior to its
stated maturity or to realize upon any collateral given as security therefor.
For purposes of this Section, Indebtedness of the Borrower or a Subsidiary shall
be deemed "material" if it exceeds $100,000 as to any item of Indebtedness or in
the aggregate for all items of Indebtedness with respect to which any of the
events described in this Section 7.1(i) has occurred.
7.1(j) Any execution or attachment shall be issued
whereby any substantial part of the property of the Borrower or any Subsidiary
or any of the stock of the Borrower shall be taken or attempted to be taken and
the same shall not have been vacated or stayed within 30 days after the issuance
thereof.
7.1(k) EAHC or any Advisory Subsidiary shall
repudiate or purport to revoke its Guaranty or any Guaranty for any reason shall
cease to be in full force and effect as to EAHC or any Advisory Subsidiary, or
shall be judicially declared null and void.
7.1(l) Any Security Document shall, at any time,
cease to be in full force and effect or shall be judicially declared null and
void, or the validity or enforceability thereof shall be contested by the
Borrower, any Subsidiary or EAHC, or the Bank shall cease to have a valid and
perfected security interest having the priority contemplated thereunder in all
of the collateral described therein, other than by action or inaction of the
Bank if (i) the aggregate value of the collateral affected by any of the
foregoing exceeds $25,000 and (ii) any of the foregoing shall remain unremedied
for ten days or more after receipt of notice thereof by the Borrower, any
Subsidiary or EAHC from the Bank.
7.1(m) The SEC shall have revoked, or taken any
action to revoke, the broker/dealer or investment adviser registration of any
Subsidiary.
7.1(n) The Borrower or any Subsidiary shall have
failed to meet the minimum capital requirements prescribed from time to time by
Rule 15c3-1 under the Exchange Act and applicable to it.
7.1(o) The SEC, the NASD or any other authority shall
have modified or terminated, or proposed to modify or terminate Rule 12b-1 under
the Investment Company Act or the Rules of Fair Practice in a manner which
could, in
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the sole judgment of the Bank, result in a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise)
of the Borrower and the Subsidiaries taken as a whole.
7.1(p) PASI or any other Subsidiary that is a
broker/dealer shall cease to be a member in good standing of the NASD.
7.1(q) The SIPC shall have applied or shall have
announced its intention to apply for a decree adjudicating that customers of the
Borrower or any Subsidiary are in need of protection under SIPA.
7.1(r) Any Change of Control shall occur.
7.1(s) EAHC shall at any time have a Net Worth of
less than $28,000,000.
Section 7.2 Remedies. If (a) any Event of Default described in
Sections 7.1(e), (f), (g) or (q) shall occur with respect to the Borrower, the
Commitment shall automatically terminate and the Note and all other Obligations
shall automatically become immediately due and payable; or (b) any other Event
of Default shall occur and be continuing, then the Bank may (i) declare the
Commitment terminated, whereupon the Commitment shall terminate and (ii) declare
the outstanding unpaid principal balance of the Note, the accrued and unpaid
interest thereon and all other Obligations to be forthwith due and payable,
whereupon the Note, all accrued and unpaid interest thereon and all such
Obligations shall immediately become due and payable, in each case without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything in this Agreement or in the Note to the
contrary notwithstanding. Upon the occurrence of any of the events described in
clauses (a) or (b) of the preceding sentence the Bank may exercise all rights
and remedies under any of the Loan Documents, and enforce all rights and
remedies under any applicable law.
Section 7.3 Offset. In addition to the remedies set forth in
Section 7.2, upon the occurrence of any Event of Default and thereafter while
the same be continuing, the Borrower hereby irrevocably authorizes the Bank to
set off any Obligations against all deposits and credits of the Borrower with,
and any and all claims of the Borrower or any Subsidiary against, the Bank. Such
right shall exist whether or not the Bank shall have made any demand hereunder
or under any other Loan Document, whether or not the Obligations, or any part
thereof, or deposits and credits held for the account of the Borrower or any
Subsidiary is or are matured or unmatured, and regardless of the existence or
adequacy of any collateral, guaranty or any other security, right or remedy
available to the Bank. The Bank agrees that, as promptly as is reasonably
possible after the exercise of any such setoff right, it shall notify the
Borrower of its exercise of such setoff right; provided, however, that the
failure of the Bank to provide such notice shall not affect the
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validity of the exercise of such setoff rights. Nothing in this Agreement shall
be deemed a waiver or prohibition of or restriction on the Bank to all rights of
banker's Lien, setoff and counterclaim available pursuant to law.
ARTICLE VIII
------------
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to
the contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Bank, and then such amendment, modification, waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
Section 8.2 Expenses; Amendment or Waiver Fee. Whether or not
the transactions contemplated hereby are consummated, the Borrower agrees to
reimburse the Bank upon demand for all reasonable out-of-pocket expenses paid or
incurred by the Bank (including filing and recording costs and fees and expenses
of Dorsey & Whitney LLP, counsel to the Bank) in connection with the
negotiation, preparation, approval, review, execution, delivery, administration,
amendment, modification and interpretation of this Agreement and the other Loan
Documents and any commitment letters relating thereto. The Borrower shall also
reimburse the Bank upon demand for all reasonable out-of-pocket expenses
(including expenses of legal counsel) paid or incurred by the Bank in connection
with the collection and enforcement of this Agreement and any other Loan
Document. The obligations of the Borrower under this Section shall survive any
termination of this Agreement. In addition, the Company shall pay a fee of
$1,500.00 to the Bank on the effective date of any amendment to, modification of
or waiver of any provision of this Agreement if the Bank determines, in its sole
discretion, that its policies or practices required the Bank to obtain the
approval of any credit committee or similar approval authority for the execution
of such amendment, modification or waiver.
Section 8.3 Waivers, etc. No failure on the part of the Bank
or the holder of a Note to exercise and no delay in exercising any power or
right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any power or right preclude
any other or further exercise thereof or the exercise of any other power or
right. The remedies herein and in the other Loan Documents provided are
cumulative and not exclusive of any remedies provided by law.
Section 8.4 Notices. Except when telephonic notice is
expressly authorized by this Agreement, any notice or other communication to any
party in connection with this Agreement shall be in writing and shall be sent by
manual
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delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Bank under Article II hereof shall be deemed to have been
given only when received by the Bank.
Section 8.5 Taxes. The Borrower agrees to pay, and save the
Bank harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Agreement or the
issuance of the Note, which obligation of the Borrower shall survive the
termination of this Agreement.
Section 8.6 Successors and Assigns; Disposition of Loans;
Transferees. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
Borrower may not assign its rights or delegate its obligations hereunder or
under any other Borrower Loan Document without the prior written consent of the
Bank. The Bank may at any time sell, assign, transfer, grant participations in,
or otherwise dispose of any portion of the Commitment, the Loans and/or Advances
(each such interest so disposed of being herein called a "Transferred Interest")
to banks or other financial institutions ("Transferees"). The Borrower agrees
that each Transferee shall be entitled to the benefits of Sections 2.21, 2.22,
2.23, 2.24, 8.2 and 8.12 with respect to its Transferred Interest and that each
Transferee may exercise any and all rights of banker's Lien, setoff and
counterclaim as if such Transferee were a direct lender to the Borrower. If the
Bank makes any assignment to a Transferee, then upon notice to the Borrower such
Transferee, to the extent of such assignment (unless otherwise provided
therein), shall become a "Bank" hereunder and shall have all the rights and
obligations of the Bank hereunder and the Bank shall be released from its duties
and obligations under this Agreement to the extent of such assignment.
Notwithstanding the sale by the Bank of any participation hereunder, (a) no
participant shall be deemed to be or have the rights and obligations of the Bank
hereunder except that any participant shall have a right of setoff under Section
7.3 as if it were the Bank and the amount of its participation were owing
directly to such participant by the Borrower and (b) the Bank shall not in
connection with selling any such participation condition the Bank's rights in
connection with consenting to amendments or granting waivers concerning any
matter under any Loan Document upon obtaining the consent of such participant
other than on matters relating to (i) any reduction in the amount of any
principal of, or the amount of or rate of interest on, the Note or Advance in
which such participation is sold, (ii) any postponement of the date fixed for
any payment of principal of or interest on the Note or Advance in which such
participation is sold, (iii) the release or subordination of any material
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portion of any collateral other than pursuant to the terms of any Security
Document or (iv) the release of any Guaranty.
Section 8.7 Confidentiality of Information. The Bank shall use
reasonable efforts to assure that information about the Borrower and its
operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Bank pursuant
to the provisions hereof is used only for the purposes of this Agreement and any
other relationship between the Bank and the Borrower and shall not be divulged
to any Person other than the Bank, its Affiliates and their respective officers,
directors, employees and agents, except: (a) to their attorneys and accountants,
(b) in connection with the enforcement of the rights of the Bank hereunder and
under the Note, the Guaranties and the Security Documents or otherwise in
connection with applicable litigation, (c) in connection with assignments and
participations and the solicitation of prospective assignees and participants
referred to in the immediately preceding Section, and (d) as may otherwise be
required or requested by any regulatory authority having jurisdiction over the
Bank or by any applicable law, rule, regulation or judicial process, the opinion
of the Bank's counsel concerning the making of such disclosure to be binding on
the parties hereto. The Bank shall not incur any liability to the Borrower by
reason of any disclosure permitted by this Section 8.7.
Section 8.8 Governing Law and Construction. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of
this Agreement and the other Loan Documents and any other statement, instrument
or transaction contemplated hereby or thereby or relating hereto or thereto
shall be interpreted in such manner as to be effective and valid under such
applicable law, but, if any provision of this Agreement, the other Loan
Documents or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be held to be prohibited or
invalid under such applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement, the other Loan
Documents or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto.
Section 8.9 Consent to Jurisdiction. AT THE OPTION OF THE
BANK, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL
COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE
BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY
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ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 8.10 Waiver of Jury Trial. EACH OF THE BORROWER AND
THE BANK IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 8.11 Survival of Agreement. All representations,
warranties, covenants and agreement made by the Borrower herein or in the other
Loan Documents and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be deemed to have been relied upon by the Bank and shall survive
the making of the Loans by the Bank and the execution and delivery to the Bank
by the Borrower of the Note, regardless of any investigation made by or on
behalf of the Bank, and shall continue in full force and effect as long as any
Obligation is outstanding and unpaid and so long as the Commitment have not been
terminated; provided, however, that the obligations of the Borrower under
Sections 8.2, 8.5 and 8.12 shall survive payment in full of the Obligations and
the termination of the Commitment.
Section 8.12 Indemnification. The Borrower hereby agrees to
defend, protect, indemnify and hold harmless the Bank and its Affiliates and the
directors, officers, employees, attorneys and agents of the Bank and its
Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise:
(a) by reason of, relating to or in connection with
the execution, delivery, performance or enforcement of any
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Loan Document, any commitments relating thereto, or any transaction
contemplated by any Loan Document; or
(b) by reason of, relating to or in connection with
any credit extended or used under the Loan Documents or any act done or
omitted by any Person, or the exercise of any rights or remedies
thereunder, including the acquisition of any collateral by the Bank by
way of foreclosure of the Lien thereon, deed or bill of sale in lieu of
such foreclosure or otherwise;
provided, however, that the Borrower shall not be liable to any Indemnitee for
any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee's gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.
This indemnification applies, without limitation, to any act,
omission, event or circumstance existing or occurring on or prior to the later
of the Termination Date or the date of payment in full of the Obligations,
including specifically Obligations arising under clause (b) of this Section. The
indemnification provisions set forth above shall be in addition to any liability
the Borrower may otherwise have. Without prejudice to the survival of any other
obligation of the Borrower hereunder the indemnities and obligations of the
Borrower contained in this Section shall survive the payment in full of the
other Obligations.
Section 8.13 Captions. The captions or headings herein and any
table of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
Section 8.14 Entire Agreement. This Agreement and the other
Loan Documents embody the entire agreement and understanding between the
Borrower and the Bank with respect to the subject matter hereof and thereof.
This Agreement supersedes all prior agreements and understandings relating to
the subject matter hereof. Nothing contained in this Agreement or in any other
Loan Document, expressed or implied, is intended to confer upon any Persons
other than the parties hereto any rights, remedies, obligations or liabilities
hereunder or thereunder.
Section 8.15 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 8.16 Borrower Acknowledgements. The Borrower hereby
acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents, (b) the
Bank has no fiduciary relationship to the Borrower, the relationship being
solely that of debtor
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and creditor, (c) no joint venture exists between the Borrower and the Bank, and
(d) the Bank undertakes no responsibility to the Borrower to review or inform
the Borrower of any matter in connection with any phase of the business or
operations of the Borrower and the Borrower shall rely entirely upon its own
judgment with respect to its business, and any review, inspection or supervision
of, or information supplied to, the Borrower by the Bank is for the protection
of the Bank and neither the Borrower nor any third party is entitled to rely
thereon.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
PILGRIM AMERICA GROUP, INC.
By Signature Illegible
Title Vice Chairman
Address for Borrower:
Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ 85004-4424
Attention: James R. Reis
Telecopier: (602) 661-3572
FIRST BANK NATIONAL ASSOCIATION
By Signature Illegible
Title Vice President
Address:
First Bank Place - MPFP0702
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Jose A. Peris
Telecopier: (612) 973-0825
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
S-1
REAFFIRMATION OF SECURITY AGREEMENT
The undersigned, Pilgrim America Group, Inc. (the "Borrower")
hereby reaffirms that (i) the Security Agreement by and between the Borrower and
First Bank National Association (the "Bank") dated as of April 28, 1995, as the
same may have been amended from time to time (the "Security Agreement"), remains
in full force and effect, and (ii) the security interests granted pursuant to
the Security Agreement secure, among other things, the Borrower's obligations
and duties under that certain Amended and Restated Credit Agreement by and
between the Borrower and the Bank dated of even date herewith.
Date: July 31, 1996.
PILGRIM AMERICA GROUP, INC.
By Signature Illegible
----------------------
Its Vice Chairman
-----------------
EXHIBIT F TO
CREDIT AGREEMENT
REAFFIRMATION OF SECURITY AGREEMENT
Reference is made to that certain Security Agreement (the
"Security Agreement") dated as of April 28, 1995, made and given by the
undersigned to secure the Obligations (as defined in the Security Agreement) of
Pilgrim America Group, Inc. (the "Borrower") to First Bank National Association
(the "Bank").
The undersigned hereby (a) consents to the terms of that
certain Amended and Restated Credit Agreement dated as of July 31, 1996 by and
between the Borrower and the Bank (the "Credit Agreement") and to the execution
and delivery of the Credit Agreement by the Borrower; (b) acknowledges that the
obligations of the Borrower to the Bank under the Credit Agreement constitute
"Obligations" of the Borrower to the Bank within the meaning of the
above-referenced Security Agreement; and (c) reaffirms that the security
interests granted pursuant to the Security Agreement secure, among other things,
the Borrower's obligations and duties under the Credit Agreement and the
obligations of the undersigned under the Security Agreement. The undersigned
further reaffirms that all of the terms, covenants and conditions of the
Security Agreement remain in full force and effect.
Date: July 31, 1996.
PILGRIM AMERICA INVESTMENTS, INC.
By Signature Illegible
----------------------
Its Vice Chairman
-----------------
REAFFIRMATION OF SECURITY AGREEMENT
Reference is made to that certain Security Agreement (the
"Security Agreement") dated as of April 28, 1995, made and given by the
undersigned to secure the Obligations (as defined in the Security Agreement) of
Pilgrim America Group, Inc. (the "Borrower") to First Bank National Association
(the "Bank").
The undersigned hereby (a) consents to the terms of that
certain Amended and Restated Credit Agreement dated as of July 31, 1996 by and
between the Borrower and the Bank (the "Credit Agreement") and to the execution
and delivery of the Credit Agreement by the Borrower; (b) acknowledges that the
obligations of the Borrower to the Bank under the Credit Agreement constitute
"Obligations" of the Borrower to the Bank within the meaning of the
above-referenced Security Agreement; and (c) reaffirms that the security
interests granted pursuant to the Security Agreement secure, among other things,
the Borrower's obligations and duties under the Credit Agreement and the
obligations of the undersigned under the Security Agreement. The undersigned
further reaffirms that all of the terms, covenants and conditions of the
Security Agreement remain in full force and effect.
Date: July 31, 1996.
PILGRIM AMERICA SECURITIES, INC.
By Signature Illegible
----------------------
Its Vice Chairman
-----------------
REAFFIRMATION OF GUARANTY AND PLEDGE AGREEMENT
Reference is made to that certain Guaranty (the "Guaranty")
and that certain Pledge Agreement (the "Pledge"), both dated as of April 28,
1995, made and given by the undersigned to secure the Obligations (as defined in
the Guaranty) of Pilgrim America Group, Inc. (the "Borrower") to First Bank
National Association (the "Bank").
The undersigned hereby (a) consents to the terms of that
certain Amended and Restated Credit Agreement dated as of July 31, 1996 by and
between the Borrower and the Bank (the "Credit Agreement") and to the execution
and delivery of the Credit Agreement by the Borrower; (b) acknowledges that the
obligations of the Borrower to the Bank under the Credit Agreement constitute
"Obligations" of the Borrower to the Bank within the meaning of the
above-referenced Guaranty; and (c) reaffirms that the security interests granted
pursuant to the Pledge Agreement secure, among other things, the Borrower's
obligations and duties under the Credit Agreement and the obligations of the
undersigned under the Guaranty. The undersigned further reaffirms that such
Obligations are guaranteed by the undersigned in accordance with the terms and
conditions of the Guaranty, and that all of the terms, covenants and conditions
of the Guaranty and the Pledge remain in full force and effect.
Date: July 31, 1996
EXPRESS AMERICA HOLDINGS
CORPORATION
By Signature Illegible
Its Vice Chairman
REAFFIRMATION OF GUARANTY
Reference is made to that certain Guaranty (the "Guaranty")
dated as of April 28, 1995, made and given by the undersigned to secure the
Obligations (as defined in the Guaranty) of Pilgrim America Group, Inc. (the
"Borrower") to First Bank National Association (the "Bank").
The undersigned hereby (a) consents to the terms of that
certain Amended and Restated Credit Agreement dated as of July 31, 1996 by and
between the Borrower and the Bank (the "Credit Agreement") and to the execution
and delivery of the Credit Agreement by the Borrower; and (b) acknowledges that
the obligations of the Borrower to the Bank under the Credit Agreement
constitute "Obligations" of the Borrower to the Bank within the meaning of the
above-referenced Guaranty. The undersigned further reaffirms that such
Obligations are guaranteed by the undersigned in accordance with the terms and
conditions of the Guaranty, and that all of the terms, covenants and conditions
of the Guaranty remain in full force and effect.
Date: July 31, 1996
PILGRIM AMERICA INVESTMENTS, INC.
By Signature Illegible
----------------------
Its Vice Chairman
-----------------
REAFFIRMATION OF PLEDGE AGREEMENT
The undersigned, Pilgrim America Group, Inc. (the "Borrower")
hereby reaffirms that (i) the Pledge Agreement by and between the Borrower and
First Bank National Association (the "Bank") dated as of April 28, 1995, as the
same may have been amended from time to time (the "Pledge Agreement"), remains
in full force and effect, and (ii) the security interests granted pursuant to
the Pledge Agreement secure, among other things, the Borrower's obligations and
duties under that certain Amended and Restated Credit Agreement by and between
the Borrower and the Bank dated of even date herewith.
Date: July 31, 1996
PILGRIM AMERICA GROUP, INC.
By Signature Illegible
----------------------
Its Vice Chairman
-----------------
FIRST BANK NATIONAL ASSOCIATION
WAREHOUSING CREDIT FACILITY
FOR
EXPRESS AMERICA MORTGAGE CORPORATION
DATED AS OF JANUARY 25, 1996
<PAGE>
WAREHOUSING CREDIT AGREEMENT
THIS AGREEMENT, dated as of January 25, 1996, by and between
EXPRESS AMERICA MORTGAGE CORPORATION (the "Company"), a Delaware corporation,
and FIRST BANK NATIONAL ASSOCIATION (the "Bank"), a national banking
association.
The parties hereto agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING TERMS.
1.01 Definitions. As used herein, the following terms shall have
the following respective meanings (such meanings to be equally applicable to
both the singular and plural form of the terms defined):
"Advance": a cash advance to or for the account of the Company
under the Commitment.
"Aggregate Outstandings": as of a date of determination thereof,
the unpaid principal balance of the Note as of such date.
"Affiliate": when used with reference to any Person, (a) each
Person that, directly or indirectly, controls, is controlled by or is under
common control with, the Person referred to, (b) each Person which beneficially
owns or holds, directly or indirectly, ten percent or more of any class of
voting stock of the Person referred to (or if the Person referred to is not a
corporation, ten percent or more of the equity interest), (c) each Person, ten
percent of more of the voting stock (or if such Person is not a corporation, ten
percent or more of the equity interest) of which is beneficially owned or held,
directly or indirectly, by the Person referred to, and (d) each of such Person's
officers, directors, joint venturers and general partners. The term control
(including the terms "controlled by" and "under common control with") means the
possession, directly, of the power to direct or cause the direction of the
management and policies of the Person in question.
"Agreement": this Credit Agreement, as amended, supplemented,
restated or otherwise modified and in effect from time to time in writing by the
Company and the Bank.
"Applicable Margin": with respect to:
(a) Reference Rate Borrowings, 1% per annum; and
(b) Floating Eurodollar Rate Borrowings, 2.5% per annum.
"Average Daily Note Balance": with respect to any Interest Period,
the average daily unpaid principal balance of the Note during such Interest
Period.
<PAGE>
"Average Daily Qualifying Balances": with respect to an Interest
Period, the average daily amount of Qualifying Balances on deposit with the Bank
during such Interest Period.
"Average Daily Reserve Factor": with respect to any Interest
Period, the average daily amount of the Reserve Factor in effect during such
Interest Period.
"Balances Deficiency": as such term is defined in Section
2.03(a)(i).
"Borrowing": a Fixed Rate Borrowing, a Floating Eurodollar Rate
Borrowing or a Reference Rate Borrowing.
"Borrowing Base": as of a date of determination, an amount equal
to 100% of the Collateral Value of the Collateral as determined by the Bank from
its records.
"Borrowing Base Certificate": the certificate in the form of
Exhibit 1.01-A hereto.
"Borrowing Date": the Business Day on which the Bank makes a
Borrowing.
"Business Day": a day on which the Bank is open for the
transaction of business in its main office in Minneapolis, Minnesota.
"Capitalized Lease Obligations": all lease obligations which have
been or are required to be, in accordance with GAAP, capitalized on the balance
sheet of the lessee.
"Closing Agent": as such term is defined in the Pledge and
Security Agreement.
"Code": the Internal Revenue Code of 1986, together with all
amendments from time to time thereto.
"Collateral": as such term is defined in the Pledge and Security
Agreement.
"Collateral Account": account number 1731-0096-9620 maintained
with the Bank, which shall be under the sole dominion and control of the Bank
and with respect to which the Company shall have no withdrawal or order rights.
