<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1997
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------
UNITED FINANCIAL MORTGAGE CORP.
(Exact name of Registrant as specified in its charter)
Illinois 6162 36-3440533
(State or other
jurisdiction of
incorporation)
(Primary Standard Classification Code Number)
(I.R.S. Employer
Identification No.)
--------------
United Financial Mortgage Corp.
600 Enterprise Drive, Suite 206
Oak Brook, Illinois 60521
(630) 571-7222
(Address including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
JOSEPH KHOSHABE
President and Chief Executive Officer
United Financial Mortgage Corp.
600 Enterprise Drive, Suite 206
Oak Brook, Illinois 60521
(630) 571-7222
(Name, address, handling zip code, and telephone number, including area code
of agent for service)
--------------
Copies to:
Robert S. Luce, Esq.
855 Sterling, Suite 180
Palatine, Illinois 60067
(847) 776-9729
--------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended check the following box: [_]
Pursuant to Rule 416, this Registration Statement also covers such
indeterminable number of additional shares of Common Stock and Warrants, if
any, which may become issuable by virtue of the anti-dilution provisions of
the Warrants.
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED OFFERING AMOUNT TO BE PROPOSED PROPOSED AGGREGATE AMOUNT OF
PRICE(1) REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(1)......... 920,000 $6.50 $5,980,000 $1,991.34
-----------------------------------------------------------------------------------------
Underwriter's Warrants.. 92,000 $ -- $ 100.00 $
-----------------------------------------------------------------------------------------
Common Stock Within
Underwriter's
Warrant(2).............. 92,000 $7.80 $ 717,600 $ 238.96
-----------------------------------------------------------------------------------------
TOTAL................... $2,230.30
</TABLE>
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- -------
(1) Estimated solely for the purpose of computing the amount of the
registration fee.
(2) No portion of the offering price is attributable to the Underwriter's
Warrants.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-B
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS BY CAPTION
--------------------------------- ---------------------------------
<S> <C>
1. Front of Registration Statement Front Cover Page of Registration Statement
and Outside Front Cover Page of and Front Cover Page of the Prospectus
Prospectus.....................
2. Inside Front and Outside Back Inside Front and Outside Back Cover Pages
Cover Pages of the Prospectus..
3. Summary Information and Risk Prospectus Summary; Risk Factors; The
Factors........................ Company and its Business; Selected
Financial Data
4. Use of Proceeds................ Use of Proceeds
5. Determination of Offering Determination of the Offering Price,
Price.......................... Description of Securities; Underwriting;
Risk Factors
6. Dilution....................... Dilution; Risk Factors
8. Plan of Distribution........... Front Cover Page; Underwriting
9. Legal Proceedings.............. Legal Proceedings
10. Directors, Executive Officers, Management; Principal Stockholder
Promoters and Control Persons..
11. Security Ownership of Certain Principal Stockholder, Management
Beneficial Owners and
Management.....................
12. Description of Securities...... Description of Securities; History of
Security Placements
13. Interest of Named Experts and Not Applicable
Counsel........................
14. Disclosure of Commission Disclosure of Commission Position on
Position on Indemnification for Indemnification for Securities Act
Securities Act Liabilities..... Liabilities
15. Organization within Last Five Not Applicable
Years..........................
16. Description of Business........ Prospectus Summary; Rick Factors; Use of
Proceeds; The Company and its Business;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Management; Principal
Stockholders; Financial Statements
17. Management's Discussion and Management's Discussion and Analysis
Analysis.......................
18. Description of Property........ The Company and its Business
19. Certain Relationships and Certain Relationships and Related
Related Transactions........... Transactions
20. Market for Common Equity and Risk Factors; Description of Securities and
Related Stockholder Matters.... Shares Eligible for Future Sales
21. Executive Compensation......... Management
22. Financial Statements........... Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure.......
</TABLE>
-i-
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 14, 1997
800,000 SHARES
OF
COMMON STOCK
LOGO
OF
UNITED FINANCIAL MORTGAGE CORP.
United Financial Mortgage Corp. (the "Company") hereby offers 800,000 shares
of Common Stock, no par value ("Common Stock" or "Shares"). It is currently
anticipated that the initial offering price of the Common Stock will be between
$5.50 and $6.50 per share. The Company has applied for quotation of the Common
Stock on the Chicago Stock Exchange ("CSE") under the symbol UFM. Prior to this
offering there has been no public market for these securities. No assurance can
be given that a trading market will develop, or, if developed, that it can or
will be maintained for these securities. See "Underwriting" for information
relating to the determination of the offering price. There are certain risk
factors which should be considered before purchasing Shares. See "Risk
Factors."
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION.