"Collateral Documents": the Pledge and Security Agreement and all
agreements, instruments, documents and other papers creating, evidencing or
representing the Collateral and/or Security Interests therein.
-2-
<PAGE>
"Collateral Value": with respect to Collateral, as determined in
accordance with the formula contained in Exhibit 1.01-B hereto.
"Commitment": as such term is defined in Section 2.01.
"Commitment Amount": at the time of any determination, the lesser
of (a) $2,500,000 and (b) the amount to which the amount of the Commitment shall
have been reduced pursuant to Section 4.05(b).
"Commitment Termination Date": the earliest of (a) December 31,
1996, (b) the date on which the Commitment terminates or the Commitment Amount
is reduced to zero pursuant to Section 4.05 hereof, and (c) the date on which
the Commitment terminates or is terminated pursuant to Section 12.02.
"Compliance Certificate": a certificate in the form of Exhibit
1.01-C hereto.
"Confirmation of Borrowing/Paydown/Conversion": a Confirmation of
Borrowing/Paydown/Conversion in the form of Exhibit 1.01-D hereto.
"Deficiency Fee": as such term is defined in Section 2.03.
"Effective Date": the date on or after the Signing Date on which
all of the conditions set forth in Section 11 shall have been met or waived in
writing by the Bank.
"Effective Period": the period from the Effective Date to the
Commitment Termination Date.
"ERISA": the Employee Retirement Income Security Act of 1974,
together with all amendments from time to time thereto.
"Eurodollar Reserve Percentage": as of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System, with deposits comparable in amount to those held by the Bank, in
respect of "Eurocurrency Liabilities" as such term is defined in Regulation D.
The rate of interest applicable to any outstanding Floating Eurodollar Rate
Borrowings shall be adjusted automatically on and as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Event of Default": as such term is defined in Section 12.01.
"FHA": the Federal Housing Administration and any successor
thereto.
-3-
<PAGE>
"FHLMC": the Federal Home Loan Mortgage Corporation and any
successor thereto.
"Firm Take-Out Commitment": a current, written commitment issued
to the Company by an Investor to purchase within a specified period of time
Mortgage Loans under which commitment the Company is obligated to sell said
Mortgage Loans.
"Fixed Rate": as such term is defined in Section 2.03(a)(i).
"Fixed Rate Borrowing": a portion of the outstanding principal
balance of the Note that bears interest as provided in Section 2.03(a)(i).
"Floating Eurodollar Rate Borrowing": a portion of the outstanding
principal balance of the Note with respect to which the interest rate is
determined by reference to the Floating Reserve-Adjusted Eurodollar Rate.
"Floating Reserve-Adjusted Eurodollar Rate": on any date of
determination, the rate (rounded upward, if necessary, to the next higher one
hundredth of one percent) determined by dividing the Floating Eurodollar Rate
for such date by 1.00 minus the Eurodollar Reserve Percentage. For purposes
hereof, "Floating Eurodollar Rate" shall mean, for any day, a rate per annum
equal to the 1-month Eurodollar rate (LIBOR) for United States dollars displayed
on the Telerate Systems, Inc. screen, page 3750 (or other applicable page).
"FNMA": the Federal National Mortgage Association and any
successor thereto.
"GAAP": generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"GNMA": the Government National Mortgage Association and any
successor thereto.
"Guarantee": any obligation, contingent or otherwise, of any
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise, (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities, or
-4-
<PAGE>
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness, (c) to maintain working capital, equity capital,
or other financial statement condition of the primary obligor so as to enable
the primary obligor to pay such Indebtedness or otherwise to protect the owner
thereof against loss in respect thereof, or (d) entered into for the purpose of
assuring in any manner the owner of such Indebtedness of the payment of such
Indebtedness or to protect such owner against loss in respect thereof; provided,
that the term "Guarantee" shall not include endorsements for collection or
deposit, in each case in the ordinary course of business.
"Guarantor": Express America Holdings Corporation, a Delaware
corporation.
"Guaranty": the Guaranty of even date herewith from the Guarantor
in favor of the Bank, as the same may be amended, supplemented, restated or
otherwise modified from time to time in writing by the Guarantor and the Bank.
"HUD": the Department of Housing and Urban Development or any
successor thereto.
"Immediately Available Funds": funds with good value on the day
and in the city in which payment is received.
"Indebtedness": with respect to any Person at any time, without
duplication, all obligations of such Person which, in accordance with GAAP,
consistently applied, should be classified as liabilities on a balance sheet of
such Person, but in any event shall include, without limitation: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, (f) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Capitalized Lease Obligations of such
Person, (h) all obligations of any partnership or joint venture as to which such
Person is or may become personally liable, (i) all Guarantees by such Person of
Indebtedness of others, and (j) all liabilities or Indebtedness of others
assumed by such Person or in respect of which such Person is secondarily or
contingently liable (other than by endorsement of instruments in the course of
collection) whether by reason of any agreement to acquire such Indebtedness or
to supply or advance sums or otherwise.
"Interest Payment Date": the first Business Day of each month.
-5-
<PAGE>
"Interest Period": the period beginning on (and including) the
first day of each calendar month and ending on (and including) the last day of
such calendar month.
"Investment": as applied to any Person, any direct or indirect
purchase or other acquisition by that Person of, or a beneficial interest in,
stock, bonds, notes or other securities of any other Person, or any direct or
indirect loan, advance (other than advances to employees for moving and travel
expenses, drawing accounts and similar expenditures in the ordinary course of
business) or capital contribution by that Person to any other Person, including
all Indebtedness and accounts receivable from that other Person which are not
current assets or did not arise from sales to that other Person in the ordinary
course of business. The amount of any Investment shall be the original cost of
such Investment plus the cost of all additions thereto, without any adjustments
for increases or decreases in value, or write-ups, write-downs or write-offs
with respect to such Investment.
"Investor": FNMA, FHLMC, a bank, trust company, savings and loan
association, pension fund, governmental authority, insurance company or other
responsible and substantial institutional investor, dealer or securities broker
(other than FNMA or FHLMC) listed by the Company and approved by the Bank.
"Leverage Ratio": at the time of any determination thereof, the
ratio of (a) the Company's Total Liabilities to (b) the Company's Net Worth.
"Lien": any security interest, mortgage, pledge, lien, charge,
encumbrance, title retention agreement or analogous instrument, in, of, or on
any of the assets or properties, now owned or hereafter acquired, of the
Company, whether arising by agreement or operation of law.
"Material Adverse Effect": shall mean, with respect to any
circumstance, condition or event, that such circumstance, condition or event (a)
has, or may be reasonably expected to have, an adverse effect upon the validity
or enforceability of this Agreement or any other Transaction Document, (b)
adversely affects the present or reasonably foreseeable prospective financial
condition or operations of the Company or any Subsidiary in any material respect
or (c) materially impairs, or may be reasonably expected to materially impair,
the ability of the Company to pay its obligations under this Agreement, the Note
or any other Transaction Document.
"Mortgage": a mortgage or deed of trust on real property which has
been improved by a completed single family (i.e., one to four family units)
which secures a Mortgage Loan.
"Mortgage Loan": any loan or advance evidenced by a Mortgage Note
and secured by a Mortgage and which has a term not exceeding 30 years.
-6-
<PAGE>
"Mortgage Note": a promissory note evidencing a Mortgage Loan and
which is secured by a Mortgage.
"Mortgage-backed Security": a security (including, without
limitation, a participation certificate) that is an interest in a pool of
Mortgage Notes or is secured by such an interest and is guaranteed by GNMA or is
issued or guaranteed by FNMA or FHLMC.
"NationsBanc": NationsBanc Mortgage Corporation, its successors
and assigns.
"NationsBanc Agreement": the Asset Purchase Agreement dated as of
August 27, 1994 between the Company and NationsBanc, as the same may have been
and may hereafter be amended, supplemented, restated or otherwise modified and
in effect from time to time.
"NationsBanc Documents": the NationsBanc Agreement, NationsBanc
Note and all other agreements, instruments, certificates and other documents
executed and delivered pursuant to or in connection therewith, as the same may
have been and may hereafter be amended supplemented, restated or otherwise
modified and in effect from time to time.
"NationsBanc Note": the Non-Negotiable Promissory Note dated
September 30, 1994 in the original principal amount of $4,205,097 made by
NationsBanc and payable to the Company.
"Net Worth": as of a date of determination, the sum of the capital
stock, paid in surplus and earned surplus (or deficit) of the Company (excluding
stock of the Company held by the Company).
"Note": as such term is defined in Section 2.02.
"Obligations": as such term is defined in Section 8.
"Person": any natural person, corporation, partnership, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Plan": each employee benefit plan (whether now in existence or
hereafter instituted), as such term is defined in Section 3 of ERISA, maintained
for the benefit of employees, officers or directors of the Company.
"Pledge and Security Agreement": the Pledge and Security Agreement
of even date herewith between the Company and the Bank, as the same may be
-7-
<PAGE>
amended, supplemented, restated or otherwise modified from time to time in
writing by the Company and the Bank.
"Qualifying Balances": at the time of any determination,
interest-free collected deposit balances (in addition to those which the Bank
determines to be necessary to support FDIC insurance assessments and other
banking services provided to the Company and in addition to those deposited
pursuant to Section 5(b)) deposited by the Company with the Bank.
"Reference Rate": at the time of any determination thereof, the
rate per annum which is most recently publicly announced by the Bank as its
"reference rate," which may be a rate at, above or below which the Bank lends to
other Persons.
"Reference Rate Borrowing": a portion of the outstanding principal
balance of the Note that bears interest at a rate based upon the Reference Rate.
"Regulatory Change": any change after the Effective Date in United
States federal, state or foreign laws or regulations or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including the Bank under any United States federal, state or
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Required Balances Amount": as such term is defined in Section
2.03(a)(i).
"Reserve Factor": as of a date of determination, a number equal to
one (1) minus the percentage (expressed as a decimal rather than a percentage)
stipulated by Federal Reserve Board Regulation D (12 CFR Section 204), as such
regulation may be amended from time to time, or by any regulation promulgated to
replace said Regulation D, as the highest marginal percentage of net demand
deposits required to be maintained on reserve by the Bank on the date of
determination.
"Security Interest": each Lien, security interest, pledge,
hypothecation and other encumbrance now and hereafter granted by the Company in
favor of the Bank in the Collateral.
"Servicing Portfolio": at the time of any determination, the
aggregate unpaid principal balance of all Mortgage Notes (including Mortgage
Notes subject to Mortgage-backed Securities) as to which the Company owns the
contractual right to service for the owner of such Mortgage Notes, excluding,
however, those Mortgage Notes serviced by the Company but for which the Company
does not own the servicing rights.
"Signing Date": the day on which counterparts of this Agreement,
signed by the Company and the Bank, shall have been delivered to the Bank.
-8-
<PAGE>
"Standby Take-Out Commitment": a current, written commitment
issued to the Company by an Investor to purchase within a specified time period
Mortgage Loans under which commitment the Company has the right, but is not
obligated, to sell said Mortgage Loans.
"Subordinated Indebtedness": Indebtedness of the Company which is
subordinated to Indebtedness of the Company to the Bank in a manner and to an
extent which the Bank has approved in writing prior to the creation of such
Indebtedness.
"Subsidiary": any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at the
time owned directly or indirectly by the Company.
"Take-Out Commitment": a Firm Take-Out Commitment or a Standby
Take-Out Commitment, as the case may be.
"Transaction Documents": this Agreement, the Collateral Documents,
the Guaranty and the Note.
"Total Liabilities": at the time of any determination, the total
liabilities of the Company as determined in accordance with GAAP.
"Unmatured Event of Default": any event which with the lapse of
time or with notice to the Company and lapse of time would constitute an Event
of Default.
"VA": The Veterans Administration and any successor thereto.
1.02 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP on
a basis consistent with the audited financial statements referred to in Section
9.03.
1.03 Other Definitional Provisions. In this Agreement, words
importing any gender include the other genders; references to "writing" include
printing, typing, lithography and other means of reproducing words in a visible
form; references to agreements and other contractual instruments shall be deemed
to include all subsequent amendments thereto or changes therein entered into in
accordance with their respective terms; and references to Persons include their
permitted successors and assigns.
-9-
<PAGE>
Section 2. THE CREDIT.
2.01 Commitment. Upon the terms and subject to the conditions
hereinafter set forth, during the Effective Period the Bank, from time to time
at the request of the Company, will lend (and upon prepayment, relend) to the
Company amounts requested by the Company up to but not exceeding at any time
outstanding the Commitment Amount (the "Commitment"); provided, that the Bank
shall not be obligated to make any Advance in an amount which would cause
Aggregate Outstandings to exceed either the Commitment Amount or the Borrowing
Base.
2.02 Note Evidencing Advances. Advances shall be evidenced by the
promissory note of the Company (the "Note") substantially in the form of Exhibit
2.02 hereto. The Note shall mature on the Commitment Termination Date. The
aggregate amount of the Advances made under the Note less repayments of
principal thereof shall be the principal amount owing and unpaid on the Note.
The principal amount of each Advance and all principal payments and prepayments
thereof may be noted by the Bank on the schedule attached to the Note and shall
be entered by the Bank on its ledgers and computer records. The entries made by
the Bank on its ledgers and computer records and any notations made by the Bank
on the schedule annexed to the Note shall be presumed to be accurate until the
contrary is established.
2.03 Interest on the Note; Balances Deficiency Fees; Borrowing
Designations.
(a) Interest Rates; Balances Deficiency Fees. The Company will pay
the Bank interest on the unpaid principal balance of each Advance from time to
time outstanding as follows:
(i) With respect to Fixed Rate Borrowings, at the per annum
rate of 2.50% (the "Fixed Rate"); provided, however, that to
induce the Bank to offer the Fixed Rate, the Company agrees to
maintain on deposit with the Bank for each Interest Period for
which the Fixed Rate is in effect Average Daily Qualifying
Balances in an amount (for any such Interest Period, the "Required
Balances Amount") equal to the Average Daily Note Balance for such
Interest Period divided by the Average Daily Reserve Factor for
such Interest Period. The Bank will determine for each Interest
Period the amount of Average Daily Qualifying Balances on deposit
with the Bank for such Interest Period and the amount, if any, by
which said Average Daily Qualifying Balances exceeds (any such
excess being referred to as a " Balances Surplus") or is less than
(any such deficiency being referred to as a "Balances Deficiency")
the Required Balances Amount for such Interest Period. Any
Balances Surplus or Balances Deficiency for any Interest Period
will be carried forward and applied to increase or reduce, as the
case may be, Balances Surpluses or Balances Deficiencies
determined for subsequent Interest Periods beginning in the same
calendar year. If, as of
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<PAGE>
the last day of the last Interest Period beginning in a calendar
year, a net Balances Surplus exists, such net Balances Surplus
shall be disregarded and shall not be carried forward to
succeeding Interest Periods. If, however, a net Balances
Deficiency exists as of the last day of said last Interest Period,
the Company shall pay to the Bank upon demand a fee ("Deficiency
Fee") in accordance with the following formula:
DF = BD x ADRR) x 31/360
where: "DF" is the Deficiency Fee;
"BD" is said net Balances Deficiency; and
"ADRR" is the average daily Reference Rate determined for
the last Interest Period in such calendar year.
(ii) with respect to Reference Rate Borrowings, the
Reference Rate plus the Applicable Margin, as adjusted
automatically on and as of the effective date of any change in the
Reference Rate; and
(iii) with respect to Floating Eurodollar Rate Borrowings,
the Floating Reserve-Adjusted Eurodollar Rate plus the Applicable
Margin, as adjusted automatically on and as of the date of any
change in the Floating Reserve-Adjusted Eurodollar Rate;
provided, however, that upon the occurrence and during the continuance of
an Event of Default, the outstanding principal balance of the Note shall
bear interest at a rate or rates equal to the rate or rates that would
otherwise be applicable under clauses (i), (ii) and/or (iii) of this
Section 2.03(a), as the case may be, plus, in each case, 2% per annum.
(b) Payment of Interest and Balances Deficiency Fees.
Interest accrued on the Note through the last day of each calendar month
shall be payable on the first Business Day of the next succeeding
calendar month and on the Commitment Termination Date. Any Balances
Deficiency Fee payable hereunder shall be payable monthly after the end
of each calendar month within two Business Days after receipt by the
Company from the Bank of a statement therefor containing the calculations
made to determine such Balances Deficiency Fee, which statement shall be
conclusive absent manifest error.
(c) Borrowing Designations by Company. As provided in
Section 2.01(b) and 2.02(b), respectively, the Company shall designate,
with respect to each Advance to be funded by the Bank, the portion or
portions thereof to be made initially as a Fixed Rate Borrowing, as a
Reference Rate Borrowing
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and/or as a Floating Eurodollar Rate Borrowing. The Company shall have
the further right to designate from time to time that all or any portion
of any outstanding Borrowing be converted into Borrowing of the same or
another type (i.e., Floating Eurodollar Rate Borrowings, Fixed Rate
Borrowings or Reference Rate Borrowings, as the case may be). Borrowing
designations by the Company under this Section 2.03(c) shall be subject
to the following additional conditions:
(i) Each such Borrowing designation shall be made by the
Company to the Bank by telephone by not later than 12:00 noon
(Minneapolis time) on the day on which the Borrowing is to become
effective, and the Company shall promptly confirm such designation
by delivering to the Bank a duly executed and completed
Confirmation of Borrowing/Paydown/Conversion.
(ii) Any portion of the outstanding principal balance of
the Note for which no other type of Borrowing has been designated
and is in effect shall be a Reference Rate Borrowing.
(iii) Each Fixed Rate Borrowing designated by the Company
shall be effective only with respect to a specified Interest
Period (or the remaining portion of such Interest Period, if such
designation is to become effective after the first day of such
Interest Period).
(iv) The Bank shall be not be required to make any Fixed
Rate Borrowing, or to convert any Borrowing to a Fixed Rate
Borrowing, if, after giving effect thereto, the Average Daily
Qualifying Balances maintained by the Company at the Bank would
be, in the reasonable opinion of the Bank, substantially less than
the aggregate amount of Fixed Rate Borrowings owed to the Bank.
(v) The amount of any Borrowing which may be made as or
converted to a Floating Eurodollar Rate Borrowing by the Bank
shall not be less than such minimum amount, if any, as the Bank
may establish from time to time in its sole discretion.
Section 3. METHOD OF BORROWING; CERTAIN REPRESENTATIONS.
3.01 Method of Borrowing. The Company shall give the Bank
telephonic notice of each request for an Advance not later than 12:00 noon
(Minneapolis time) on the Borrowing Date on which such Advance is to be made.
Such telephonic notice shall be irrevocable and shall specify the amount of the
requested Advance, the Borrowing Date therefor, which shall be a Business Day,
and the name and address of, and payment instructions for, the Closing Agent to
which payment of such Advance should be made for the account of the Company. The
Company shall
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promptly send to the Bank a Confirmation of Borrowing/Paydown/Conversion
confirming any such telephonic notice requesting an Advance. Provided that all
applicable conditions set forth in Sections 2 and 11 and this Section 3 have
been met, the Bank shall fund such Advance by making payment to such Closing
Agent, for the account of the Company, in accordance with the notice received by
the Bank from the Company.
3.02 Certain Representations. Each such request for an Advance
shall be deemed to be the representation of the Company and of the officer
making the request that (a) no Event of Default has occurred and no Unmatured
Event of Default has occurred or will exist upon the making of the requested
Advance, and (b) the representations and warranties contained in Section 9 are
true and correct with the same force and effect as if made on the date of such
request.
Section 4. PAYMENT OF PRINCIPAL AND INTEREST; TERMINATION OF
COMMITMENT AND REDUCTION OF COMMITMENT AMOUNT.
4.01 Mandatory Payments. Interest on the Note shall be payable on
each Interest Payment Date, upon prepayment in full of the Note and on the
Commitment Termination Date. Principal of the Note shall be due and payable in
full on the Commitment Termination Date.
4.02 Mandatory Prepayments. If, at any time, the Aggregate
Outstandings shall exceed the Borrowing Base, the Company, upon receipt of a
telephonic demand from the Bank will, within one Business Day after receipt of
such telephonic demand, prepay the principal of the Note in an amount sufficient
so that after such prepayment such condition shall not continue to exist.
4.03 Optional Prepayments. The Company shall have the right to
prepay the Note in whole or in part at any time and from time to time without
premium or penalty.
4.04 Confirmation. The Company shall promptly send the Bank a
Confirmation of Borrowing/Paydown/Conversion confirming any payment or
prepayment of the Note.
4.05 Termination of the Commitment and Reduction of the Commitment
Amount.
(a) Termination. The Company shall have the right at any time
prior to any termination of the Commitment pursuant to Section 12.02 to
terminate the Commitment by giving the Bank at least 30 days' notice in
writing which notice shall be deemed to have been given when received by
the Bank.
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(b) Reduction. The Company shall have the right at any time
upon at least 30 days' prior written notice to the Bank to reduce the
Commitment Amount, which notice shall be deemed to have been given when
received by such other party; provided, that the amount of each such
reduction shall be in a minimum amount of $100,000 or an integral
multiple of $100,000 in excess thereof and that no such reduction shall
reduce the Commitment Amount to less than the Aggregate Outstandings.
(c) Effect. Once the Commitment has been terminated or the
Commitment Amount reduced, neither may be reinstated.
4.06 Time of Payments. All payments and prepayments by the Company
of principal of and interest on the Note, and all fees, expenses and other
obligations under this Agreement payable to the Bank shall be made in
Immediately Available Funds not later than 2:00 p.m. (Minneapolis time) on the
dates called for under this Agreement at the main office of the Bank in
Minneapolis, Minnesota. Funds received on any such date but after such hour
shall be deemed, solely for the purpose of calculating interest and not for the
purpose of determining the existence of an Event of Default or Unmatured Event
of Default, to have been received by the Bank on the next Business Day. The
Company hereby authorizes the Bank to, and the Bank will, charge the Collateral
Account in an amount equal to any payment of interest when due and payable to
the Bank under the Note, and the Company agrees to maintain on deposit in the
Collateral Account collateral funds in amounts sufficient to make such payments
as and when due. In addition, the Company hereby authorizes the Bank, to the
extent any such payment is not made on the date called for under this Agreement
or the Note, as the case may be, to charge the Collateral Account in an amount
equal to any such payment or prepayment of principal, interest, non-use fee,
account maintenance and other obligations then due and payable to the Bank under
this Agreement and the Note, as the case may be. If any payment of principal of
or interest on the Note or any fee payable hereunder becomes due and payable on
a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of any interest on such principal payment.
4.07 Computations. Interest on the Note and any fees hereunder
shall be computed utilizing the actual number of days elapsed in a year of 360
days.
Section 5. FACILITY FEES.
The Company will pay to the Bank a facility fee at the rate of
one-fourth of one percent (0.25%) per annum on the average daily Commitment
Amount (whether used or unused), payable monthly in arrears on the first
Business Day of each month.
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Section 6. PROTECTION OF BANK'S RATE OF RETURN, ETC.
6.01 Increased Capital Requirements. In the event that, as a
result of any Regulatory Change, compliance by the Bank with any applicable law
or governmental rule, requirement, regulation, guideline or order (whether or
not having the force of law) regarding capital adequacy has the effect of
reducing the rate of return on the Bank's capital or on the capital of the
Bank's parent corporation as a consequence of the Commitment or amount
outstanding under the Note to a level below that which the Bank or its parent
would have achieved but for such compliance (taking into consideration the
Bank's policies and the policies of the Bank's parent corporation with respect
to capital adequacy), then from time to time the Company shall pay to the Bank
or its parent such additional amount or amounts as will compensate the Bank or
its parent for such reduction. A certificate as to the amount of any such
reduction (including calculations in reasonable detail showing how the Bank
computed such reduction and a statement that the Bank has not allocated to the
Commitment or the amount outstanding under the Note a proportionately greater
amount of such reduction than is attributable to each of its other commitments
to lend or to each of its other outstanding credit extensions that are affected
similarly by such compliance by the Bank or its parent, whether or not the Bank
allocates any portion of such reduction to such other commitments or credit
extensions) shall be furnished promptly by the Bank to the Company, which
certificate shall be conclusive absent manifest error.
6.02 Provisions Relating to Floating Eurodollar Rate Borrowings
and Fixed Rate Borrowings.
(a) Interest Rate Not Ascertainable, Etc. If, on the date for
determining the Floating Reserve-Adjusted Eurodollar Rate in respect of
any Floating Eurodollar Rate Borrowing, the Bank determines (which
determination shall be conclusive and binding, absent manifest error)
that:
(i) in the case of a Floating Eurodollar Rate Borrowing,
deposits in dollars (in the applicable amount) are not being made
available to the Bank in the interbank Eurodollar market, or
(ii) in the case of a Floating Eurodollar Rate Borrowing,
the Floating Reserve-Adjusted Eurodollar Rate will not adequately
and fairly reflect the cost to the Bank of funding or maintaining
such Floating Eurodollar Rate Borrowing, or
(iii) in the case of a Fixed Rate Borrowing, the Fixed Rate
will not adequately and fairly compensate the Bank for the cost of
funding or maintaining such Fixed Rate Borrowing,
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then the Bank shall forthwith give notice to the Company of such
determination, whereupon the obligation of the Bank to make or continue,
or to convert any Borrowings to, Fixed Rate Borrowings or Floating
Eurodollar Rate Borrowings, as the case may be, shall be suspended until
the Bank notifies the Company, that the circumstances giving rise to such
suspension no longer exist. Outstanding Fixed Rate Borrowings or Floating
Eurodollar Rate Borrowings affected by any such condition shall thereupon
automatically be converted to Reference Rate Borrowings.
(b) Increased Cost. If, after the date hereof, any Regulatory
Change or compliance with any request or directive (whether or not having
the force of law) of any governmental authority, central bank or
comparable agency:
(i) shall subject the Bank to any tax, duty or other
charge with respect to Fixed Rate Borrowings or Floating
Eurodollar Rate Borrowings or its obligation to make Fixed Rate
Borrowings or Floating Eurodollar Rate Borrowings, or shall change
the basis of taxation of payment to the Bank of the principal of
or interest on Fixed Rate Borrowings or Floating Eurodollar Rate
Borrowings or any other amounts due under this Agreement in
respect of Fixed Rate Borrowings or Floating Eurodollar Rate
Borrowings or its obligation to make Fixed Rate Borrowings or
Floating Eurodollar Rate Borrowings (except for changes in the
rate of tax on the overall net income of the Bank imposed by the
laws of the United States or any jurisdiction in which the Bank's
principal office is located); or
(ii) shall impose, modify or deem applicable any
reserve, special deposit, capital requirement or similar
requirement (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System,
but excluding any such requirement to the extent included in
calculating the Fixed Rate, the Floating Reserve-Adjusted
Eurodollar Rate or the Average Daily Qualifying Balances, as the
case may be) against assets of, deposits with or for the account
of, or credit extended by, the Bank or shall impose on the Bank or
on the United States market for certificates of deposit any other
condition affecting, Fixed Rate Borrowings or Floating Eurodollar
Rate Borrowings or its obligation to make Fixed Rate Borrowings or
Floating Eurodollar Rate Borrowings;
and the result of any of the foregoing is to increase the cost to the
Bank of making or maintaining any Fixed Rate Borrowing or Floating
Eurodollar Rate Borrowing, or to reduce the amount of any sum received or
receivable by the Bank under this Agreement or under the Note, then,
within 10 days after written demand by the Bank, delivered to the
Company, the Company shall pay to the Bank such additional amount or
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amounts as will compensate the Bank for such increased cost or reduction.
A certificate of the Bank claiming compensation under this Section
6.02(b), setting forth the additional amount or amounts to be paid to it
hereunder and stating in reasonable detail the basis for the charge and
the method of computation, shall be conclusive in the absence of manifest
error. In determining such amount, the Bank may use any reasonable
averaging and attribution methods. Failure on the part of the Bank to
demand compensation for any increased costs or reduction in amounts
received or receivable with respect to any period shall not constitute a
waiver of the Bank's rights to demand compensation for any increased
costs or reduction in amounts received or receivable in any subsequent
period.
(c) Illegality. If, after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the
Bank with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency shall make
it unlawful or impossible for the Bank to make, maintain or fund Fixed
Rate Borrowings or Floating Eurodollar Rate Borrowings, the Bank shall
notify the Company, whereupon the obligation of the Bank to make Fixed
Rate Borrowings or Floating Eurodollar Rate Borrowings, as the case may
be, shall be suspended until the Bank notifies the Company that the
circumstances giving rise to such suspension no longer exist. If the Bank
determines that it may not lawfully continue to maintain any Fixed Rate
Borrowings or Floating Eurodollar Rate Borrowings, all of the affected
Borrowings shall be automatically converted to Reference Rate Borrowings
as of the date of the Bank's notice.
Section 7. SETOFF. The Company hereby irrevocably authorizes the
Bank to set off the liability of the Company on the Note and under this
Agreement and the other Transaction Documents against all deposits and credits
of the Company with, and any and all claims of the Company against, the Bank at
any time outstanding, excluding deposits of the Company with the Bank which the
Company holds in escrow, as custodian or in trust for the benefit of third
parties or in which a third party has a security interest.
Section 8. COLLATERAL SECURITY. To secure the payment of the Note
and all other liabilities of the Company under this Agreement and the other
Transaction Documents (collectively, the "Obligations") the Company from time to
time shall grant to the Bank a Security Interest in the NationsBanc Note and
such of its Mortgage Loans as the Company shall select. All Collateral shall be
subject to, and be governed by, the terms and conditions of the Pledge and
Security Agreement.
If no Event of Default or Unmatured Event of Default has occurred
and is continuing, the Bank, at the request of the Company, shall release its
Security Interest in any Mortgage Loan included in the Collateral; provided,
that after giving effect to any such requested release, the Borrowing Base
(including that attributable
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to any Collateral given in substitution of the Mortgage Loan requested to be
released) shall not be less than the Aggregate Outstandings.
Section 9. REPRESENTATIONS AND WARRANTIES. To induce the Bank to
extend the Commitment and to make Advances thereunder, the Company represents,
covenants and warrants to the Bank that:
9.01 Formation, Powers and Good Standing.
(a) Formation and Powers. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Arizona and has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted
and proposed to be conducted, to enter into this Agreement, the Pledge
and Security Agreement and the other Transaction Documents, to issue the
Note and to carry out the transactions contemplated hereby and thereby.
(b) Good Standing. The Company is in good standing wherever
necessary to carry on its business and operations and in all
jurisdictions in which the failure to be in good standing would
permanently preclude the Company from enforcing its rights with respect
to any material asset or expose the Company to any material liability.
(c) Subsidiaries, Joint Ventures and Partnerships. Except
as set forth in Exhibit 9.01(c) hereto, the Company has no Subsidiaries
and is a member of no joint ventures or partnerships.
9.02 Authorization of Borrowing, etc.
(a) Authorization of Borrowing. The execution, delivery and
performance by the Company of each Transaction Document and the issuance,
delivery and payment of the Note by the Company have been duly authorized
by all necessary corporate action by the Company, as reflected in the
official records of the Company.
(b) No Conflict. The execution, delivery and performance by
the Company of each Transaction Document and the issuance, delivery and
payment of the Note by the Company do not and will not (i) violate any
provision of law applicable to the Company, the Articles of Incorporation
or Bylaws of the Company or any order, judgment or decree of any court or
other agency of government binding on the Company, (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or
both) a default under any contractual obligation of the Company, (iii)
result in or require the creation or imposition of any Lien, charge or
encumbrance of any nature whatsoever upon any of its properties or assets
except the Security Interest, or (iv) require
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any approval of shareholders or any approval or consent of any Person
under any contractual obligation of the Company other than approvals or
consents which have been obtained and disclosed in writing to the Bank.
(c) Governmental Consents. The execution, delivery and
performance by the Company of each Transaction Document and the issuance,
delivery and payment of the Note by the Company do not and will not
require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Federal, state or other governmental
authority or regulatory body or other Person except those that have been
obtained and disclosed in writing to the Bank. Any registration with,
consent or approval of or other action by any Federal, state or other
governmental authority or regulatory body or other Person which has been
obtained and has been disclosed in writing to the Bank shall remain in
effect and shall not be modified by or with the consent of the Company
except as may be approved in writing by the Bank.
(d) Binding Obligation. Each of the Transaction Documents
will be the legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.
9.03 Financial Condition. The Company heretofore delivered to the
Bank the audited consolidated financial statements of the Company and its
Subsidiaries as at September 30, 1994 and its unaudited consolidated financial
statements as at September 30, 1995. Said financial statements were prepared in
accordance with GAAP and fairly present the consolidated financial condition of
the Company and its Subsidiaries as at the date and for the period therein
indicated. As of the Signing Date, the Company and its Subsidiaries have no
contingent obligations, contingent liabilities, liabilities for taxes or other
outstanding financial obligations which are material in the aggregate and which
are not reflected in said financial statements or in the notes thereto.
9.04 Changes, etc. Since September 30, 1995, there has been no
change in the business, operations, properties, assets or condition (financial
or otherwise) of the Company and its Subsidiaries which has a Material Adverse
Effect.
9.05 Title to Properties; Liens. The Company has good, sufficient
and legal title to all the properties and assets reflected in the financial
statements as at September 30, 1995, referred to in Section 9.03 (including all
Collateral pledged pursuant to the Pledge and Security Agreement), and all
assets held by the Company on the date hereof but acquired subsequent to the
date of such financial statements, except for assets disposed of in the ordinary
course of business. All such properties and assets are free and clear of Liens,
except as permitted hereunder. The pledge and
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assignment of the Collateral pursuant to the Pledge and Security Agreement
creates a valid security interest in the Collateral and the Lien on the
Collateral created by the Pledge and Security Agreement will be a first priority
Lien thereon, superior to any other Liens. Except for the due filing of a
financing statement (and except for the delivery to the Bank of any Collateral
as to which possession is the only method of perfecting a security interest in
such Collateral), no further action need be taken in order to establish and
perfect the Bank's first priority security interest in all the Collateral.
9.06 Litigation; Adverse Facts. There is no action, suit,
proceeding or arbitration (whether or not purportedly on behalf of the Company)
at law or in equity or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, pending or, to the knowledge of the Company, threatened
against or affecting the Company or its properties except as set forth in
Exhibit 9.06 hereto, and none of the matters listed on such schedule would, if
decided in a manner adverse to the Company, have a Material Adverse Effect, and
there is no basis known to the Company for any action, suit or proceeding which
would have a Material Adverse Effect. The Company is not (i) in violation of any
applicable law which violation has a Material Adverse Effect or (ii) subject to
or in default with respect to any final judgment, writ, injunction, decree, rule
or regulation of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which has a Material Adverse Effect. There is no action, suit,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company which questions the validity or the
enforceability of any Transaction Document.
9.07 Payment of Taxes. All tax returns and reports of the Company
required to be filed by it have been timely filed, and all taxes, assessments,
fees and other governmental charges upon the Company and upon its properties,
assets, income and franchises which are due and payable have been paid when due
and payable, except to the extent permitted by Section 10.03 hereof. The Company
knows of no proposed tax assessment against it that would have a Material
Adverse Effect.
9.08 Other Agreements; Performance.
(a) Agreements. The Company is not a party to or subject to
any contractual obligation or charter or other internal restriction that
has a Material Adverse Effect.
(b) Performance. The Company is not in default in the
performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any contractual obligation of the
Company, and no condition exists which, with the giving of notice or the
lapse of time or both, would constitute such a default, except where the
consequences, direct or indirect, of
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such default or defaults, if any, would not have a Material Adverse
Effect. To the best knowledge of the Company, the other parties to any
contractual obligation of the Company are not in default thereunder,
except where the consequences, direct or indirect, of such default or
defaults, if any, would not have a Material Adverse Effect.
9.09 Governmental Regulation. The Company is not, and at the
Signing Date will not be, subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940 or to any Federal or state statute or regulation
limiting its ability to incur Indebtedness for money borrowed.
9.10 Securities Activities. The Company is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying 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 Advance will be used to purchase any
margin stock.
9.11 Indebtedness. Except to the extent permitted by Section
10.07, the Company does not and will not have any Indebtedness outstanding. At
and as of the Signing Date, none of such Indebtedness is in default.
9.12 Disclosure. No representation or warranty of the Company
contained in this Agreement, the other Transaction Documents or any other
document, certificate or written statement furnished to the Bank by or on behalf
of the Company for use in connection with the transactions contemplated hereby
or thereby contains any materially untrue statement of fact. There is no fact
known to the Company (other than matters of a general economic nature) which has
a Material Adverse Effect, which has not been disclosed herein or in such other
documents, certificates and statements furnished to the Bank for use in
connection with the transactions contemplated hereby.
9.13 [THIS SECTION IS INTENTIONALLY LEFT BLANK]
9.14 ERISA. Each Plan complies with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings
and regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No reportable event (as defined in Section 4043(b),
subdivision (5), (6) or (9) of ERISA) (a "Reportable Event") has occurred with
respect to any Plan. The Company has not engaged in any prohibited transaction
(as defined in Section 406 of ERISA or Section 4975 of the Code) which (i) has
not been corrected within the correction period applicable to it under Section
502(i) of ERISA or Section 4975(b) of the Code or (ii) for which an exemption is
not applicable or has not been obtained under Section 408 of ERISA or Section
4975 of the Code. The Company has satisfied all of the funding standards
applicable to such Plans, and there exists no event or
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condition which would permit the institution of proceedings to terminate any
Plan under Section 4042 of ERISA. The current value of such Plans' benefits
guaranteed under Title IV of ERISA does not exceed the current value of the
Plans' assets allocable to such benefits.
9.15 No Governmental Proceedings. Except as set forth in Exhibit
F, there is no action, suit, proceeding, or arbitration (whether or not
purportedly on behalf of the Company) at law or in equity or before or by any
Federal, state, municipal, or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign, pending or, to the
knowledge of the Company, threatened against or affecting the Company or its
properties, and there is no basis known to the Company for any action, suit, or
proceeding. The Company is not (i) in material violation of any applicable law,
or (ii) subject to or in default with respect to any final judgment, writ,
injunction, decree, rule, or regulation of any court or Federal, state,
municipal, or other governmental department, commission, board, bureau, agency,
or instrumentality, domestic or foreign.
Section 10. COVENANTS OF THE COMPANY. During the Effective Period
and thereafter until the Note and the other liabilities of the Company under
each Transaction Document have been paid in full, the Company covenants that,
unless the Bank shall otherwise consent in writing, it will perform all the
covenants set forth in this Section 10.
10.01 Financial Statements and Other Reports. The Company will
maintain a system of accounting established and administered in accordance with
sound business practices such as to permit the preparation of financial
statements in accordance with GAAP and furnish or cause to be furnished to the
Bank:
(a) as soon as available and in any event within 30 days
after the end of each calendar month, a copy of the unaudited
consolidated financial statements of the Company and its Subsidiaries as
at the end of such month, consisting of at least a consolidated balance
sheet and the related consolidated statements of income, shareholders'
equity and changes in financial position for such month and from the
beginning of the then current fiscal year of the Company to the end of
such month, setting forth in each case in comparative form the figures
for the corresponding period of the previous fiscal year, all in
reasonable detail, and certified by the chief financial officer of the
Company as being complete and correct and fairly presenting the Company's
consolidated financial condition, subject to changes resulting from
normal year-end adjustments;
(b) as soon as available and in any event within 90 days
after the end of each fiscal year, audited consolidated financial
statements of the Guarantor and the unaudited consolidated financial
statements of the Company and its Subsidiaries, in each case consisting
of at least a consolidated balance sheet as at
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the end of such fiscal year and the related consolidated statements of
income, shareholders' equity and changes in financial position for such
fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail and accompanied by
a report thereon of KPMG Peat Marwick or other firm of independent
certified public accountants selected by the Guarantor and/or Company, as
the case may be, and reasonably satisfactory to the Bank which report
shall be unqualified and shall state that such financial statements
present fairly the consolidated financial positions of the Guarantor and
of the Company and its Subsidiaries, respectively, as at the date
indicated and the results of their operations and the changes in their
consolidated financial position for the periods indicated in conformity
with GAAP applied on a basis consistent with prior fiscal years (except
as otherwise required by GAAP and stated therein) and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards;
(c) as soon as available and in any event within 30 days after the
end of each calendar month, each of the following:
(i) a properly completed and signed Compliance Certificate as of
the last day of such month;
(ii) a properly completed and signed Borrowing Base Certificate as
of the end of such month; and
(d) within five Business Days after their occurrence, give the
Bank notice of each of the following events:
(i) each and every action, suit, proceeding or arbitration (other
than those listed on Exhibit 9.06) which is pending or threatened
against the Company in which the aggregate uninsured amount
claimed is more than $100,000 or which would, if decided in a
manner adverse to the Company, have a Material Adverse Effect;
(ii) the occurrence of any Event of Default or Unmatured Event of
Default; and
(iii) any notice from an Investor or HUD that it intends to put
the Company on probation or that it will cease purchasing Mortgage
Notes from the Company or that it will cease permitting the
Company to service Mortgage Notes owned or guaranteed by it or
that it has revoked the Company's status as an approved mortgagee
or lender in good standing eligible to participate in any FHA
insurance or VA guaranty program;
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(e) from time to time, with reasonable promptness, such other
information regarding the Collateral and Investors and the business,
affairs and financial condition of the Company and its Subsidiaries as
the Bank may reasonably request.
10.02 Corporate Existence. The Company will maintain, and will
cause each of its Subsidiaries to maintain, (a) its corporate existence in good
standing under the laws of the jurisdiction of its incorporation and (b) its
right to carry on its business and operations in each jurisdiction in which the
character of the properties owned or leased by it or the business conducted by
it makes such qualification necessary and the failure to be in good standing
would permanently preclude the Company or any of its Subsidiaries from enforcing
its rights with respect to any material assets or expose the Company or any of
its Subsidiaries to any material liability.
10.03 Compliance with Laws, Taxes, etc. The Company will comply,
and will cause each of its Subsidiaries to comply, with all applicable laws,
rules, regulations and orders (including without limitation Regulation X of the
Board of Governors of the Federal Reserve System), the failure to be in
compliance with which would have a Material Adverse Effect, such compliance to
include, without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property except
to the extent contested in good faith by appropriate proceedings and for which
any reserves required by GAAP have been established.
10.04 ERISA. The Company will at all times maintain, and will
cause each of its Subsidiaries to maintain, each of its Plans in compliance with
all material applicable rulings and regulations issued under the provisions of
ERISA and the Code.
10.05 Assets and Insurance. The Company will at all times keep and
maintain, and will cause each of its Subsidiaries to keep and maintain, all of
its property and assets in good order and repair, subject to ordinary wear and
tear, and keep its assets and business fully covered by insurance with reputable
and financially sound insurance companies against such hazards and in such
amounts as is required by the terms of any law or as is customarily maintained
by Persons similarly situated.
10.06 Inspection. Upon reasonable prior notice during regular
business hours, the Company will permit any Person designated by the Bank in
writing, at the Bank's expense, to visit and inspect any of the properties,
corporate books and financial records of the Company and discuss its affairs and
finances with the principal officers of the Company and its independent public
accountants.
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10.07 Indebtedness. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee, or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:
(a) Indebtedness evidenced by the Note;
(b) Subordinated Indebtedness;
(c) current liabilities incurred in the ordinary course of
business, other than for money borrowed, which are paid within thirty
(30) days after the same have become due and payable or which are being
contested in good faith, by appropriate proceedings, (provided provision
is made to the satisfaction of the Bank for the eventual payment thereof
in the event it is found that such contested current liabilities are
payable by the Company);
(d) reverse repurchase agreements;
(e) Guarantees permitted by Section 10.10;
(f) Indebtedness secured by Liens permitted by Section
10.08; and
(g) Indebtedness existing on the Signing Date, as described
in Exhibit 10.07 hereto;
provided, that no such Indebtedness described in Section 10.07(a) through (g)
causes the Leverage Ratio to exceed 4.0 to 1.0.
10.08 Liens. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist, any Lien with respect to the Servicing Portfolio, the Collateral or any
other property now owned or hereafter acquired by the Company or any of its
Subsidiaries, or any income or profits therefrom, except:
(a) the Security Interest;
(b) Liens existing on the Signing Date as described in
Exhibit 10.08 hereto;
(c) Liens in connection with deposits or pledges to secure
payment of workers' compensation, unemployment insurance, old age
pensions or other social security obligations, in the ordinary course of
business of the Company and its Subsidiaries;
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(d) Liens for taxes, fees, assessments and governmental
charges not delinquent or which are being contested in good faith by
appropriate proceedings; provided, however, that the Company shall have
set aside on its books and shall maintain adequate reserves for the
payment of same in conformity with GAAP;
(e) encumbrances consisting of zoning regulations,
easements, rights of way, survey exceptions and other similar
restrictions on the use of real property and minor irregularities in
titles thereto which do not materially impair their use in the operation
of its business;
(f) Liens on Mortgage Loans delivered to a custodian for a
pool of Mortgage Loans being formed but for which a Mortgage-backed
Security has not been issued, any said Lien being for the sole benefit of
the Investor which has agreed to purchase such Mortgage-backed Security;
and
(g) Liens and security interests which secure Indebtedness
permitted by Section 10.07(d), provided such Liens and security interests
are limited to the securities which are the subject of such reverse
repurchase agreements.
10.09 Investments. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make or own any Investment in
any Person, except:
(a) Investments in (i) marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof, (ii) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within one year
from the date of acquisition thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) commercial
paper maturing no more than one year from the date of creation thereof
and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors Service,
Inc.;
(b) Mortgage Notes and Mortgage-backed Securities;
(c) real estate acquired by foreclosure and held by the
Company for not more than one year unless the Company shall be diligently
attempting to dispose of such real estate for a price not exceeding its
fair market value;
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(d) the Company's Investment in the Subsidiaries described
in Exhibit 9.01(c) hereto which is outstanding on the Signing Date; and
(e) loans from the Company to the Guarantor in an
outstanding principal amount at any time outstanding not to exceed
$2,700,000.
10.10 Guarantees. The Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or become or be liable with
respect to any Guarantee, except:
(a) guarantees resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(b) commitments issued by the Company in the ordinary
course of business pursuant to which the Company commits to purchase
Mortgage Notes to be held in its portfolio or to be used in the formation
of Mortgage-backed Securities; and
(c) agreements to repurchase Mortgage Notes incidental to
sales thereof in the ordinary course of business.
10.11 Restriction on Fundamental Changes. The Company will not,
and will not permit any of its Subsidiaries to, engage in any business
activities or operations substantially different from or unrelated to those in
which it is engaged on the Signing Date, enter into any transaction of merger or
consolidation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or property, whether now owned or hereafter
acquired, or acquire by purchase or otherwise all or substantially all the
business or property of, or stock or other evidence of beneficial ownership of,
any Person, or acquire, purchase, redeem or retire any shares of its capital
stock now or hereafter outstanding for value, except:
(a) the Company may sell or otherwise dispose of Mortgage
Notes, Mortgage-backed Securities and Take-out Commitments in the
ordinary course of business;
(b) the Company may sell or otherwise dispose of obsolete
or worn out property in the ordinary course of business; and
(c) the Company may sell or otherwise dispose of property,
other than Mortgage Notes and Mortgage-backed Securities, in the ordinary
course of business, for not less than its fair market value.
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10.12 Payment of Subordinated Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to: make any permissive prepayment
of principal of, or purchase, any Subordinated Indebtedness; make any payment of
principal or interest on any Subordinated Indebtedness if an Event of Default or
Unmatured Event of Default exists; amend or cancel the subordination provisions
thereof; supplement, modify or otherwise amend any instrument or agreement
related to any Subordinated Indebtedness; take or omit to take any action
whereby the subordination of such indebtedness or any part thereof to the Note
might be terminated, impaired or adversely affected; or omit to give the Bank
prompt written notice of any notice received from any holder of Subordinated
Indebtedness or of any default under any agreement or instrument relating to any
Subordinated Indebtedness by reason whereof such Indebtedness might become or be
declared to be due or payable.
10.13 Net Worth. The Company will not at any time permit Net Worth
to be less than and amount equal to $2,000,000 plus the aggregate amount of all
contributions to the capital of the Company made on or after the date of this
Agreement.
10.14 Leverage Ratio. The Company will not at any time permit the
Leverage Ratio to be greater than 4.0 to 1.0.
10.15 Maintenance of Qualifications. The Company will not commit
or suffer to be committed any act which gives any Investor for which the Company
is servicing Mortgage Notes or HUD grounds (a) to put the Company on probation,
(b) to cease purchasing Mortgage Notes from the Company, (c) to cease permitting
the Company to service Mortgage Notes owned or guaranteed by it or (d) to revoke
the status of the Company as an approved mortgagee or lender in good standing
eligible to participate in any FHA insurance or VA guaranty program or as an
approved seller-servicer for any such Investor.
10.16 NationsBanc Documents. The Company will not amend, modify or
supplement, terminate or waive any provision of any NationsBanc Document, or
fail to give the Bank prompt notice of any amendment, modification, supplement,
termination, waiver or consent to departure from the terms of any NationsBanc
Document.
10.17 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of an Event of Default or Unmatured Event of Default if
such action is taken or condition exists.
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Section 11. CONDITIONS PRECEDENT.
11.01 Initial Advance. The Bank shall not be obligated to make the
initial Advance until it shall have received the following, each dated the
Effective Date unless otherwise indicated and each of which shall be in form and
substance satisfactory to the Bank:
(a) the Note, duly executed by the Company;
(b) the Pledge and Security Agreement, duly executed by the
Company;
(c) the Guaranty, duly executed by the Guarantor;
(d) the original executed copy of the NationsBanc Note and an
agreement substantially in the form of Exhibit 11.01(d) hereto, duly
executed by the Company and NationsBanc;
(e) a copy of the resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of each
Transaction Document to which it is a party and other matters
contemplated hereby, certified by the Secretary or an Assistant Secretary
of the Company;
(f) a copy of the resolutions of the Board of Directors of the
Guarantor authorizing the execution, delivery and performance of each
Transaction Document to which it is a party and other matters
contemplated hereby, certified by the Secretary or an Assistant Secretary
of the Guarantor;
(g) a certificate signed by the Secretary or an Assistant
Secretary of the Company as to the incumbency and signature of the person
or persons authorized to execute and deliver this Agreement and the other
Transaction Documents to which it is a party and any other instrument or
agreement hereunder and under any Transaction Document;
(h) a certificate signed by the Secretary or an Assistant
Secretary of the Guarantor as to the incumbency and signature of the
person or persons authorized to execute and deliver the Guaranty and any
other Transaction Documents to which it is a party and any other
instrument or agreement hereunder and under any Transaction Document;
(i) a completed Borrowing Base Certificate as of the last day of
the month preceding the initial request for a credit extension hereunder;
(j) copies of the insurance policies required to be maintained
under Section 10.05;
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(k) a favorable written opinion of counsel to the Company and the
Guarantor satisfactory to the Bank, addressed to the Bank, as to the
matters and to the effect set forth in Exhibit 11.01(k) hereto; and
(l) such other documents, certificates and opinions as the Bank
may reasonably require.
11.02 Each Advance. The obligation of the Bank to make each
Advance (including the initial Advance) is subject to the following conditions
precedent:
(a) The Bank shall have received from the Company the appropriate
notice contemplated by Section 3.01;
(b) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will exist upon the making of the requested
Advance; and
(c) The representations and warranties contained in Section 9
shall be true and correct in all material respects with the same force
and effect as if made on and as of the relevant Borrowing Date for such
Advance except that to the extent that any such representations were made
at and as of a specified date, the same shall be true at and as of such
specified date.
Section 12. EVENTS OF DEFAULT; REMEDIES.
12.01 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) The Company shall fail to make when due, whether by
acceleration of maturity or otherwise, any payment of principal of the
Note, including any prepayment due pursuant to Section 4.02; or
(b) The Company shall fail to make when due, whether on an
Interest Payment Date, by acceleration or otherwise, any payment of
interest on the Note or any fee or other amount required to be paid to
the Bank pursuant to this Agreement; or
(c) Any representation or warranty made by the Company or the
Guarantor in this Agreement or in any certificate, statement, report or
document furnished to the Bank pursuant to or in connection with this
Agreement shall be untrue or misleading in any material respect on the
date as of which the facts set forth are stated or certified; or
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(d) The Company shall fail to comply with any agreement, covenant,
condition, provision or term contained in the Pledge and Security
Agreement or in Sections 10.02(a), 10.07, 10.08, 10.09, 10.10, 10.11,
10.12, 10.13, 10.14 or 10.15 of this Agreement; or
(e) The Company shall fail to comply with any other agreement,
covenant, condition, provision or term contained in this Agreement (other
than those hereinabove set forth in this Section 12.01) and such failure
to comply is not remedied within 30 calendar days after the earliest of
(i) the date on which the Company gives the Bank notice of such failure
pursuant to Section 10.01(e)(ii), (ii) the date on which the Company
should have given the Bank notice of such failure pursuant to Section
10.01(e)(ii), and (iii) the date on which the Bank gives the Company
written notice of such failure; or
(f) Any creditor or representative of any creditor of the Company,
the Guarantor or any Subsidiary, including without limitation the Bank,
shall become entitled to declare any Indebtedness in the amount of
$250,000 or more owing on any bond, debenture, note or other evidence of
indebtedness for borrowed money to be due and payable prior to its
expressed maturity, whether or not such Indebtedness is actually declared
to be immediately due and payable, or any such Indebtedness becomes due
and payable prior to its expressed maturity by reason of any default by
the Company, the Guarantor or such Subsidiary in the performance or
observance of any obligation or condition and such default shall not have
been effectively waived or shall not have been cured within any grace
period allowed therefor or any such Indebtedness shall have become due by
its terms and shall not have been promptly paid or extended; or
(g) The Company, the Guarantor, any Subsidiary or NationsBanc
shall become insolvent or shall fail generally to pay its debts as they
mature or shall apply for, shall consent to, or shall acquiesce in the
appointment of a custodian, trustee, receiver or conservator thereof or
for a substantial part of the property thereof; or, in the absence of
such application, consent or acquiescence, a custodian, trustee or
receiver shall be appointed for the Company, the Guarantor, any
Subsidiary or NationsBanc, or for a substantial part of the property
thereof, or the Company, the Guarantor, any Subsidiary or NationsBanc
shall make an assignment for the benefit of creditors; or
(h) The Company, the Guarantor, any Subsidiary or NationsBanc
shall be voluntarily or involuntarily dissolved or shall be the subject
of any bankruptcy, reorganization, debt arrangement, receivership,
conservatorship or other proceedings under any bankruptcy or insolvency
law; or any dissolution, liquidation, receivership or conservatorship
proceeding shall be instituted by or against the Company, the Guarantor,
any Subsidiary or NationsBanc and, if instituted against the Company, the
Guarantor, any Subsidiary or NationsBanc,
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shall be consented to or acquiesced in by the Company, the Guarantor, any
Subsidiary or NationsBanc, shall not have been dismissed within 60 days
or an order for relief shall have been entered against the Company, the
Guarantor, any Subsidiary or NationsBanc; or
(i) There shall be entered against the Company, the Guarantor or
any Subsidiary one or more judgments or decrees in an aggregate amount as
to the Company, the Guarantor or any Subsidiary at any one time
outstanding in excess of $100,000, excluding those judgments or decrees
that shall have been paid, vacated, discharged, stayed or bonded pending
appeal within 30 days from the entry thereof or with respect to which
(and to the extent that) the Person against which any such judgment or
decree shall have been entered is fully insured (excluding reasonable
deductibles) and with respect to which the insurer has admitted in
writing its liability for the full amount thereof; or
(j) Any execution or attachment shall be issued whereby any
substantial part of the property of the Company, the Guarantor or any
Subsidiary shall be taken or attempted to be taken and the same shall not
have been vacated or stayed within 30 days after the issuance thereof; or
(k) Any Reportable Event or any other fact or circumstance, which
the Bank determines in good faith constitutes grounds for the termination
of any Plan by the Pension Benefit Guaranty Corporation or for the
appointment by an appropriate United States District Court of a trustee
to administer any such Plan, shall have occurred and be continuing thirty
(30) days after written notice of such determination shall have been
given to the Company by the Bank, or any Plan shall be terminated within
the meaning of Title IV of ERISA, or a trustee shall be appointed by the
appropriate United States District Court to administer any such Plan, or
the Pension Benefit Guaranty Corporation shall institute proceedings to
terminate any Plan or to appoint a trustee to administer any such Plan
and, upon the occurrence of any of the foregoing, the aggregate amount of
the vested unfunded liability under all such Plans exceeds $100,000 and
such liability is not covered by insurance, or the Company shall fail to
make a required contribution to any Plan such that a statutory tax lien
may arise in favor of such Plan; or
(l) NationsBanc shall fail to make any payment on the NationsBanc
Note when due.
12.02 Remedies. If (a) any Event of Default described in Sections
12.01(g) or (h) shall occur with respect to the Company, the Commitment shall
automatically terminate and the outstanding principal of the Note, the accrued
interest thereon and all other obligations of the Company to the Bank under this
Agreement and the Note, shall automatically become immediately due and payable
or (b) any other Event of Default shall occur and be continuing, then, the Bank
may
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do all of the following: (i) declare the Commitment terminated, whereupon the
Commitment shall be terminated and (ii) declare the outstanding principal of the
Note, the accrued interest thereon and all other obligations of the Company to
the Bank under this Agreement, to be forthwith due and payable, whereupon the
Note, all accrued interest thereon and all such obligations shall immediately
become due and payable, in each case without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything in
this Agreement or in the Note to the contrary notwithstanding.
Section 13. MISCELLANEOUS.
13.01 Waiver. No failure on the part of the Bank to exercise and
no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
13.02 Notices. Except as otherwise specifically provided for
herein, all notices and other communications provided for herein shall be by
telex, telecopier, telegraph, cable or in writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to either party, at such other address as shall be designated by such
party in a notice to the other party. All notices and other communications
hereunder shall be deemed to have been duly given when transmitted by telex or
telecopier, delivered to the telegraph or cable office or personally delivered
or, in the case of a mailed notice, upon receipt thereof as conclusively
evidenced by the signed receipt therefor, in each case given or addressed as
aforesaid.
13.03 Expenses; Indemnification. The Company agrees to pay: (a)
the reasonable fees and expenses of Dorsey & Whitney, counsel to the Bank, in
connection with the preparation, execution and delivery of this Agreement, the
Note and the other Transaction Documents and the Advances hereunder, whether or
not any Advance is made hereunder, (b) the reasonable fees and expenses of
counsel for the Bank in connection with any amendment, modification or waiver of
any of the terms of this Agreement, the Note and the other Transaction Documents
and (c) all reasonable costs and expenses of the Bank (including reasonable
counsels' fees) in connection with the enforcement of this Agreement, the Note
and the other Transaction Documents. The Company hereby agrees to indemnify the
Bank and its directors, officers, agents and employees from and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them arising out of or by reason of any
investigation, litigation or other proceedings related to any use made or
proposed to be made by the Company of the proceeds of
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the Advances, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).
13.04 Confidentiality. Any information which the Bank receives
from the Company which is designated proprietary or confidential at the time of
receipt thereof by the Bank shall not be disclosed by the Bank to any other
Person, if such information is not otherwise in the public domain, other than
(a) to its independent accountants and legal counsel, (b) pursuant to statutory
or regulatory requirements, (c) pursuant to any mandatory court order or (d) to
any participant in or assignee of, or prospective participant in or assignee of,
any Borrowing.
13.05 Amendments, Etc. Any provision of this Agreement may be
amended or modified only by an instrument or instruments in writing signed by
the Company and the Bank. No waiver of any provision of this Agreement, the
Pledge and Security Agreement or the Note or consent to any departure by the
Company therefrom shall in any event be effective unless the same shall be in
writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
13.06 Successors and Assigns; Disposition of Advances;
Transferees. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns except that the
Company may not assign its rights or obligations hereunder or under the Note
without the prior consent of the Bank. The Bank may at any time sell, assign,
transfer, grant participations in, or otherwise dispose of any portion of the
Advances (each such interest so disposed of being herein called a "Transferred
Interest") to banks or other entities ("Transferees"). Without in any way
limiting the rights of Transferees hereunder, the Company agrees that each
Transferee shall be entitled to the benefits of Section 6 to the extent of its
Transferred Interest as if it were the "Bank" holding an Advance in the amount
of such Transferred Interest. The Company agrees that each Transferee may
exercise any and all rights of banker's lien, setoff as provided in Section 7
and counterclaim available pursuant to law with respect to its Transferred
Interest as fully as if such Transferee were a direct lender to the Company.
13.07 Survival. The obligations of the Company under Sections 6
and 13.03 shall survive the repayment of the Note and the termination of the
Commitment.
13.08 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and either of the parties hereto may execute this Agreement by
signing any such counterpart.
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13.09 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF MINNESOTA, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS. WHENEVER POSSIBLE, EACH PROVISION OF THIS
AGREEMENT AND THE NOTE AND ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION
CONTEMPLATED HEREBY OR THEREBY OR RELATING HERETO OR THERETO SHALL BE
INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER SUCH APPLICABLE
LAW, BUT, IF ANY PROVISION OF THIS AGREEMENT OR THE NOTE OR ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR RELATING HERETO OR
THERETO SHALL BE HELD TO BE PROHIBITED OR INVALID UNDER SUCH APPLICABLE LAW,
SUCH PROVISION SHALL BE INEFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR
INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE
REMAINING PROVISIONS OF THIS AGREEMENT AND THE NOTE AND ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR RELATING HERETO OR
THERETO.
13.10 WAIVER OF JURY TRIAL; JURISDICTION.
(a) THE COMPANY, BY ITS EXECUTION AND DELIVERY HEREOF, AND THE
BANK, BY ITS ACCEPTANCE HEREOF, HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT, THE NOTE AND ANY OTHER OF THE TRANSACTION DOCUMENTS OR UNDER ANY
AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR THEREWITH ARISING FROM ANY CREDIT
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
(b) THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN COUNTY, MINNESOTA OVER
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING. THE COMPANY IRREVOCABLY CONSENTS TO THE SERVICE OF COPIES OF THE
SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING BY UNITED STATES CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, OF COPIES OF SUCH PROCESS TO THE COMPANY, ADDRESSED AS
PROVIDED IN SECTION 13.02.
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SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING, EFFECTED AS AFORESAID,
SHALL BE EFFECTIVE UPON RECEIPT BY THE COMPANY AND SHALL BE DEEMED PERSONAL
SERVICE UPON THE COMPANY AND SHALL BE LEGAL AND BINDING UPON THE COMPANY FOR ALL
PURPOSES. THE COMPANY AGREES THAT A JUDGMENT, FINAL BY APPEAL OR EXPIRATION OF
TIME TO APPEAL WITHOUT BEING TAKEN, IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 13.10 (b) SHALL
AFFECT THE RIGHT OF THE BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BANK TO BRING ANY ACTION OR
PROCEEDING AGAINST THE COMPANY OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
13.11 Highest Lawful Rate. Anything herein to the contrary
notwithstanding, the obligations of the Company on the Advances shall be subject
to the limitation that payments of interest shall not be required, for any
period for which interest is computed hereunder, to the extent that contracting
for or receipt thereof would be contrary to provisions of any law applicable to
the Bank limiting the highest rate of interest which may be lawfully contracted
for, charged or received by the Bank.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-36-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
EXPRESS AMERICA MORTGAGE
CORPORATION
By Signature Illegible
----------------------------------
Title Chairman and CEO
-----------------------------
Address for Notices:
Express America Mortgage Corporation
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
Attention: James R. Reis
Telephone No. (602) 417-8111
Telecopier No. (602) 417-8301
FIRST BANK NATIONAL ASSOCIATION
By Signature Illegible
----------------------------------
Title Vice President
-----------------------------
Address for Notices:
First Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Edwin D. Jenkins
Telephone No. (612) 973-0588
Telephone No. (612) 973-0826
S-1
<PAGE>
EXHIBIT 1.01-A
TO CREDIT AGREEMENT
-------------------
[On Company Letterhead]
[Date]
To: First Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Edwin D. Jenkins, Vice President
Mortgage Banking Services Division
MPFP0801
Re: Borrowing Base Certificate
Ladies and Gentlemen:
This Borrowing Base Certificate is submitted to you pursuant to Section
10.01(c)(ii) of the Warehousing Credit Agreement dated as of January 25, 1996
(as said Agreement may be amended, supplemented, restated or otherwise modified
from time to time in writing, (the "Credit Agreement") between Express America
Mortgage Corporation (the "Company") and First Bank National Association (the
"Bank"). Each capitalized term used herein has the meaning ascribed to that term
in the Credit Agreement.
The Company and the undersigned officer hereby certify to the Bank as
follows:
(1) The undersigned is authorized to submit this Borrowing Base
Certificate on behalf of the Company.
(2) As of the close of business on _____, 19__:
(a) Borrowing Base Computation. The Borrowing Base was computed as
follows:
Lessor of:
(i) Aggregate unpaid principal
balance of Eligible Pledged
Mortgage Loans per attached
Schedule 1 $___________
<PAGE>
or
--
(ii) Aggregate Repurchase Price
for Eligible Pledged Mortgage
Loan per attached Schedule 1. $___________
(iii) less 20% adjustment (___________)
(iv) Total Collateral Value $___________
(b) Outstanding Note Balance. The aggregate principal amount
outstanding under the Note was $___________.
The foregoing certifications are made and delivered this ____
day of ___________, 199_.
EXPRESS AMERICA MORTGAGE
CORPORATION
By:_______________________
Its:___________________
<PAGE>
SCHEDULE 1
TO BORROWING BASE CERTIFICATE
-----------------------------
Eligible Pledged Mortgage Loans
-------------------------------
(as of ___________, 199_)
Outstanding
Mortgagor Principal Repurchase
Loan Number Name Balance Price Status*
- ----------- ---- ------- ----- -------
* Indicate status of Mortgage Loan, e.g., "incomplete documentation,"
"no Take-Out Commitment," etc.
<PAGE>
EXHIBIT 1.01-B
TO CREDIT AGREEMENT
-------------------
FORMULA
FOR
DETERMINING COLLATERAL VALUE
FOR BORROWING BASE
The "Collateral Value" of the Eligible Pledged Mortgage Loans
and other assets constituting collateral under the Mortgage Loan Pledge
Agreement shall be determined as follows:
1. Eligible Pledged Mortgage Loans. The Collateral Value of an
Eligible Pledged Mortgage Loan, at the time of any determination thereof, shall
be an amount equal to eighty percent (80%) of the least of:
(a) the Repurchase Price of such Eligible Pledged Mortgage
Loan,
(b) the unpaid principal balance of such Eligible Pledged
Mortgage Loan, and
(c) at the election of the Bank, the Fair Market Value ofsuch
Eligible Pledged Mortgage Loan;
provided, however, that an Eligible Pledged Mortgage Loan will be considered as
having no Collateral Value if any of the following events occur with respect
thereto:
(1) 180 days elapse from the date on which such
Eligible Pledged Mortgage Loan was pledged under the Pledge
and Security Agreement;
(2) 45 days elapse from the date such Eligible
Pledged Mortgage Loan was delivered to an Investor or a pool
custodian for examination and purchase and such Eligible
Pledged Mortgage Loan has not been returned to the Bank;
(3) 21 days elapse from the date a Collateral
document relating to such Eligible Pledged Mortgage Loan was
delivered to the Company for correction or completion and such
corrected or completed Collateral document has not been
returned to the Bank;
(4) such Eligible Pledged Mortgage Loan ceases to be
an Eligible Pledged Mortgage Loan; or
<PAGE>
(5) the Bank notifies the Company that in the
reasonable opinion of the Bank such Eligible Pledged Mortgage
Loan is not marketable and should not be given Collateral
Value hereunder.
Notwithstanding any of the foregoing, (A) a Pledged Mortgage
Loan shall remain a part of the collateral pledged under the Pledge and Security
Agreement until it is released by the Bank pursuant to Section 10.04 thereof,
notwithstanding any determination that such Pledged Mortgage Loan is not, or has
ceased to be, an Eligible Pledged Mortgage Loan or that it does not have, or has
ceased to have, Collateral Value, and (B) an Eligible Pledged Mortgage Loan
which has been delivered to an Investor or a pool custodian for inclusion in a
pool of Mortgage Loans backing a Related Mortgage-backed Security pursuant to
Section 10.03 of the Pledge and Security Agreement shall remain a part of the
Collateral pledged under the Pledge and Security Agreement and, to the extent
provided in the first sentence of this paragraph 1, shall retain its Collateral
Value until it is released pursuant to Section 10.04 of the Pledge and Security
Agreement.
2. Other Assets. The Collateral Value of any other asset
("Other Asset") offered by the Company and accepted as Collateral by the Bank in
its sole and absolute discretion shall be such amount of Collateral Value (if
any) as the Bank may assign thereto in its sole and absolute discretion.
3. Definitions. As used in this Exhibit, the following terms
shall have the following respective meanings:
"Appraised Value": with respect to an interest in real estate,
the then current fair market value thereof as of a recent date satisfactory to
the Bank, as determined by the FHA or the VA, if applicable, or, if there is no
such determination, then as determined in accordance with accepted methods of
appraising by a qualified appraiser who is a member of the American Institute of
Real Estate Appraisers or other group of professional appraisers.
"Conventional Mortgage Loan": a Mortgage Loan secured by a
First Mortgage on improved real estate which (a) is in an amount not in excess
of eighty percent (80%) of the Appraised Value of such real estate unless the
amount of the Mortgage Loan in excess of eighty percent (80%) of such Appraised
Value is insured against credit losses by an insurer approved by FHLMC or FNMA
and (b) but for the matters that gave rise to the repurchase thereof, satisfies
FHLMC's, FNMA's or other Investor's underwriting standards.
"Eligible Pledged Mortgage Loan": a Pledged Mortgage Loan: (a)
the entire interest in which is owned by the Company, (b) which has been
repurchased by the Company from an Investor or out of a pool of Mortgage Loans
backing a Mortgage-backed Security pursuant to the Company's obligation as
servicer to do so, (c) which is an FHA Mortgage Loan, a VA Mortgage Loan or a
Conventional Mortgage Loan covering a completed residential property, and (d)
the Repurchase Date is less than 180 days prior to the date on which such
Pledged Mortgage Loan becomes part of the collateral under the Pledge and
Security Agreement.
-1-
<PAGE>
"Fair Market Value": at any date with respect to any Eligible
Pledged Mortgage Loan, the FNMA market price for thirty (30) day mandatory
future delivery of such Eligible Pledged Mortgage Loan quoted by Telerate or, if
not so quoted, the average bid price quoted in writing to the Bank as of the
computation date by two nationally recognized dealers selected by the Bank who
at the time are making a market in similar Mortgage Loans multiplied, in any
case, by the outstanding principal balance thereof.
"FHA Mortgage Loan": a Mortgage Loan secured by a First
Mortgage which is insured, or is eligible to be insured by, and is covered by a
binding commitment of, the FHA pursuant to the provisions of the National
Housing Act, as amended.
"First Mortgage": a Mortgage which is subject to no prior or
superior mortgage, deed of trust or other security deed in the land and
interests in real property covered by such Mortgage.
"Pledged Mortgage Loan": as defined in the Pledge and Security
Agreement.
"Related Mortgage-backed Security": as defined in the Pledge
and Security Agreement.
"Repurchase Date": with respect to a Mortgage Loan, the date
of the repurchase of such Mortgage Loan by the Company from an Investor or out
of a pool of Mortgage Loans backing a Mortgage-backed Security pursuant to the
Company's obligation as servicer to do so.
"Repurchase Price": with respect to a Mortgage Loan which is
repurchased by the Company from an Investor or out of a pool of Mortgage Loans
backing a Mortgage-backed Security pursuant to the Company's obligation as
servicer to do so, the actual out-of-pocket cost to the Company incurred in
connection with the repurchase of such Mortgage Loan.
"VA Mortgage Loan": a Mortgage Loan secured by a First
Mortgage which is guaranteed, or is eligible to be guaranteed by, and is covered
by a binding commitment to guarantee of, the VA pursuant to the provisions of
the Servicemen's Readjustment Act of 1944, as amended.
-2-
<PAGE>
EXHIBIT 1.01-C
TO CREDIT AGREEMENT
[On Company Letterhead]
To: First Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Edwin D. Jenkins, Vice President
Mortgage Banking Services Division
MPFP0801
Re: Compliance Certificate
Ladies and Gentlemen:
This Compliance Certificate is submitted to you pursuant to
Section 10.01(c)(i) of the Warehousing Credit Agreement dated as of January 25,
1996 (as said Agreement may be amended, supplemented or restated from time to
time, the "Credit Agreement") between Express America Mortgage Company (the
"Company") and First Bank National Association (the "Bank"). Each capitalized
term used herein has the meaning ascribed to that term in the Credit Agreement.
The Company and the undersigned officer hereby certify to the
Bank as follows:
(1) The undersigned is the duly elected chief
financial officer of the Company and is authorized to submit this
Compliance Certificate on behalf of the Company.
(2) The undersigned has reviewed the terms of the
Credit Agreement and has made, or has caused to be made under the
undersigned's supervision, a detailed review of the transactions and
conditions of the Company and the Subsidiaries during the accounting
period(s) covered by Attachment 1 hereto.
(3) The examinations described in paragraph (2) did
not disclose, and the undersigned and the Company have no knowledge,
whether arising out of such examinations or otherwise, of the existence
of any condition or event which constitutes an Event of Default or
Unmatured Event of Default during or at the end of the accounting
period(s) covered by Attachment 1 hereto or as of the date of this
Compliance Certificate, except as described below and/or in a separate
attachment to this Compliance Certificate [describing the exceptions in
detail, the nature of the condition or event, the period during which
it has existed and the action which Company
<PAGE>
has taken, is taking, or proposes to take with respect to each such
condition or event]:___________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
(4) The computations set forth in Attachment 1 hereto are true
and correct as of the date and for the accounting period(s) specified
therein.
The foregoing certifications, together with the computations
set forth in Attachment No. 1 hereto and the financial statements delivered with
this Certificate in support hereof, are made and delivered this __ day of
___________, 19__.
EXPRESS AMERICA MORTGAGE
CORPORATION
By___________________________
Its Chief Financial Officer
- 2 -
<PAGE>
Attachment No. 1
to Compliance Certificate
-------------------------
(Terms defined in the Credit Agreement are used herein as
defined therein and Section references used herein refer to the Sections of the
Credit Agreement.)
The following computations are as of ___________, 19__:
A. Minimum Net Worth
Requirement of Section 10.13:
1. Net Worth (sum of consolidated
capital stock, paid in surplus and
earned surplus (or deficit)) $__________
2. Minimum Net Worth as prescribed
by Section 10.13 ($2,000,000 + 100%
of capital contributions) $__________
B. Leverage Ratio Requirement of
Section 10.14:
1. Total Liabilities of Company $__________
2. Net Worth (item I.A.1) $__________
3. Leverage Ratio (Ratio of I.B.1 to I.B.2) ____ to 1.0
4. Maximum ratio prescribed by
Section 10.14 4.0 to 1.0
- 2 -
<PAGE>
EXHIBIT 1.01-D
TO CREDIT AGREEMENT
-------------------
FORM OF
CONFIRMATION OF BORROWING/PAYDOWN/CONVERSION
--------------------------------------------
[On Company Letterhead]
[Date]
First Bank National Association
First Bank Place - MPFP0801
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mortgage Banking Services Division
RE: Confirmation of Borrowing/Paydown/Conversion
Ladies and Gentlemen:
Reference is made to the Warehousing Credit Agreement dated as of
January 25, 1996 (as said Agreement may be amended, supplemented, restated of
otherwise modified from time to time in writing, the "Credit Agreement"),
between Express America Mortgage Corporation (the "Company") and First Bank
National Association (the "Bank"). Each capitalized term used herein shall have
the meaning ascribed to such term in the Credit Agreement.
The Company and the undersigned hereby confirm and certify to the Bank
as follows:
1. The undersigned is authorized to submit this Confirmation of
Borrowing/Paydown/ Conversion on behalf of the Company.
2. On ______, 19__, the Company (a) requested the Bank to make an
Advance in the principal amount of $______, (b) made principal payments in the
aggregate amount of $_______, or (c) converted outstanding Borrowings to
outstanding Borrowings of another type,* as follows:
- ----------------------
* For purposes of this Certificate, Borrowings being converted shall be
described as principal payments, and the new Borrowings into which such
Borrowings are being converted shall be described as new Borrowings.
<PAGE>
Floating
Reference Eurodollar
Rate Rate Fixed Rate
Advance/Borrowing
---------- ---------- ----------
Payment
---------- ---------- ----------
Net Amount Outstanding
========== ========== ==========
Interest Rate % % %
---------- ---------- ----------
3. In connection with any requested Advance, please disburse $________
as follows [include wire instructions]:
4. In connection with any requested Advance: (a) no Event of Default or
Unmatured Event of Default has occurred or will exist upon the completion of
such Advance; (b) the representations and warranties contained in Section 9 of
said Credit Agreement and in Section 5 of the Pledge and Security Agreement are
true and correct in all material respects with the same force and effect as if
made on and as of the date hereof; and (c) after giving effect to the Advance
requested herein the Aggregate Outstandings will not exceed the Borrowing Base.
Very Truly yours,
EXPRESS AMERICA MORTGAGE
CORPORATION
By:___________________________
Its:________________________
<PAGE>
EXHIBIT 2.02
TO CREDIT AGREEMENT
-------------------
PROMISSORY NOTE
---------------
$2,500,000 January 25, 1996
Minneapolis, Minnesota
FOR VALUE RECEIVED, EXPRESS AMERICA MORTGAGE CORPORATION, an Arizona
corporation (the "Company"), hereby promises to pay to the order of FIRST BANK
NATIONAL ASSOCIATION (the "Bank"), at the main office of the Bank at First Bank
Place, 601 Second Avenue South, Minneapolis, Minnesota 55402-4302, or at such
other office as may be designated in writing by the Bank, in lawful money of the
United States of America in Immediately Available Funds (as such term and each
other capitalized term used herein are defined in the Credit Agreement
hereinafter referred to), the principal sum of Two Million Five Hundred Thousand
and 00/100ths Dollars ($2,500,000.00) or the aggregate unpaid principal amount
of all Advances made by the Bank hereunder pursuant to a Warehousing Credit
Agreement dated as of January 25, 1996 between the Company and the Bank (as the
same may be amended, modified or restated from time to time, the "Credit
Agreement"), whichever is less, and to pay interest from the date hereof on the
unpaid principal balance thereof at the times and at the rate or rates per annum
provided for in the Credit Agreement. Principal of this note is payable at the
times and in the amounts provided for in the Credit Agreement.
This note is the Note referred to in the Credit Agreement and is
subject to mandatory and voluntary prepayment and its maturity is subject to
acceleration, in each case upon the terms provided in the Credit Agreement. This
note is secured by certain collateral referred to in the Credit Agreement. The
Company hereby waives diligence, presentment, demand, protest, and notice
(except such notice as may be required under the Transaction Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the Transaction Documents shall not constitute a waiver thereof in any
subsequent instance. This note is entitled to the benefit of the Pledge and
Security Agreement and the other Transaction Documents.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF MINNESOTA, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the Company agrees to pay all costs and expenses of
collection, including reasonable attorneys' fees.
EXPRESS AMERICA MORTGAGE CORPORATION
By__________________________________
Its__________________________
<PAGE>
EXHIBIT 9.01 C
EXPRESS AMERICA MORTGAGE CORPORATION SUBSIDIARIES, JOINT VENTURES
AND PARTNERSHIPS
WESAV INVESTMENT CORPORATE, a Delaware corporation
WESAV INVESTMENTS INC.-2, a Minnesota corporation
<PAGE>
EXHIBIT 9.06
EXPRESS AMERICA HOLDINGS CORPORATION
AND
EXPRESS AMERICA MORTGAGE CORPORATION
LITIGATION
1. Express America Holdings Corporation ("Company") acquired Express America
Mortgage Corporation ("EAMC") from the Resolution Trust Corporation
("RTC") on May 16, 1991, following a competitive bidding process. The RTC
owned EAMC (which was then named Wesav Mortgage Corporation) as a result
of the receivership of Western Savings and Loan Association Phoenix,
Arizona. The RTC filed a complaint in the United States District Court,
District of Arizona on December 8, 1995, against the Company, Rauscher
Pierce Refsnes, Inc., Smith Barney, Harris Upham & Co., Incorporated and
five individuals and their spouses including the current CEO and CFO of
the Company and two former officers of the Company. The complaint alleges
various irregularities in the bidding process and the closing of the
acquisition. The RTC as asked for at least $20 million in actual damages
and at least $60 million in punitive damages. The Company has investigated
this matter and believes its officers acted properly, and that it has
strong meritorious defenses and it will vigorously defend itself. The
Company also is aware that the United States Attorney, District of Arizona
is investigating this matter.
2. McDermott Summary - This case was initially filed by Sean and Elizabeth
McDermott against Mercury Capital Services, a broker, and Express America
Mortgage Corporation in June of 1994. It was filed as a proposed class
action. The class was defined as all borrowers whose loans were originated
by Mercury as the broker, through any lender or wholesaler, for the one
year period prior to June 9, 1994.
Mercury was an inactive defendant, (and in fact has recently filed a
bankruptcy proceeding.) Express America opposed class certification on the
grounds that there existed insufficient numerosity with regard to
transaction in which it was involved with Mercury, and it would be
inappropriate for the Court to order class treatment with respect to
transactions involving other lenders if those Lender were not parties.
Thereafter, the Plaintiffs moved to add all of the other lenders
("Additional Lenders"). That motion was opposed, but on July 12, 1995, the
Court entered an order granting Class certification and permitting the
addition of all of the Additional Lenders, approximately sixteen (16) new
defendants. The substantive issues in the case involved allegation of
violations of RESPA. In a nutshell, the Plaintiff alleges certain
disclosure violations, which are relatively minor, and as to which there
is a strong argument that no private right of action exists. The heart of
the Plaintiffs' case is that the "yield spread differentials" or
<PAGE>
"service release premiums" charged to the Plaintiffs and all other class
members are per se violations of RESPA, thereby entitling each borrower to
the recovery of three (3) times the yield spread differential or services
release premium charged, plus attorney's fees. Express America had only
five (5) transactions with Mercury in which a yield spread differential or
service release premium was charged. Several of the Additional Lenders
have filed Motions to Dismiss and/or Summary Judgment. These motions for
the most part relate to a questions of the applicable statute of
limitations, and the date within which it begins to run for them. Those
issues are not directly related to defenses which will be available to
Express America (since it was an original Defendant), but, if successful,
they could once against reduce the class.
There have recently been some settlement negotiations in this case.
Plaintiffs counsel have proposed a settlement whereby each settling
Defendant pay three (3) times the amount of the yield spread for each
relevant transaction plus a proportion of attorneys fees. That proposal
has been modified downward to be two (2) times the yield spread plus fees
(and the current discussions may have moved it down further to a 1.5
multiple). However, Plaintiffs' counsel have indicated a willingness to
proceed in this fashion only if most, if not all, of the Lenders
(including the key larger one like Colonial) are willing to settle. We are
not aware of what final position the Lenders with the larger amount of
transactions have taken to this proposal.
3. Grant Summary - The Plaintiff, Jacqueline Grant, is a recent home buyer,
whose loan was brokered through co-defendant, Innovative Mortgage Company,
Inc. and was funded by Express America Mortgage Corp. The Company was
substantially amended in April of 1995 and again in May of 1995. The
amended complaint now assets nine (9) separate causes of action, as
follows: violations of RESPA; restitution for money had and received;
violations of RICO; violations of Truth-In-Lending; fraud in the
indictment; international interference with contract; including breach of
fiduciary duty; request for declaratory relief relating to the outstanding
loan; and, common law fraud.
The action was filed as a punitive class action, but no action has yet
been taken by the Plaintiff or the Court to certify and class. The
proposed class (or classes) as articulated in the Complaint would be very
broad, encompassing in proposed Class A all borrowers in Express America
loans made in the United States (and no time frame is asserted) without
regard to any involvement of co-Defendant Innovative; and, in Class B, all
borrowers in loans made in Alabama originated by Innovative.
All of the nine counts revolve around one central theme asserted by the
Plaintiff, namely that the "yield spread differentials" or "service
release premium" is per se unlawful, both under RESPA and various other
statutes, as well as under various common law theories.
<PAGE>
The Grant case is the third of three similar cases filed by the same
Plaintiffs' attorneys. The other two cases are Bailey v. North American
Mortgage Company, Civil Action No. 94-T-1400-N and Willis v. Quality
Mortgage USE, Inc., Civil Action No. 94-T-1370-N. All three cases are
pending before the same judge, the Honorable Myron Thompson, United States
District Judge for the Middle District of Alabama. The other two cases
were filed before the Grant case. In both of those cases the Defendants
have filed motions which could be determinative on some, if not all, of
the issues raised by the Plaintiffs in those cases, (and, by implication,
the grant case).
For that reason, on October 11, 1995, Judge Thompson entered an order
staying any further action in the Grant case until he resolves the pending
motions in the Bailey and Willis cases. As of this time, we are not aware
of any resolution of those pending motions. There have been no settlement
negotiations in the Grant case. Indeed, it would seem that no meaningful
settlement discussions are possible until the pending motions if Bailey
and Willis are resolved, and until the Court addresses the issue of class
certification. For it would be virtually impossible to look at any
settlement possibilities until such time as we know the scope of any
certified class.
Discovery is this case has uncovered significant problems for the
Plaintiff's side with the individual names Plaintiff. For example, the
Complaint alleges that Ms. Grant's loan was for home repair purposes, not
for home buying purposes. Factually, that is incorrect, and legally it is
significant because it totally undercuts the Truth-In-Lending rescission
claim. For reasons such as this Plaintiff's counsel have indicated that
they may seek to substitute or add a new named Plaintiff, but that has not
occurred.
EAMC is also involved in various other legal proceedings which arouse in
the course of its discontinued mortgage operations. Management is of the
opinion that such proceedings are not material in nature and will not have
a material adverse effect on EAMC.
<PAGE>
EXHIBIT 9.15
EXPRESS AMERICA MORTGAGE CORPORATION
GOVERNMENTAL PROCEEDINGS
None; see Exhibit 9.06
<PAGE>
EXHIBIT 10.07
EXPRESS AMERICA MORTGAGE CORPORATION
INDEBTEDNESS
The following are Express America Mortgage Corporation liabilities as
of September 30, 1995. Such liabilities have not changes materially as of
January 25, 1996.
Liabilities:
Accounts payable $ 247,460
Accounts payable controlled disbursement 447,751
Accrued vacation 97,925
Loss allowance 4,346,478
Other payables and accruals 1,272,438
---------
Current Liabilities $ 6,412,051
The loss allowance covers expected losses arising out of obligations of
the mortgage company incurred while it was conducting its mortgage banking
business. The loss allowance generally covers expected losses that will arise
out of the repurchase of loans originated by Express America.
<PAGE>
EXHIBIT 10.08
EXPRESS AMERICA MORTGAGE CORPORATION
LIENS
There are no Liens other than those Liens permitted under Section 10.08.
<PAGE>
EXHIBIT 11.01(d)
AGREEMENT RELATING TO COLLATERAL ASSIGNMENT
-------------------------------------------
THIS AGREEMENT RELATING TO COLLATERAL ASSIGNMENT ("Consent") made and
entered into as of the 25th day of January, 1996, by and between EXPRESS AMERICA
MORTGAGE CORPORATION (the "Company"), NATIONSBANC MORTGAGE CORPORATION
("NationsBanc") and FIRST BANK NATIONAL ASSOCIATION (the "Lender").
WITNESSETH
----------
WHEREAS, NationsBanc has heretofore made and executed in favor of the
Company a Non-Negotiable Promissory Note dated September 30, 1994 in the
original principal amount of $4,205,097.00 (the "Note");
WHEREAS, the Company and the Lender are parties to a Warehousing Credit
Agreement dated as of January 25, 1996, pursuant to which the Lender has agreed
to make certain loans to the Company (such Warehousing Credit Agreement, as
amended, supplemented, restated or otherwise modified and in effect from time to
time, and any other agreement between the Lender and the Company entered into in
connection therewith, are hereinafter referred to as the "Credit Agreement"), to
finance, among other things, the repurchase by the Company of certain mortgage
loans pursuant to loan servicing contracts purchased by NationsBanc pursuant to
an Asset Purchase Agreement dated as of August 27, 1994 between the Company and
NationsBanc (the "Contract");
WHEREAS, to secure the "Obligations" (as defined in the Credit
Agreement), the Company has granted to the Lender a lien and security interest
in, and assigned to the Lender as collateral, among other assets, the Note and
all rights of the Company to receive payments under the Note;
WHEREAS, the Lender is not willing to make loans under the Credit
Agreement until the Company and NationsBanc execute and deliver this Consent;
and
WHEREAS, the loans to be made by the Lender to the Company will be of
benefit to NationsBanc;
NOW, THEREFORE, in consideration of the foregoing, the sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. NationsBanc consents to the grant by the Company to the Lender of a
security interest in, and the collateral assignment by the Company to the Lender
of, the Company's right, title and interest in and to the Note and all rights of
the Company to receive payments under the Note.
<PAGE>
2. The Lender acknowledges and agrees that said security interest and
collateral assignment granted by the Company to the Lender are subject to all
defenses which NationsBanc may have, including, but not limited to, all rights
of offset as set forth in the Note and/or in the Contract, and shall not in any
way affect or impair the rights of NationsBanc under the Note or the Contract.
3. The Lender and the Company hereby direct NationsBanc to make all
future payments under the Note to the Lender, for the account of the Company.
Such payments shall be made by wire transfer to the Lender at First Bank
National Association, First Bank Place, 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302 for credit to the Company's collateral account no.
1731-0096-9620. The Lender will deposit all such payments in the Collateral
Account (as defined in the Credit Agreement).
4. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
EXPRESS AMERICA MORTGAGE
CORPORATION
By ___________________________
Its______________________
NATIONSBANC MORTGAGE CORPORATION
By ___________________________
Its______________________
FIRST BANK NATIONAL ASSOCIATION
By ___________________________
Its______________________
- 2 -
<PAGE>
EXHIBIT 11.01(k)
Brown & Bain [LETTERHEAD]
January ___, 1996
Warehousing Credit Agreement (the "Agreement"),
-----------------------------------------------
dated as of January 25, 1995,
-----------------------------
by and between Express America Mortgage Corporation,
----------------------------------------------------
an Arizona corporation (the "Company")
--------------------------------------
and First Bank National Association
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel to the Company and Express America Holding
Corporation, a Delaware corporation ("EAHC"), in connection with the
transactions contemplated by the Agreement. This opinion is delivered to you
pursuant to Section 11.01(k) of the Agreement. Terms defined in the Agreement
are used herein as defined herein.
In rendering the opinions expressed below, we have examined the
originals or conformed copies of such corporate records, agreements and
instruments of the Company and EAHC, certificates of public officials and of
officers of the Company and EAHC and such other document sand records, as such
matters of law, as we have deemed appropriate as a basis for the opinions
hereinafter expressed. In our examination, we have assumed the authenticity of
all documents submitted to us as originals, the conformity with the originals of
all document submitted to us as certified or photostatic copies thereof and the
authenticity of the originals of such latter documents. In addition, we have
assumed the genuineness of all signatures, the due authorization, execution and
delivery of all documents referred to herein by parties thereto other than the
Company and EAHC and the due authority of all persons executing such documents
except persons executing such documents on behalf of the Company and EAHC.
Based upon the foregoing, we are of the opinion that:
1. Each of EAHC and the Company (collectively, the
"Transactions Parties" and, individually, a "Transaction Party") has been duly
incorporated, is a validly existing corporation and in good standing under the
laws of its respective jurisdiction of incorporation and has the requisite
corporate power to own its respective properties and to conduct its respective
businesses as currently conducted by it. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each
<PAGE>
BROWN & BAIN P.A.
First Bank
National Association January __, 1996
-2-
jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by its makes such qualification
necessary, except in jurisdictions in which the failure to be in good standing
will not preclude it from enforcing its rights with respect to any material
assets or expose it to any material assets or expose it to any material
liability.
2. The execution, delivery and performance by each Transaction
Party of each Transaction Document to which it is a party, and the consummation
of the transactions contemplated thereby, are within the corporate powers of
such Transaction Party, have been duly authorized by all necessary corporate
action and do not, and the consummation of the transactions contemplated thereby
and compliance by each Transaction Party with the applicable provisions thereof
will not, conflict with, constitute a default under or violate (a) any of the
terms, conditions or provisions of its articles or certificate of incorporation
or bylaws, (b) any of the terms, conditions or provisions of any document,
agreement or other instrument which is known to us to which it is a party or by
which it is bound, or (c) any judgment, writ, injunction, decree, order or
ruling of any court or governmental authority binding on it and known to us.
3. Each Transaction Document to which a Transaction Party is a
party has been duly executed and delivered by such Transaction Party and is the
legal, valid and binding obligation of such Transaction Party enforceable
against such Transaction Party in accordance with its terms, subject to
limitations as to enforceability which might result from general equitable
principles or bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws affecting creditors' rights generally.
4. No consent, approval, waiver, license or authorization or
other action by or filing with any governmental authority is required in
connection with the execution, delivery and performance by any Transaction Party
of any Transaction Document to which it is a party except for those which have
already been obtained and are in full force and effect.
5. The Pledge and Security Agreement creates a valid security
interest in the "Collateral" (as defined therein).
6. Upon delivery to the Bank of a Mortgage Note in accordance
with Section 4.01 of the Pledge and Security Agreement, the Bank will have a
perfected security interest in such Mortgage Note and in the related Mortgage
and Mortgage Loan, which perfected security interest will continue so long as
such Mortgage Note continues to be held by or for the Bank as contemplated by
the Pledge and Security Agreement.
<PAGE>
BROWN & BAIN P.A.
First Bank
National Association January __, 1996
-3-
7. The security interests granted under the Pledge and
Security Agreement to the Bank in the Collateral Account and the balances,
credits and deposits contained in the Collateral Account will be perfected when
the Collateral Account is established by the Bank and there are balances,
credits or deposits in the Collateral Account.
8. The financing statement to be filed under the Pledge and
Security Agreement in the form attached to this opinion as Exhibit A is in
proper form for filing in the office of the Secretary of State of the State of
Arizona. Assuming that said financing statement has been duly filed with said
office and that the Company has rights in the collateral described therein, the
security interested granted under the Pledge and Security Agreement to the Bank
has been perfected as to the Collateral which is other than Eligible Pledged
Mortgage Loans, the Collateral Account or balances, credits or deposits
contained in the Collateral Account, to the extent that the Bank's security
interest is the Collateral may be perfected by filing such financing statement
under the Uniform Commercial Code.
9. To the best of our knowledge, there is no litigation,
proceeding or governmental investigation pending or threatened against any
Transaction Party or its properties except as disclosed in Schedule 9.06 to the
Credit Agreement.
10. The Company is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
11. The Company is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power act, the Interstate
Commerce Act, or the Investment Company Act of 1940, or to any Federal or state
statute limiting its ability to incur indebtedness for borrowed money.
12. The making of any Advances and the application of the
proceeds thereof by the Company as provided in the Agreement will not violate
Regulations G, U or X of the Board of Governors of the Federal Reserve System.
In basing the opinions and other matter express herein on "to our
knowledge" or "known to us," "to our knowledge" and "known to us" are intended
to signify that, in the course of our representation of the Company and EAHC in
matters with respect to which we have been engaged by the Company and EAHC as
special counsel, no information has come to our attention which would give us
actual knowledge or actual notice that any such opinions of other matters are
not accurate or complete or that any of
<PAGE>
BROWN & BAIN P.A.
First Bank
National Association January __, 1996
-4-
the documents, certificates, reports and information on which we have relied are
not accurate and complete.
Our opinions are limited to the laws of Arizona, the General
Corporation Law of Delaware and applicable Federal law, and we express no
opinion concerning the laws or any other jurisdictions. For purposes of our
opinions herein we have assumed, with your consent, that the laws of Minnesota
which govern the Transaction Documents are identical in all respects to the laws
of Arizona.
The opinions express in this letter are based upon the law in effect on
the date hereof, and we assume no obligation to revise or supplement this
opinion should such law be changed by legislative action, judicial decision or
otherwise.
These opinions are furnished to you solely for your use in connection
with the transactions described herein; they are not to be used or relied upon
for any other purpose or by any other person without our prior consent, except
you may provide copies of this letter to your attorneys and auditors, and to
governmental authorities in connection with their bank regulatory activities,
and to any participant, assignee or potential participant or assignee of your
rights under the Agreement.
Very truly yours,
/s/ Brown & Bain, P.A.
Brown & Bain, P.A.
First Bank National Association
601 Second Avenue South
Minneapolis, Minnesota 55402
<PAGE>
PROMISSORY NOTE
---------------
$2,500,000 January 25, 1996
Minneapolis, Minnesota
FOR VALUE RECEIVED, EXPRESS AMERICA MORTGAGE CORPORATION, an Arizona
corporation (the "Company"), hereby promises to pay to the order of FIRST BANK
NATIONAL ASSOCIATION (the "Bank"), at the main office of the Bank at First Bank
Place, 601 Second Avenue South, Minneapolis, Minnesota 55402-4302, or at such
other office as may be designated in writing by the Bank, in lawful money of the
United States of America in Immediately Available Funds (as such term and each
other capitalized term used herein are defined in the Credit Agreement
hereinafter referred to), the principal sum of Two Million Five Hundred Thousand
and 00/100ths Dollars ($2,500,000.00) or the aggregate unpaid principal amount
of all Advances made by the Bank hereunder pursuant to a Warehousing Credit
Agreement dated as of January 25, 1996 between the Company and the Bank (as the
same may be amended, modified or restated from time to time, the "Credit
Agreement"), whichever is less, and to pay interest from the date hereof on the
unpaid principal balance thereof at the times and at the rate or rates per annum
provided for in the Credit Agreement. Principal of this note is payable at the
times and in the amounts provided for in the Credit Agreement.
This note is the Note referred to in the Credit Agreement and is
subject to mandatory and voluntary prepayment and its maturity is subject to
acceleration, in each case upon the terms provided in the Credit Agreement. This
note is secured by certain collateral referred to in the Credit Agreement. The
Company hereby waives diligence, presentment, demand, protest, and notice
(except such notice as may be required under the Transaction Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the Transaction Documents shall not constitute a waiver thereof in any
subsequent instance. This note is entitled to the benefit of the Pledge and
Security Agreement and the other Transaction Documents.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF MINNESOTA, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the Company agrees to pay all costs and expenses of
collection, including reasonable attorneys' fees.
EXPRESS AMERICA MORTGAGE CORPORATION
By /s/ James Hennessy
Its Senior Vice President
<PAGE>
PLEDGE AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of January 25, 1996 by and between
EXPRESS AMERICA MORTGAGE CORPORATION (the "Pledgor"), an Arizona corporation,
and FIRST BANK NATIONAL ASSOCIATION (the "Bank"), a national banking
association.
WITNESSETH, That:
WHEREAS, the Pledgor and the Bank have entered into a
Warehousing Credit Agreement of even date herewith (as the same may be amended,
supplemented, restated or otherwise modified from time to time in writing by the
Pledgor and the Bank, the "Credit Agreement"), pursuant to which the Bank has
agreed to make certain credit facilities available to the Pledgor on the
condition, among others, that Pledgor execute and deliver this Agreement to the
Bank; and
WHEREAS, the Pledgor finds it advantageous, desirable and in
its best interests to comply with the condition that it execute and deliver this
Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and in order to induce the Bank to become a
party to, and to extend credit under, the Credit Agreement, the parties hereto
agree as follows:
Section 1. DEFINITIONS
Each capitalized term used herein which is not otherwise
defined herein (including, without limitation, the term "Obligations") shall
have the meaning ascribed to such term in the Credit Agreement, including
Exhibit 1.01-B thereto. In addition, the following terms shall have the
following respective meanings:
"Bailee Letter": a letter substantially in the form of
Attachment 1 hereto.
"Collateral": as such term is defined in Section 2 hereof
"Collections": as such term is defined in Section 2 hereof.
"FHLMC Security": a Mortgage-backed Security issued or
guaranteed by FHLMC.
<PAGE>
"FIRREA Qualifying Appraisal": with respect to any Pledged
Mortgage Loan, an appraisal of the real estate securing such Pledged Mortgage
Loan which meets the requirements of the applicable appraisal regulations under
Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of
1989, including, without limitation, the appraisal regulations applicable to
mortgage warehousing loans.
"FNMA Security": a Mortgage-backed Security issued or
guaranteed by FNMA.
"GNMA Pool Custodian": as such term is defined in Section
10.03 hereof.
"GNMA Pool Custodian Letter": a letter substantially in the
form of Attachment 2 hereto.
"GNMA Security": a Mortgage-backed Security guaranteed by
GNMA.
"Obligor": a person or other entity who now or hereafter is or
becomes liable to the Pledgor with respect to any of the Collateral.
"Pledged Mortgage Loans": Mortgage Loans deemed to have been
delivered to the Bank as provided in Section 4.01 hereof.
"Pledgor": as such term is defined in the first paragraph of
this Agreement.
"Pool Mortgage": as such term is defined in Section 10.03
hereof.
"PTC": as such term is defined in Section 10.03 hereof.
"PTC Account": as such term is defined in Section 10.03
hereof.
"PTC Participant": as such term is defined in Section 10.03
hereof.
"Related Mortgage-backed Security": a Mortgage-backed Security
that represents an interest in, or is secured by, any Mortgage Loans that were
Pledged Mortgage Loans at the time of formation of the related pool.
"Settlement Amount": as such term is defined in Section 10.03
hereof.
"Settlement Date": as such term is defined in Section 10.03
hereof.
"Transmittal Letter": a transmittal letter substantially in
the form of Attachment 3 hereto.
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<PAGE>
"Trust Receipt": a trust receipt substantially in the form of
Attachment 4 hereto.
Section 2. PLEDGE
As collateral security for the due and punctual payment of the
Obligations, the Pledgor does hereby pledge, hypothecate, assign, transfer and
convey to the Bank and its successors and assigns, and grants to the Bank and
its successors and assigns, a security interest in and to the following
described property (the "Collateral"):
(a) all right, title and interest of the Pledgor in and to the
Pledged Mortgage Loans and Related Mortgage-backed Securities and all
promissory notes, participation agreements, participation certificates,
or other instruments or agreements which evidence the Pledged Mortgage
Loans and Related Mortgage-backed Securities;
(b) all right, title and interest of the Pledgor in and to all
Mortgage Notes and other notes, real estate mortgages, deeds of trust,
security agreements, chattel mortgages, assignments of rent and other
security instruments whether now or hereafter owned, acquired or held
by the Pledgor which secure (or constitute collateral for any note,
instrument or agreement securing) any of the Pledged Mortgage Loans;
(c) all right, title and interest of the Pledgor in and to all
financing statements perfecting the security interest of any of the
Pledged Mortgage Loans or property securing any Pledged Mortgage Loan;
(d) all right, title and interest of the Pledgor in and to all
guaranties, insurance policies and other instruments by which the
persons or entities executing the same guarantee or insure, among other
things, the payment or performance of the Pledged Mortgage Loans;
(e) all right, title and interest of the Pledgor in and to all
title insurance policies, title insurance binders, commitments or
reports insuring or relating to any Pledged Mortgage Loan or property
securing any Pledged Mortgage Loan;
(f) all right, title and interest of the Pledgor in and to all
surveys, bonds, hazard and liability insurance policies, participation
agreements and any other agreement, instrument or document pertaining
to, affecting, obtained by the Pledgor in connection with, or arising
out of, the Pledged Mortgage Loans;
-3-
<PAGE>
(g) all right, title and interest of the Pledgor in and to all
agreements to purchase any Pledged Mortgage Loans or Related
Mortgage-backed Securities, or agreements to purchase Mortgage Loans or
Mortgage-backed Securities under which any Pledged Mortgage Loans or
Related Mortgage-backed Securities are eligible for sale (hereinafter
collectively called "Take-Out Commitments");
(h) all right, title and interest of the Pledgor in and to all
collections on, and proceeds of or from, any and all of the foregoing
(hereinafter collectively called "Collections");
(i) all right, title and interest of the Pledgor in and to any
other asset of the Pledgor which has been or hereafter at any time is
delivered to the Bank hereunder;
(j) all files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, discs, cards, accounting records,
and other records, information, and data of the Pledgor relating to the
Pledged Mortgage Loans (including all information, data, programs,
tapes, discs and cards necessary to administer and service such Pledged
Mortgage Loans and Related Mortgage-backed Securities);
(k) all right, title and interest of the Pledgor in and to all
balances, credits and deposits contained in the Collateral Account and
in the PTC Account, to the extent that such balances, credits and
deposits constitute proceeds of Advances or proceeds of Collateral
described in this Agreement;
(l) all private mortgage insurance, FHA insurance and VA
guaranties relating to any Pledged Mortgage Loans or Related
Mortgage-backed Securities and the proceeds of any such insurance and
guaranties;
(m) all right, title and interest of the Pledgor in and to the
NationsBanc Note, the NationsBanc Agreement and the NationsBanc
Documents; and
(n) any and all balances, credits, deposits, accounts or
moneys of, or in the name of, the Pledgor representing or evidencing
the foregoing or any proceeds thereof, and any and all proceeds of any
of the foregoing.
Section 3. REPORTS CONCERNING EXISTING COLLATERAL AND HEREAFTER
ACQUIRED COLLATERAL
From time to time hereafter as reasonably requested by the
Bank, the Pledgor will promptly give a written report to the Bank describing and
listing each document, instrument or other paper which evidences, secures,
guarantees, insures or pertains to any item of the Collateral whether now or
hereafter owned, acquired
-4-
<PAGE>
or held by the Pledgor that the Pledgor has not theretofore delivered to the
Bank. Such written report shall contain sufficient information to enable the
Bank to identify each such document, instrument or other paper. The Pledgor (a)
upon the request of the Bank, shall promptly provide additional information
concerning, or a more complete description of, each such document, instrument or
other paper and (b) at the request of the Bank, shall promptly deliver the same
to the Bank.
Section 4. DELIVERY OF COLLATERAL DOCUMENTS
4.01 Delivery of Mortgage Loans. A Mortgage Loan shall be
deemed to have been delivered under this Pledge and Security Agreement when the
following described instruments and documents shall have been delivered to the
Bank in accordance with the provisions of this Section 4.01:
(a) the original Mortgage Note evidencing such Mortgage Loan,
duly endorsed in blank as follows:
"Pay to the order of,
-------------------------------
without recourse
EXPRESS AMERICA MORTGAGE CORPORATION
By
-----------------------------
Title "
--------------------------
(b) an original or a copy of the Mortgage securing such
Mortgage Loan, containing all recording information;
(c) a duly executed appropriate assignment of said Mortgage in
favor of the Bank and in recordable form;
(d) if there are any intermediate assignments of said
Mortgage, an original or a copy of each such assignment, containing all
recording information;
(e) if any of the foregoing documents was executed on behalf
of a party thereto by another Person under a power of attorney, the
original or a copy of the executed copy of such power of attorney,
containing all recording information; and
(f) a Transmittal Letter listing all documents being delivered
to the Bank.
-5-
<PAGE>
The instruments and documents to be delivered under this Section 4.01 shall be
delivered no later than 10:00 a.m. (Minneapolis time) on the Business Day
preceding the Business Day on which the Advance is to be made for the purpose of
financing the repurchase of such Mortgage Loan.
4.02 Delivery of Additional Mortgage Loan Documents Upon
Request. Within seven calendar days after receiving a written request from the
Bank to deliver the same with respect to any Pledged Mortgage Loan, the Pledgor
shall deliver to the Bank the following:
(a) Original guaranties, mortgage insurance certificates,
assignments of rents and other instruments and documents relating to
security for and payment of such Pledged Mortgage Loan, together with
duly executed assignments thereof;
(b) A mortgagee's title insurance policy (or commitment
therefor) in the form of an American Land Title Association standard
policy (revised coverage, most recent form) from a substantial and
reputable title insurance company acceptable to FNMA and FHLMC in favor
of the Pledgor insuring the lien of the mortgage securing such Pledged
Mortgage Loan (subject only to such liens and encumbrances as are
generally acceptable to reputable lending institutions, mortgage
investors and securities dealers) or, if such a mortgagee's title
policy (or commitment therefor) is generally not available in the state
in which the real property subject to such mortgage is located, an
opinion of an attorney reasonably acceptable to the Bank to the effect
that the Mortgage securing such Pledged Mortgage Loan is a valid first
lien free and clear of all other liens, encumbrances and restrictions
except such as are generally acceptable to reputable lending
institutions, mortgage investors and securities dealers;
(c) Evidence satisfactory to the Bank that the premises
covered by the Mortgage securing such Pledged Mortgage Loan is insured
against fire and perils of extended coverage for an amount at least
equal to the lesser of the full insurable value of such premises and
the Collateral Value of such Pledged Mortgage Loan;
(d) With respect to each Pledged Mortgage Loan and each
Related Mortgage-backed Security, copies of any applicable Take-Out
Commitment and all documents and instruments called for thereunder;
(e) With respect to each Pledged Mortgage Loan secured by a
Mortgage which is insured by the FHA or guaranteed by the VA, a
certificate signed by an officer of the Pledgor that, as of the date of
delivery thereof, the Pledgor has possession of the applicable FHA
insurance certificate or VA guarantee covering such Pledged Mortgage
Loan;
-6-
<PAGE>
(f) Originals, or photocopies, as the Bank may request, of
surveys (or plat maps, if surveys are not available) and all other
instruments, documents and other papers pertaining to each such Pledged
Mortgage Loan which are in the possession or control of the Pledgor or
which the Pledgor has the right to possess or control;
(g) The original of each Mortgage referred to Section 4.01(b)
hereof, together with satisfactory evidence of its recordation, or, if
the original recorded Mortgage has not been returned to the Pledgor by
the applicable recording officer, a copy of the original recorded
Mortgage certified as a true and exact copy thereof by the applicable
recording officer;
(h) Evidence satisfactory to the Bank that the Pledgor has
obtained and maintains in its files, as agent for the Bank, a FIRREA
Qualifying Appraisal with respect to such Pledged Mortgage Loan, which
evidence may include, but is not limited to, a copy of such FIRREA
Qualifying Appraisal certified by the Pledgor to be a true and exact
copy of the original thereof as maintained in the Pledgor's files; and
(i) copies of all truth-in-lending disclosures showing
compliance with Regulation Z of the Board of Governors of the Federal
Reserve System and copies of all disclosures under the Real Estate
Settlement Procedures Act;
provided, however, that if the original recorded Mortgage or a certified copy
thereof is requested by the Bank pursuant to clause (g) above and neither of
such items can be obtained from the applicable recording office within such
seven-day period, then such original recorded Mortgage or a certified copy
thereof shall furnished to the Bank by the Pledgor as promptly as possible.
4.03 Form of Assignments. All assignments executed and
delivered by the Pledgor pursuant to this Section 4 shall be in form and
substance acceptable to and approved by the Bank.
4.04 Effect of Transmittal Letters. Any Transmittal Letter
delivered to the Bank hereunder, together with the documents accompanying any
such Transmittal Letter, shall conclusively be presumed to have been delivered
to the Bank on behalf of the Pledgor notwithstanding that any such Transmittal
Letter shall not be signed or submitted by a person who has been authorized in
writing to do so by the Pledgor through its Board of Directors or otherwise.
4.05 Endorsement and Delivery of Checks, Etc. The Pledgor will
from time to time whenever an Event of Default exists, upon the request of the
Bank, endorse and deliver to the Bank any draft, check, note or other writing
which evidences a right to the payment of money which constitutes Collateral.
-7-
<PAGE>
4.06 Defects in Collateral Documentation; Loss of Collateral
Value. A Pledged Mortgage Loan which has been delivered to the Bank under this
Pledge and Security Agreement in accordance with Section 4.01 hereof shall be
and remain Collateral which is subject to the lien and security interest granted
to the Bank under Section 2 hereof until such Pledged Mortgage Loan is sold to
an Investor in accordance with Sections 10.02 and 10.03 hereof (in which case
the proceeds thereof, including, without limitation, any Related Mortgage-backed
Security, shall constitute Collateral) or released pursuant to Section 10.04
hereof or until this Pledge and Security Agreement terminates in accordance with
Section 19 hereof, notwithstanding (a) any defect in any document delivered to
the Bank pursuant to Section 4.01 hereof, (b) the failure of such Pledged
Mortgage Loan to be or to remain a Pledged Approved Mortgage Loan, (c) the
failure of such Pledged Mortgage Loan to have or to retain Collateral Value, (d)
the failure of the Pledgor to make timely delivery of any document required to
be delivered to the Bank under Section 4.02 hereof, or (e) any other fact,
circumstance, condition or event whatsoever. For purposes of the preceding
sentence, the financing or refinancing of the repurchase of a Pledged Mortgage
Loan from the proceeds of Advances and/or the assignment of Collateral Value to
such Pledged Mortgage Loan by the Bank shall be deemed to be conclusive evidence
of the delivery of such Pledged Mortgage Loan under Section 4.01 hereof,
notwithstanding any subsequent determination by the Bank that the documentation
delivered for such Pledged Mortgage Loan was incomplete or defective in any
respect or that such Pledged Mortgage Loan should not have been assigned
Collateral Value.
4.07. Delivery of NationsBanc Note. The Pledgor shall deliver
the original executed copy of the NationsBanc Note to the Bank in accordance
with the Credit Agreement.
Section 5. REPRESENTATIONS AND WARRANTIES
The Pledgor hereby represents and warrants that: (a) all of
the representations and warranties set forth in the Credit Agreement are true
and correct; (b) the Pledgor is or will be the legal and equitable owner of the
Collateral and its interests therein are or will be free and clear of all liens,
security interests, charges and encumbrances of every kind and nature (other
than as created hereunder or under Take-Out Commitments or under assignments to
purchasers under Take-Out Commitments); (c) no financing statement or
other evidence of lien covering any of the Collateral is or will be on file in
any public office other than financing statements filed in connection with the
Credit Agreement and related security documents; (d) the Pledgor has good right,
power and lawful authority to pledge, assign and deliver the Collateral in the
manner hereby done or contemplated; (e) no consent or approval of any
governmental body, regulatory authority, person, trust, or entity is or will be
(i) necessary to the validity of the rights created hereunder or (ii) required
prior to the assignment, transfer and
-8-
<PAGE>
delivery of any of the Collateral to the Bank; (f) to the Pledgor's knowledge,
no material dispute, right of setoff, counterclaim or defense exists with
respect to all or any part of the Collateral; (g) this Pledge and Security
Agreement constitutes the legal, valid and binding obligation of the Pledgor
enforceable against the Pledgor and the Collateral in accordance with its terms
(subject to limitations as to enforceability which might result from bankruptcy,
reorganization, arrangement, insolvency or other similar laws affecting
creditors' rights generally); (h) the Pledgor has or will have fully complied
with, and all collateral documents delivered with respect to such Pledged
Mortgage Loan comply or will comply with, all applicable federal, state and
local laws, regulations and rules, including, but not limited to, (i) usury
laws, (ii) the Real Estate Settlement Procedures Act of 1974, (iii) the Equal
Credit Opportunity Act, (iv) the Federal Truth in Lending Act, (v) Regulation Z
of the Board of Governors of the Federal Reserve System and (vi) all other
consumer protection and truth-in-lending laws which may apply, and in each case
with the regulations promulgated in connection therewith, as the same may be
amended from time to time; and the Pledgor shall maintain sufficient documentary
evidence in its files with respect to such Pledged Mortgage Loans to
substantiate such compliance; (i) the Pledgor has obtained or will obtain prior
to the delivery of any Mortgage Loan to the Bank in accordance with Section 4.01
hereof, and will maintain in its files as agent for the Bank, a FIRREA
Qualifying Appraisal with respect to such Mortgage Loan; (j) immediately upon
(i) the execution and delivery of the Credit Agreement, the Note and the other
Loan Documents, (ii) the acquisition by the Pledgor of rights in a Pledged
Mortgage Loan and (iii) the delivery of the Mortgage Note evidencing such
Pledged Mortgage Loan to the Bank as contemplated by Section 4.01 hereof, the
Bank shall have a valid and perfected first priority security interest in such
Pledged Mortgage Loan; (k) immediately upon (i) the execution and delivery of
the Credit Agreement, the Note and the other Loan Documents, (ii) the
acquisition by the Pledgor of rights in such Collateral and (iii) the filing
with the Secretary of State of Arizona of a financing statement showing the
Pledgor as debtor and the Bank as secured party and describing the Collateral,
the Bank shall have a valid and perfected first priority security interest in
the Collateral which is other than as described in clause (j) of this Section 5,
to the extent that a security interest in such other Collateral can be perfected
by filing a financing statement; (l) each Pledged Mortgage Loan has been fully
advanced and is a first lien on the premises described therein; (m) each Pledged
Mortgage Loan and each Pledged Approved Mortgage Loan complies with all
requirements of this Agreement and the Credit Agreement applicable thereto; (n)
except as described in the Borrowing Base Certificates provided by the Pledgor
to the Bank pursuant to Section 10.01 of the Credit Agreement, or as otherwise
disclosed to the Bank, there is no monetary default existing under any Pledged
Mortgage Loan that has continued for more than 60 days and to the knowledge of
the Pledgor, there is no other default existing under any Pledged Mortgage Loan;
and (o) all Pledged Mortgage Loans secured by properties located in special
flood hazard areas designated by the Secretary of Housing and Urban Development
are and shall continue to be covered by flood insurance under the National Flood
Insurance Program.
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Section 6. POSSESSION OF COLLATERAL; STANDARD OF CARE
The Bank shall exercise reasonable care in the custody and
preservation of the Collateral and shall keep the Collateral separate from
similar collateral furnished by third parties. The Bank shall be deemed to have
exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as the
Pledgor requests in writing, but failure of the Bank to comply with any such
request shall not itself be deemed a failure to exercise reasonable care, and no
failure of the Bank to preserve or protect any rights with respect to such
Collateral not so requested by Pledgor shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral.
Section 7. COLLECTIONS ON COLLATERAL BY THE PLEDGOR; ACCOUNTING
Until the Bank gives notice to the Pledgor pursuant to the
penultimate sentence of this Section 7 or exercises the Bank's rights under
Sections 8 or 13, the Pledgor shall be entitled to receive all Collections and
use the same in the normal course of business. Upon notice from the Bank to the
Pledgor given after the occurrence and during the continuation of an Event of
Default or an Unmatured Event of Default, the Pledgor shall furnish to the Bank
not later than the tenth Business Day after the end of each month a report on
all Collections received during the preceding month and provide the same
accounting therefor as the Pledgor customarily furnishes the Investors therein,
including with respect to Collections on each Pledged Mortgage Loan: (a) the
name of the borrower, (b) Pledgor's loan number for the Pledged Mortgage Loan,
(c) current principal balance of the Pledged Mortgage Loan, (d) current escrow
balance with respect to the Pledged Mortgage Loan, (e) number and amount of past
due payments on the Pledged Mortgage Loan and (f) the amount of the Collections
received during such month with respect to the Pledged Mortgage Loan, itemized
to show (i) principal portion, (ii) interest portion and (iii) portion thereof
representing amounts paid in escrow for real estate taxes and insurance.
Upon notice from the Bank to the Pledgor given after the
occurrence and during the continuation of an Event of Default or of an Unmatured
Event of Default, the Pledgor shall hold all Collections representing principal
payments and prepayments and escrows for real estate taxes and insurance in
trust for the Bank and shall promptly remit the same to the Bank. All amounts
representing the principal payments and prepayments on Pledged Mortgage Loans
which are delivered to the Bank pursuant to the preceding sentence shall be
deposited in the Collateral Account and all amounts representing real estate tax
and insurance escrows for Pledged Mortgage Loans which are delivered to the Bank
pursuant to the preceding sentence shall be deposited in an escrow account with
any bank
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satisfactory to the Pledgor and the Bank, to be held for the payment of the
applicable real estate taxes and insurance premiums.
Section 8. COLLECTIONS ON COLLATERAL BY THE BANK
Upon the occurrence and during the continuation of an Event of
Default or an Unmatured Event of Default, the Bank shall be entitled, but not
obligated, at any time and from time to time, to notify and direct any or all
Obligors with respect to any of the Collateral thereafter to make all payments
on such Collateral directly to the Bank or such other person or entity
designated by the Bank, regardless of whether the Pledgor was previously making
collections thereon. All amounts paid by Obligors to the Bank pursuant to the
preceding sentence shall be deposited in (a) the Collateral Account, to the
extent such payments represent interest payments and principal payments and
prepayments on Pledged Mortgage Loans, and (b) in an escrow account with any
bank satisfactory to the Pledgor and the Bank, to the extent such payments
represent real estate tax and insurance escrows on Pledged Mortgage Loans, to be
held for the payment of the applicable real estate taxes and insurance premiums.
The Bank shall promptly account to the Pledgor for all such payments received by
the Bank. Each Obligor making such payment to the Bank or such other person or
entity designated by the Bank shall be fully protected in relying on the written
statement of the Bank that the Bank then holds the security interests herein
granted and assigned which entitled the Bank or such other person or entity
designated by the Bank to receive such payment, and the receipt of the Bank or
such other person or entity designated by the Bank for such payment shall be
full acquittance therefor to the Obligor making such payment.
Section 9. DEFAULTED LOANS; COLLECTION AND FORECLOSURE PROCEEDINGS
If the Pledgor wishes to institute collection or foreclosure
proceedings with respect to a Pledged Mortgage Loan, it shall substitute other
Collateral so that it is entitled to a release of such Pledged Mortgage Loan
pursuant to Section 10.04 hereof. If the Pledgor does not own sufficient other
Collateral to obtain a release of such Pledged Mortgage Loan, then so long as an
Event of Default or an Unmatured Event of Default has not occurred and is
continuing, the Bank, upon written request of the Pledgor, will deliver, upon
such terms and conditions as the Bank in its sole discretion may establish, to
an attorney at law, as the agent of the Bank, to the extent necessary for the
purpose of enabling said attorney to institute, in the name of the Pledgor or
the Bank, or in their names or in the names of their nominees, as the Bank may
determine, collection and/or foreclosure proceedings on any Pledged Mortgage
Loan in default the following: (a) the promissory note or other instrument
evidencing any such Pledged Mortgage Loan in default and (b) the mortgage or
deed of trust, if any, that secures such promissory note, or other Collateral
needed by said attorney in connection with such collection and/or foreclosure
proceedings in such manner and in such form as the Bank deems
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necessary or desirable to preserve the Bank's security interests in such
Collateral, provided such Collateral and all proceeds of any such collection
and/or foreclosure efforts shall remain subject to this Pledge and Security
Agreement and the security interests granted herein and all such proceeds shall
be delivered to the Bank as and when and in the form received to the extent
required by the terms of the Credit Agreement. The Pledgor hereby covenants and
agrees that, without first obtaining the prior written consent of the Bank, it
will not request or accept any discount on, or any conveyance, endorsement,
transfer or assignment of any right, title or interest in and to any of the
real, personal or mixed properties sold, pledged, mortgaged, hypothecated,
assigned, transferred, set over or conveyed to the Bank as security for, any of
the promissory notes or other instruments or agreements which evidence Pledged
Mortgage Loans in lieu of foreclosure proceedings if, after giving effect to any
such proposed transaction, the Borrowing Base would be less than the aggregate
unpaid principal amount of the outstanding Supplemental Warehousing Advances. At
such time as such delivery of the Collateral is no longer required in connection
with said collection and/or foreclosure efforts, the same shall be reassigned
and redelivered to the Bank.
Section 10. SALES AND RELEASES OF COLLATERAL
10.01 Redelivery of Collateral for Correction. If no Event of
Default or Unmatured Event of Default exists, the Bank may redeliver to the
Pledgor, for correction, any instrument or document which constitutes or relates
to any of the Collateral; provided, that any such redelivery shall be made
against a Trust Receipt duly completed and executed by the Pledgor requiring,
within 21 days after the redelivery thereof to the Pledgor, the return to the
Bank of each such instrument and document. The Pledgor shall deliver to the Bank
each such instrument and document as soon as it has completed the correction
thereof and, in any event, within 21 days after its receipt thereof.
10.02 Delivery for Sale of Pledged Mortgage Loans. If no Event
of Default or Unmatured Event of Default exists, the Pledgor may direct the
Bank, and the Bank will transmit on behalf of the Pledgor, Pledged Mortgage
Loans, accompanied by a duly completed and executed Bailee Letter, to an
Investor who has issued a Take-Out Commitment. All sale proceeds transferred to
the Bank pursuant to such Bailee Letter and all Mortgage Notes and other
documents returned to the Bank pursuant to such Bailee Letter shall remain a
part of the Collateral unless and until released pursuant to Section 10.04 of
this Pledge and Security Agreement. If required by the applicable Take-Out
Commitment, Pledged Mortgage Loans may be duly assigned of record to the issuer
of such Take-Out Commitment subject to reassignment if not purchased and with
beneficial title to any such assigned Pledged Mortgage Loans being subject to
the above-stated escrow condition. All Pledged Mortgage Loans which are so
transmitted or otherwise delivered but not paid for shall constitute Collateral
and shall, subject to the limits contained herein, be included in determining
the Borrowing Base. The Pledgor further agrees that the
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initial certifications and the settlements in connection with FNMA and GNMA
pools are to be performed by the Bank or its designated agent. The proceeds
received by the Bank from the sale of any Pledged Mortgage Loans pursuant to
this Section 10.03 shall be deposited by the Bank in the Collateral Account and
shall be promptly applied to the payment of principal of the Note; provided,
however, that if an Event of Default has occurred and is continuing, such
proceeds shall be applied in accordance with Section 17 hereof.
10.03 Formation of Pools. (a) The following provisions shall
apply with respect to the delivery of Pledged Mortgage Loans which are intended
for inclusion in a pool of Mortgage Loans backing securities to be issued by
GNMA (each such Mortgage Loan, a "Pool Mortgage"):
(i) The Pledgor shall enter into and conform to such
custody and related agreements required by the Bank or its designated
agent with the approval of the Bank to permit the creation, transmittal
to, maintenance and sale of GNMA Securities in both certificated and
uncertificated book-entry form with Participant Trust Company ("PTC")
in New York City, or such other successor organization or system
approved from time to time by GNMA. Such agreements shall be with such
financial organizations who have been (and continue to be during the
term of this Pledge and Security Agreement) approved by PTC as
participants in PTC and further approved by the Bank, and shall
provide, among other things, that GNMA Securities shall be created,
maintained and traded at the direction, in the name and for the benefit
of the Bank or its designated agent (any such PTC participant being
referred to herein as a "PTC Participant"). The accounts maintained at
PTC to and in which GNMA Securities shall be delivered and maintained,
any trading accounts and any accounts into which proceeds or interest
and other amounts payable in respect of any GNMA Securities which are
pledged hereunder are held are herein collectively referred to as the
"PTC Account." The PTC Account shall, for all purposes of this Pledge
and Security Agreement and any GNMA Securities and the proceeds thereof
and other amounts with respect thereto contained therein, be deemed
part of the Collateral hereunder.
(ii) The Bank shall, provided that no Event of
Default shall have occurred, execute and deliver to a party designated
as a GNMA pool document custodian (a "GNMA Pool Custodian") Form HUD
1711A ("Release of Security Interest") (or any successor form) in
respect of a Pool Mortgage upon the delivery to the Bank of: (A)
a copy of Form HUD 11705 ("Schedule of Subscribers") (or any
successor form) with "Authorization and Instructions to GNMA" duly
completed by the Pledgor, and specifying that (1) the related GNMA
Security shall be made available for pick-up at the Chemical Bank GNMA
window at PTC, (2) such GNMA Security is to be deposited with PTC in
the PTC Account and (3) the Pledgor is the subscriber
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for said GNMA Security for an amount at least equal to the aggregate
outstanding principal balance of all relevant Pool Mortgages; and (B)
delivery instructions with respect to the GNMA Security acceptable to
the Bank and the PTC Participant. The Bank shall deliver the Pool
Mortgages to the GNMA Pool Custodian against a properly executed GNMA
Pool Custodian Letter simultaneously with the delivery of Form HUD
11705 to such GNMA Pool Custodian.
(iii) Upon compliance with the foregoing, the Bank or
its designated agent shall, on the settlement date of the related GNMA
trade (the "Settlement Date"), arrange to have delivered the related
GNMA Securities, in accordance with the Pledgor's delivery
instructions. Upon its receipt of the settlement amount (the
"Settlement Amount") from the PTC Participant, the Bank shall apply
such Settlement Amount in payment of the unpaid principal amount
outstanding under the Note.
(b) With respect to each Pledged Mortgage Loan which is
intended for inclusion in a FNMA or FHLMC Mortgage Loan pool to back book-entry
FNMA or FHLMC Securities, the Pledgor agrees that it will enter into and conform
to such agreements and procedures as are established by the Bank in its sole
judgment from time to time for the delivery of Pledged Mortgage Loans to a FHLMC
or FNMA pool custodian (or directly to FHLMC or FNMA, as the case may be) and
the issuance, maintenance and transfer of FHLMC or FNMA Securities under such
book-entry system or program. The Bank may enter into such agreements as may be
necessary or appropriate in the sole discretion of the Bank in order to
effectuate the issuance, maintenance and transfer of such FNMA or FHLMC
Securities under such book-entry system or program.
(c) The Bank or its designated agent will use its best efforts
to complete documents in a timely manner and otherwise to cooperate with the
Pledgor in the issuance of Mortgage-backed Securities and the formation of pools
of Mortgage Loans as contemplated by this Section 10.03, subject, however, to
the provisions of Sections 6 and 20 hereof. The Bank and its designated agent
shall be entitled to rely on the written instructions of the Pledgor and the
written instructions and published guidelines of the applicable Investor in this
regard and shall have no obligation to act in the absence of such written
instructions or published guidelines.
10.04 Release or Assignment of Particular Collateral. (a) If
no Event of Default or Unmatured Event of Default has occurred which is
continuing, the Bank shall, at the written request of the Pledgor, release its
security interest in any item of Collateral specified by the Pledgor in such
written request, provided that, after giving effect to such requested release or
assignment, as the case may be, the Borrowing Base (including therein the
Collateral Value of any Collateral given in substitution for the Collateral to
be released) shall not be less than the aggregate principal amount outstanding
under the Note. If the Pledgor requests and is
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entitled to a release of a Pledged Mortgage Loan pursuant to the preceding
sentence, the Bank shall promptly redeliver to the Pledgor (i) the Mortgage Note
evidencing such Pledged Mortgage Loan endorsed without recourse upon, or
representation or warranty by, the Bank and (ii) a reassignment, without
recourse upon, or representation or warranty by, the Bank, of any part of the
Collateral that secures such Mortgage Note.
(b) Whether or not the Pledgor, by terms of this Section
10.04, is entitled to a release of the Bank's security interest in the
Collateral, the Bank shall release its security interest in any Pledged Mortgage
Loan to the extent necessary to permit the Pledgor to execute any full or
partial release of any mortgage, deed of trust, security agreement, financing
statement or other security instrument or deed which the Pledgor is
contractually obligated to release upon payment thereof or of a minimum release
price, provided, the Pledgor promptly remits such payment to the Bank for
application upon the unpaid principal amount outstanding under the Note.
(c) Upon the Bank's receipt of the proceeds from the sale of a
Pledged Mortgage Loan delivered pursuant to Section 10.02 hereof, the security
interest of the Bank in such Pledged Mortgage Loan and in the Mortgage Note and
other documents related thereto shall terminate without further action by the
Bank.
(d) Upon the Bank's receipt of the proceeds from the sale of a
Related Mortgage-backed Security representing an interest in, or which is
secured by, Pledged Mortgage Loans delivered pursuant to Section 10.03 hereof,
the security interest of the Bank in such Related Mortgage-backed Security and
in such Pledged Mortgage Loans shall terminate without further action by the
Bank.
Section 11. FURTHER ASSURANCES
The Pledgor, upon the request of the Bank, will promptly
correct any patent defect, error or omission which may be discovered in the
contents of this Pledge and Security Agreement or in the execution hereof and
will do such further acts and things, and execute, acknowledge, endorse and
deliver such further instruments, agreements, schedules and certificates,
including, but not limited to, notes, mortgages, deeds of trust, assignments,
chattel mortgages, security agreements and financing statements covering the
title to any real, personal or mixed property now owned or hereafter acquired by
the Pledgor and now or hereafter constituting Collateral, schedules and
certificates respecting all or any of the Collateral at the time subject to the
security interest hereunder, the items or amounts received by the Pledgor in
full or partial payment, or otherwise as proceeds of any of the Collateral and
supplements to and amendments of this Pledge and Security Agreement, that the
Bank may at any time and from time to time reasonably request in connection with
the administration or enforcement of this Pledge and Security Agreement or
related to the Collateral or any part thereof or in order to assure and confirm
unto
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the Bank the rights, powers and remedies hereunder or to subject all of the
real, personal or mixed properties now owned or hereafter acquired by the
Pledgor and now or hereafter constituting Collateral to, or to confirm or
clearly establish that all of said properties are subject to and encumbered by,
a lien to secure the due and punctual payment of the Obligations. Any such
instrument, agreement, schedule or certificate shall be executed by a duly
authorized officer of the Pledgor and shall be in such form and detail as the
Bank may reasonably specify. Promptly upon the request of the Bank, the Pledgor
will mark, or permit the Bank to mark in a reasonable manner, the Pledgor's
books, records and accounts showing or dealing with the Collateral with a
notation clearly setting forth that the Collateral has been assigned to the
Bank, which notation shall be in form and substance satisfactory to the Bank.
The Pledgor will do all acts and things, and will execute and
file or record all instruments (including mortgages, pledges, assignments,
security agreements, financing statements, amendments to financing statements,
continuation statements, etc.) required, or reasonably requested by the Bank, to
establish, perfect, maintain and continue the perfection and priority of the
security interest of the Bank in the Collateral and will pay the costs and
expenses of: all filings and recordings, including taxes thereon; all searches
necessary, or reasonably deemed necessary by the Bank, to establish and
determine the validity and the priority of such security interest of the Bank;
and also to satisfy all other liens which in the reasonable opinion of the Bank
might prejudice, imperil or otherwise affect the Collateral or the existence or
priority of such security interest. A carbon, photographic or other reproduction
of this Pledge and Security Agreement or of a financing statement shall be
sufficient as a financing statement and may be filed in lieu of the original in
any or all jurisdictions which accept such reproductions.
The Pledgor will assist and cooperate fully with any and all
measures established by the Bank to comply with the appraisal regulations under
Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (including, without limitation, the appraisal regulations applicable to
mortgage warehousing loans), which compliance measures may include, but shall
not be limited to, spot checks, policy reviews and similar verification
activities.
Section 12. COVENANTS OF THE PLEDGOR
So long as this Pledge and Security Agreement shall remain in
effect, the Pledgor will (a) defend the right, title and interest of the Bank in
the Collateral against the claims and demands of all Persons; (b) not amend,
modify, or waive any of the terms and conditions of, or settle or compromise any
claim in respect of, any Collateral in a manner which would materially adversely
affect the interest of the Bank; (c) not sell, assign, transfer, or otherwise
dispose of, or grant any option with respect to, or pledge or otherwise
encumber, or release any of the Collateral or any interest therein except in a
manner whereby the Bank alone would be entitled to
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receive the proceeds therefrom; (d) notify the Bank monthly of any monetary
default that continues for 60 days or more or any other default of which the
Pledgor has knowledge that continues beyond any applicable notice or grace
period under any Pledged Mortgage Loan which has Collateral Value; and (e)
maintain, or cause to be maintained, in its chief executive office or in the
offices of a computer service bureau approved by the Bank for the processing of
Mortgage Notes and Mortgage-backed Securities, originals, or copies if the
original has been delivered to the Bank, of its Mortgage Notes and all files,
surveys, certificates, correspondence, appraisals, computer programs, tapes,
discs, cards, accounting records and other records, information and data,
relating to the Collateral and will give the Bank written notice of the place
where such records, information and data will be maintained.
Section 13. BANK APPOINTED ATTORNEY-IN-FACT
Effective upon the occurrence and continuation of an Event of
Default or an Unmatured Event of Default, the Pledgor hereby appoints the Bank
the Pledgor's attorney-in-fact, with full power of substitution, to submit any
Pledged Mortgage Loan and related documents to a purchaser under a Take-Out
Commitment and for the purpose of carrying out the provisions of this Pledge and
Security Agreement and taking any action and executing in the name of the
Pledgor without recourse to the Pledgor any instrument, including, but not
limited to, the instruments described in Section 2 hereof, which the Bank may
deem necessary or advisable to accomplish the purpose hereof, which appointment
is irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, the Bank shall have the right and power to receive, endorse and
collect checks and other orders for the payment of money made payable to the
Pledgor representing any payment or reimbursement made under, or pursuant or
with respect to, the Collateral or any part thereof and to give full discharge
for the same. The Pledgor hereby authorizes the Bank, in the Bank's discretion
at any time and from time to time in connection with the exercise of its rights
and/or remedies under this Pledge and Security Agreement, including, without
limitation, its rights and/or remedies under Sections 10.02, 10.03 and 14
hereof, to (i) complete or cause to be completed any assignment of real
estate mortgage or deed of trust which heretofore was, or hereafter at any time
may be, executed and delivered by the Pledgor to the Bank so that such
assignment describes a real estate mortgage or deed of trust which is security
for any Pledged Mortgage Loan now or hereafter at any time constituting
Collateral and (ii) complete or cause to be completed any other assignment or
endorsement that was delivered in blank hereunder.
Section 14. EVENTS OF DEFAULT: REMEDIES
If one or more Events of Default shall occur, then the Bank,
in addition to any and all other rights and remedies which the Bank may then
have hereunder, under the Credit Agreement, under the Uniform Commercial Code of
the State of Minnesota or of any other pertinent jurisdiction (the "Code"), or
under any other
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instrument, or which the Bank may have at law or in equity, or otherwise, may,
at its option, (a) in the name of the Pledgor, or otherwise, demand, collect,
receive and receipt for, compound, compromise, settle and give acquittance for,
and prosecute and discontinue any suits or proceedings in respect of any or all
of the Collateral; (b) take any action which the Bank may deem necessary or
desirable in order to realize on the Collateral, including, without limitation,
the power to perform any contract, endorse in the name of the Pledgor without
recourse to the Pledgor any checks, drafts, notes or other instruments or
documents received in payment of or on account of the Collateral; (c) enter upon
the premises where any of the Collateral not in the possession of the Bank is
located and take possession thereof and remove the same, with or without
judicial process; (d) reduce the claims of the Bank to judgment or foreclosure
or otherwise enforce the security interests herein granted and assigned, in
whole or in part, by any available judicial procedure; (e) after notification,
if any, provided for herein, sell, lease, or otherwise dispose of, at the office
of the Bank, on the premises of the Pledgor, or elsewhere, all or any part of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, and any such sale or other disposition may be as a
unit or in parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale of any part of Collateral shall not
exhaust the power of sale granted hereby, but sales may be made from time to
time, and at any time, until all the Collateral has been sold or until all
Obligations have been fully paid and performed), and at any such sale it shall
not be necessary to exhibit any of the Collateral; (f) at the Bank's discretion,
surrender any policies of insurance on the Collateral consisting of real or
personal property owned by the Pledgor and receive the unearned premiums, and,
in connection therewith, the Pledgor hereby appoints the Bank as the agent and
attorney-in-fact for the Pledgor to collect such premiums; (g) at the Bank's
discretion, retain the Collateral in satisfaction of the Obligations whenever
the circumstances are such that the Bank is entitled to do so under the Code or
otherwise; and (h) exercise any and all other rights, remedies and privileges
which the Bank may have under this Pledge and Security Agreement, or any of the
other promissory notes, assignments, mortgages, deeds of trust, chattel
mortgages, security agreements, transfers of lien, and any other instruments,
documents, and agreements executed and delivered pursuant to the terms hereof or
pursuant to the terms of the Credit Agreement. The Pledgor acknowledges and
agrees that (x) a private sale of the Collateral pursuant to any Take-Out
Commitment shall be deemed to be a sale of the Collateral in a commercially
reasonable manner and (y) the Collateral is intended to be sold and that none of
the Collateral is a type or kind intended by the Pledgor to be held for
investment or any purpose other than for sale.
Section 15. WAIVERS
The Pledgor, for itself and all who may claim under the
Pledgor, as far as the Pledgor now or hereafter lawfully may, also waives all
right to have all or any portion of the Collateral marshalled upon any
foreclosure hereof and agrees that
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any court having jurisdiction over this Pledge and Security Agreement may order
the sale of all or any portion of the Collateral as an entirety. Any sale of, or
the grant of options to purchase (for the option period thereof or after
exercise thereof), or any other realization upon, all or any portion of the
Collateral under clause (e) of Section 14 shall operate to divest all right,
title, interest, claim and demand, either at law or in equity, of the Pledgor in
and to the Collateral so sold, optioned or realized upon, and shall be a
perpetual bar both at law and in equity against the Pledgor and against any and
all persons claiming or attempting to claim the Collateral so sold, optioned or
realized upon or any part thereof, from, through and under the Pledgor. No delay
on the part of the Bank in exercising any power of sale, lien, option or other
right hereunder and no notice or demand which may be given to or made upon the
Pledgor with respect to any power of sale, lien, option or right hereunder shall
constitute a waiver thereof, or limit or impair the right of the Bank to take
any action or to exercise any power of sale, lien, option or any other right
under this Pledge and Security Agreement or the Credit Agreement, or otherwise,
nor shall any single or partial exercise thereof, or the exercise of any power,
lien, option or other right under this Pledge and Security Agreement or
otherwise, all without notice or demand (except as otherwise provided by the
terms of this Pledge and Security Agreement), prejudice the Bank's rights
against the Pledgor in any respect. Each and every remedy given the Bank shall,
to the extent permitted by law, be cumulative and shall be in addition to any
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute.
Section 16. NOTICES
Reasonable notification of the time and place of any public
sale of any Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of any of the Collateral is to be
made shall be sent to the Pledgor and to any other person entitled under the
Code to notice; provided, that if any of the Collateral threatens to decline
speedily in value, or is of a type customarily sold on a recognized market, the
Bank may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than fifteen (15) calendar days prior to the taking of the action
to which the notice relates is reasonable notification and notice for the
purposes of this Section 16 and that such notice is sufficient if it states only
the number of Pledged Mortgage Loans to be sold and their aggregate outstanding
principal balance, together with the time and place of sale. All notices and
other communications provided for in the Pledge and Security Agreement shall be
given to the parties at their respective addresses set forth on the signature
pages of the Credit Agreement or, as to each such party, at such other address
as shall be designated by such party in a written notice to the other parties.
All such notices and other communications shall be given by one or more of the
means specified in Section 13.02 of the Credit Agreement and, upon being so
given, shall be deemed to have been given as of the earliest time specified in
said Section 13.02 for the means so used.
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Section 17. APPLICATION OF PROCEEDS
Until all Obligations owed to the Bank have been paid in full,
any and all proceeds received by the Bank from any sale or other disposition of
the Collateral, or any part thereof, upon the occurrence of an Event of Default
or the exercise of any other remedy pursuant to Section 8 hereof or by virtue of
Section 14 hereof, shall be applied by the Bank in accordance with following
order of priority:
First, to the payment of the out-of-pocket expenses of the
Bank and the reasonable fees and out-of-pocket expenses of counsel employed in
connection therewith, and to the payment of all costs and expenses incurred by
the Bank in connection with the administration and enforcement of this Pledge
and Security Agreement (including, without limitation, the sale or other
disposition of the Collateral) and to the payment of all advances made by the
Bank for the account of the Pledgor hereunder, to the extent that such costs and
expense have not been reimbursed to the Bank;
Second: to the payment in full of the Obligations; and
Third: the balance (if any) of such proceeds shall be paid to
the Pledgor, its successors or assigns, or as a court of competent jurisdiction
may direct;
provided, that if such proceeds are not sufficient to satisfy the Obligations in
full, the Pledgor shall remain liable to the Bank for any deficiency.
Section 18. INDEMNIFICATION AND COSTS AND EXPENSES
The Pledgor will (a) pay all reasonable out-of-pocket
expenses, including, without limitation, any recording or filing fees, fees of
title insurance companies in connection with records or filings, costs of
mortgage insurance policies and endorsements thereof and mortgage registration
taxes (or any similar fees or taxes), incurred by the Bank in connection with
the enforcement and administration of this Pledge and Security Agreement
(whether or not the transactions hereby contemplated shall be consummated) and
the Credit Agreement, the enforcement of the rights of the Bank in connection
with this Pledge and Security Agreement and the Credit Agreement and including,
without limitation, the reasonable fees and disbursements of counsel for the
Bank; (b) pay, and hold the Bank harmless from and against, any and all present
and future stamp and other similar taxes with respect to the foregoing matters
and save the Bank harmless from and against any and all liabilities with respect
to or resulting from any delay or omission to pay such taxes; and (c) indemnify,
pay and hold harmless the Bank from and against any and all liabilities,
obligations, losses, damages, penalties, judgments, suits, costs, expenses and
disbursements of any kind whatsoever (the "Indemnified Liabilities") which may
be imposed on, incurred by
-20-
<PAGE>
or asserted against it in any way relating to or arising out of this Pledge and
Security Agreement or the Credit Agreement or any of the transactions
contemplated hereby or thereby, unless the same are caused by the gross
negligence or willful misconduct of the Bank. The undertakings of the Pledgor
set forth in this Section 18 shall survive the payment in full of the Note and
the termination of this Pledge and Security Agreement and the Credit Agreement.
Section 19. TERMINATION
This Pledge and Security Agreement shall terminate when all
the Obligations have been fully paid and performed and the Commitment has been
terminated, at which time the Bank shall reassign and redeliver, without
recourse upon, or representation or warranty by, the Bank and at the expense of
the Pledgor, to the Pledgor, or to such other person or persons as the Pledgor
shall designate, against receipt, such of the Collateral (if any) as shall not
have been sold or otherwise disposed of by the Bank pursuant to the terms hereof
or the Credit Agreement, and shall still be held by the Bank, together with
appropriate instruments of reassignment and release; provided, however, that
this Pledge and Security Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Obligations is rescinded or must otherwise be returned by the Bank or any other
Person upon the insolvency, bankruptcy, or reorganization of the Pledgor or
otherwise, all as though such payment had not been made.
Section 20. NON-ASSUMPTION OF LIABILITY; NO FIDUCIARY RESPONSIBILITY
Nothing herein contained shall relieve the Pledgor from
performing any covenant, agreement or obligation on the part of the Pledgor to
be performed under or in respect of any of the Collateral or from any liability
to any party or parties having an interest therein or impose any liability on
the Bank for the acts or omissions of the Pledgor in connection with any of the
Collateral. The Bank shall not assume or become liable for, nor shall it be
deemed or construed to have assumed or become liable for, any obligation of the
Pledgor with respect to any of the Collateral, or otherwise, by reason of the
grant to the Bank of security interests in the Collateral. While the Bank shall
use reasonable care in the custody and preservation of the Collateral as
provided in Section 6 hereof, the Bank shall not have any fiduciary
responsibility to the Pledgor with respect to the holding, maintenance or
transmittal of the Collateral delivered hereunder.
Section 21. WAIVERS, ETC.
No failure on the part of the Bank to exercise and no delay in
exercising, any power or right hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right preclude any other or
further
-21-
<PAGE>
exercise thereof or the exercise of any other power or right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
Section 22. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL
THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, BUT NOT THE LAW OF
CONFLICTS, OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS. THE PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR RAMSEY COUNTIES,
STATE OF MINNESOTA, FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, AND THE PLEDGOR HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH MINNESOTA STATE COURT OR, TO THE EXTENT
PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PLEDGOR HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. THE PLEDGOR AND THE
BANK HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO,
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 23. COUNTERPARTS; EFFECTIVENESS
This Pledge and Security Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original, but all such
counterparts together shall constitute but one and the same instrument. This
Pledge and Security Agreement shall become effective upon the written or
telephonic notification of such execution and authorization of delivery thereof
has been received by the Bank.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
and Security Agreement to be executed as of the day and year first above
written.
EXPRESS AMERICA MORTGAGE
CORPORATION
By Signature Illegible
Its Chairman and CEO
FIRST BANK NATIONAL ASSOCIATION
By Signature Illegible
Its Illegible
-23-
<PAGE>
Attachment 1
[On Company Letterhead]
FORM OF BAILEE LETTER
[Investor name and address]
Gentlemen:
Enclosed please find_____________ original promissory notes
representing an original principal amount of $______________ (the "Notes")
evidencing the Pledged Mortgage Loans described in more detail on the schedule
attached to this letter, along with other supporting documents which you have
agreed to purchase. Please be advised that a security interest in the Notes has
been granted to First Bank National Association (the "Bank") pursuant to a
Warehousing Credit Agreement dated as of January 25, 1996 between Express
America Corporation and the Bank.
The Notes, and all other documents relating thereto, whether now
or hereafter delivered to you, are to be held by you as agent, bailee and
custodian for the benefit of the Bank, and subject to the Bank's direction and
control. Notwithstanding the foregoing,
(i) if the Notes or any of them are accepted for purchase, the
applicable proceeds of such purchase are, within forty-five (45)
days after the date of delivery of this letter, to be wire
transferred to the Bank in immediately available funds at First
Bank National Association, First Bank Place, 601 Second Avenue
South, Minneapolis, Minnesota 55402-4302 for credit to the
Company's collateral account no. 1731-0096-9620 and
(ii) Notes which are not accepted for purchase should be returned,
within forty-five (45) days after the date of delivery of this
letter by overnight courier, to:
First Bank National Association
Mortgage Banking Services Division
First Bank Place -MPFP0801
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
<PAGE>
along with all other documents relating to such Notes, at the aforesaid address
unless otherwise directed by the Bank.
Upon the Bank's receipt of such proceeds, the security interest of the
Bank in the Notes and all other documents relating thereto shall terminate and
be cancelled without further action. The Notes and related documents have not
been assigned or transferred by the Bank to any other party.
In no event are the Notes, and all other documents relating
thereto, to be delivered to any third party, or otherwise dealt with by you,
without the prior written consent of the Bank.
You are not to honor any requests or instructions from the Company
relating to any Note (other than for correction), or any other documents
relating thereto (other than for correction or replacement thereof or to
supplement such documents), unless you have received the written or telephonic
consent of the Bank to such new or variant instructions, or until the Bank has
received the applicable proceeds of the sale of such Note.
If you have any questions, please address your inquiries to
Jeannine L. Coyne, Mortgage Banking Officer of the Bank, whose phone number is
(612) 973-0571 or Edwin D. Jenkins, Vice President, whose phone number is (612)
973-0588.
By accepting the enclosed Notes, you shall be deemed to have
consented to act as agent, bailee and custodian for the Bank, to have agreed to
comply with all the instructions contained herein, and to have agreed (x) to
maintain possession of the Notes on behalf of the Bank, (y) not to deliver any
of the Notes to anyone without the prior written consent of the Bank and (z) to
deliver the Notes to, or follow the instructions regarding disposition thereof
of, the Bank, on demand. Any interest you may have in the Notes, including
without limitation any claim of setoff you may at any time have, is subject to
and subordinate to the security interest of the Bank in the Notes, and you will
not exercise any right with respect to the Notes without the prior written
consent of the Bank. We request that you so indicate by signing the
acknowledgement at the foot of the enclosed counterpart of this letter and
returning it to the Bank at the address set forth below (but your failure to do
so in no way nullifies your consent and agreements resulting from your
acceptance of the enclosed Notes, as set forth in this paragraph):
-2-
<PAGE>
First Bank National Association
Mortgage Banking Services Division
First Bank Place -MPFP0801
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Very truly yours,
EXPRESS AMERICA MORTGAGE
CORPORATION
By ________________________________
Its ____________________________
To the Addressee of the above letter:
The undersigned hereby acknowledges and agrees to the terms of the
above letter and, notwithstanding any contrary understanding with you, instructs
you to comply with all the instructions set forth therein which instructions
cannot be varied by written instructions received by you from the Company.
FIRST BANK NATIONAL ASSOCIATION
By _______________________________
Its ___________________________
Received and Agreed to:
________________________
By______________________
Title___________________
Date____________________
Enclosures
-3-
<PAGE>
Attachment 2
[On Company Letterhead]
FORM OF GNMA POOL CUSTODIAN LETTER
----------------------------------
[Name and address of
GNMA Pool Custodian]
Gentlemen:
Enclosed please find_____________ original promissory notes
representing an original principal amount of $_____________ (the "Notes")
evidencing the Pledged Loans described in more detail on the schedule attached
to this letter, along with other supporting documents, which are being delivered
to you as custodian for certification in connection with the formation of GNMA
Pool No. Please be advised that a security interest in the Notes has been
granted to First Bank National Association (the "Bank") pursuant to a
Warehousing Credit Agreement dated as of January 25, 1996 between Express
America Mortgage Corporation (the "Company") and the Bank.
The Notes, and all other documents relating thereto, whether
now or hereafter delivered to you, are to be held by you as agent, bailee and
custodian for the benefit of the Bank, and subject to the Bank's direction and
control. Notwithstanding the foregoing, Notes which are not accepted for the
pool should be returned, within forty-five (45) days after the date of delivery
of this letter by overnight courier, to:
First Bank National Association
Mortgage Banking Services Division
First Bank Place -MPFP0801
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
along with all other documents relating to such Notes, at the aforesaid address
unless otherwise directed by the Bank.
Upon the Bank's receipt of the proceeds from the sale of the
Mortgage-backed Security issued with respect to the Notes, the security interest
of the Bank in the Notes and all other documents relating thereto shall
terminate and be cancelled without further action. The Notes and related
documents have not been assigned or transferred by the Bank to any other party.
In no event are the Notes, and all other documents relating
thereto, to be delivered to any third party, or otherwise dealt with by you,
without the prior written consent of the Bank.
<PAGE>
You are not to honor any requests or instructions from the Company
relating to any Note (other than for correction), or any other documents
relating thereto (other than for correction or replacement thereof or to
supplement such documents), unless you have received the written or telephonic
consent of the Bank to such new or variant instructions, or until the Bank has
received the applicable proceeds of the sale of the Mortgage-backed Security
issued with respect to such Note.
If you have any questions, please address your inquiries to
Jeannine L. Coyne, Mortgage Banking Officer of the Bank, whose phone number is
(612) 973-0571 or Edwin D. Jenkins, Vice President, whose phone number is (612)
973-0588.
By accepting the enclosed Notes, you shall be deemed to have
consented to act as agent, bailee and custodian for the Bank, to have agreed to
comply with all the instructions contained herein, and to have agreed (x) to
maintain possession of the Notes on behalf of the Bank, (y) not to deliver any
of the Notes to anyone without the prior written consent of the Bank and (z) to
deliver the Notes to, or follow the instructions regarding disposition thereof
of, the Bank, on demand. Any interest you may have in the Notes, including
without limitation any claim of setoff you may at any time have, is subject to
and subordinate to the security interest of the Bank in the Notes, and you will
not exercise any right with respect to the Notes without the prior written
consent of the Bank. We request that you so indicate by signing the
acknowledgement at the foot of the enclosed counterpart of this letter and
returning it to the Bank at the address set forth below (but your failure to do
so in no way nullifies your consent and agreements resulting from your
acceptance of the enclosed Notes, as set forth in this paragraph):
First Bank National Association
Mortgage Banking Services Division
First Bank Place -MPFP0801
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Very truly yours,
EXPRESS AMERICA MORTGAGE
CORPORATION
By__________________________
Its_______________________
-2-
<PAGE>
To the Addressee of the above letter:
The undersigned hereby acknowledges and agrees to the terms of the
above letter and, notwithstanding any contrary understanding with you, instructs
you to comply with all the instructions set forth therein which instructions
cannot be varied by written instructions received by you from the Company.
FIRST BANK NATIONAL ASSOCIATION
By ____________________________
Its ________________________
Received and Agreed to:
_________________________
By_______________________
Title____________________
Date_____________________
Enclosures
-3-
<PAGE>
Attachment 3
TO: First Bank National Association
Mortgage Banking Services
First Bank Place - MPFP0801
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
FROM: Express America Mortgage Corporation
Loan Type: ___ FHA ___ Level Pay (100) ___ Six Months
___ 1 Year
___ VA ___ 3 Years
___ ARM's (300) ___ 5 Years
___ Conventional ___ GEM's/ECM (400)
___ GPM's (500) ___ 15 Years
____ Conforming ___ Other
___ 20 Years
____ Nonconforming ___ 25 Years
___ 30 Years
Interest Rate___________%
The present status of this mortgage is certified to be:
LOAN NUMBER: _____________________
MORTGAGE NAME: _____________________
(LAST NAME, first)
PROPERTY: _____________________
ADDRESS: _____________________
Note Principal Origination Collateral
Date Amount Amount % Value %
---------- ----------- ----------- ----- ---------- ---------
---------- ----------- ----------- ----- ---------- ---------
================================================================================
In connection with the pledging of the above mortgage which is to be held by you
as collateral, we submit the following instruments and facts:
___ 1. Original Mortgage Note Endorsed in Blank
___ 2. Certified Copy of Mortgage Deed or Deed or Trust
___ 3. Assignment of Mortgage to First Bank National Association
___ 4. Certified Copy of Intervening Assignment(s)
___ 5. Certified Copy of the Power of Attorney (if applicable)
___ 6. Takeout Commitment Information:
____ Specific $_________ from _________
Dated________ which is priced at_______%
____ Blanket: Loan conforms to ___________
Which has a weighted average price of_______%
We hereby certify that this loan is pledged to First Bank National Association
(the"Bank") in accordance with the Warehousing Credit Agreement between us and
the Bank. Capitalized terms used herein have the meanings ascribed thereto in
said Credit Agreement.
We also certify that (i) this loan is subject to a Firm Commitment or Standby
Commitment, (ii) sufficient fire and extended insurance coverage is in effect
and will be maintained on the property, (iii) we have obtained and will maintain
in our files as agent for the Bank a FIRREA Qualifying Appraisal with respect to
this loan, and (iv) all other documents pertaining to this loan will be held and
maintained by us for the Bank.
All items taken on Trust Receipt for delivery to a permanent investor will be
delivered with a Bailee Letter to such investor which requires remittance of
payment to the Bank or return of the collateral to the Bank.
DATE:__________ EXPRESS AMERICA MORTGAGE CORPORATION
By _________________________________
Title____________________________
<PAGE>
Attachment 4
TRUST RECEIPT
-------------
Temporary Release
of Collateral
The undersigned hereby acknowledges receipt this____________day
of__________ , 199_, from First Bank National Association (hereinafter called
the "Bank") of the following described property (hereinafter called
"Collateral"):
The undersigned represents, warrants and agrees that:
1. The undersigned has requested and obtained possession of the
Collateral from the Bank for one of the purposes set forth below and for no
other purpose:
_________correction
2. The Collateral and the proceeds thereof are and will remain subject
to the security interest held by the Agent, and the undersigned will keep the
Collateral and any such proceeds segregated and identifiable and free and clear
of all liens, charges and encumbrances.
3. The Collateral will be redelivered to the Bank or its designee as
soon as the purpose for which possession was taken has been accomplished, and in
any event within twenty-one (21) days from the date of taking possession.
4. In the event of any default in the performance of any term or
condition of this Trust Receipt, the Bank may declare all or any part of the
indebtedness secured by the Collateral immediately due and payable without
notice or demand.
5. Additional limitations, if any:
EXPRESS AMERICA MORTGAGE CORPORATION
By ___________________________________
Its _______________________________
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<ARTICLE> 5
<CIK> 0000882860
<NAME> Express America Holdings
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 238
<SECURITIES> 2,462
<RECEIVABLES> 216
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,916
<PP&E> 2,522
<DEPRECIATION> 1,378
<TOTAL-ASSETS> 42,555
<CURRENT-LIABILITIES> 9,167
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 29,734
<TOTAL-LIABILITY-AND-EQUITY> 42,555
<SALES> 0
<TOTAL-REVENUES> 14,485
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,402
<INCOME-TAX> (1,750)
<INCOME-CONTINUING> 348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