SEE "RISK FACTORS" AND "DILUTION."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
NEITHER THE ATTORNEY GENERAL OF THE STATES OF NEW YORK OR NEW JERSEY, THE NEW
JERSEY BUREAU OF SECURITIES NOR THE SECURITIES LAW COMMISSIONER OF ANY OTHER
JURISDICTION HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(See footnotes on next page)
The Common Stock is offered on a "firm commitment" basis by the several
underwriters when, as and if delivered to and accepted by the them, subject to
prior sale and certain other conditions and legal matters. The Underwriter
reserves the right to withdraw, cancel or modify the offering and to reject any
order in whole or in part. It is expected that delivery of the Shares will be
made against payment at the offices of Mills Financial Services, Inc., 20 North
Clark Street, Suite 2411, Chicago, Illinois 60602.
-----------
MILLS FINANCIAL SERVICES, INC.
-----------
The date of this Prospectus is .
<PAGE>
(Footnotes to distribution table)
(1) In addition, the Underwriter will receive: (a) a non-accountable expense
allowance of 3% of the gross proceeds from this offering of the Shares;
(b) Underwriter's Warrants to purchase 80,000 Shares (92,000 if the
overallotment option is exercised) based upon 10% of the Shares sold in
the public offering at a price of $7.80 per Share (120% of the proposed
maximum public offering price of the Shares); (c) certain other
compensation, all as more particularly described in "Underwriting."
Further, the Company will indemnify the Underwriter against certain civil
liabilities arising under the Act. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $350,000
excluding the Underwriter's non-accountable expense allowance. However,
commissions and the non-accountable expense allowance (aggregating 13.0%
of gross offering proceeds) will be paid from the proceeds of the
offering. See "Underwriting."
(3) The Company has granted to the Underwriter an option, exercisable within
30 days after the date hereof, to purchase up to 120,000 additional shares
of Common Stock solely to cover over-allotment, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company assuming a maximum public offering price of $6.50 per
share would be $ , $ and $ , respectively. See
"Underwriting."
----------------
Prior to this offering, there has been no public market for the securities
of the Company and there can be no assurance that any such market will develop
or be sustained after this offering. The initial public offering price of the
securities has been determined by negotiation between the Company and the
Underwriter and does not necessarily reflect the Company's asset value,
performance or any other established criteria. For information regarding the
factors considered in determining the initial public offering price of the
securities and the terms of the Warrants, see "Underwriting." The Company has
applied to have the Common Stock approved for listing on the Chicago Stock
Exchange under the symbol UFM.
AS OF THE DATE OF THIS PROSPECTUS, THE COMPANY WILL BECOME SUBJECT TO THE
REPORTING REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AND IN
ACCORDANCE THEREWITH WILL FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION
WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY INTENDS TO FURNISH
ITS STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS
AND SUCH OTHER PERIODIC REPORTS AS THE COMPANY DEEMS APPROPRIATE OR AS MAY BE
REQUIRED BY LAW.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) found
elsewhere in this Prospectus. All information in this Prospectus unless
otherwise indicated, assumes no exercise of any outstanding warrants. All
references to shares of Common Stock described in this Prospectus have been
adjusted to give effect to a two (2) for three (3) reverse stock split that was
implemented by the Company on May 9, 1995. Prospective investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
United Financial Mortgage Corp. (the "Company") is an Illinois corporation
organized on April 30, 1986 to engage in the residential mortgage banking
business. The Company's primary focus has been the retail and wholesale
origination and the sale of mortgage loans for one-to-four family properties.
The Company is an approved mortgage loan seller/servicer with the Federal Home
Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") and with the Federal
National Mortgage Association ("FNMA" or "Fannie Mae"). In addition, the
Company is an approved mortgagee by the Federal Housing Administration ("FHA")
and the Department of Veteran's Affairs ("VA").
The Company's strategy is to expand retail and wholesale loan origination;
and build a quality servicing business. Increased loan origination will expand
the Company's revenue base and provide select loans for the expansion of its
servicing business. An expanded servicing business base consisting of quality
loans will enhance earnings by providing revenues on a stabilized basis.
Servicing revenues generally are realized on a consistent basis without the
cyclical dynamics generally attributable to the loan origination business.
Expanded servicing also will create an additional corporate asset that
Management believes will increase the Company's value over the long term.
Management believes that the Company's business plan of combining expanded
loan origination with the development of a quality servicing portfolio, along
with the Company's continuing objective of improving operating efficiencies,
strategically will place the Company in a strong competitive position entering
the 21st century.
THE WHOLESALE ORIGINATION DIVISION
Wholesale loan origination involves the purchase of loans from mortgage
brokers. The Company realizes revenues from the sale of such loans to investors
for a price greater than the amount paid to the mortgage broker. The Company
generally sells the loans to investors at pre-approved purchase prices which
serves to reduce the risk of a loss on such sale(s). Wholesale loan origination
tends to generate less revenues on a per transaction basis than retail
origination, but expansion into the wholesale sector is less costly than retail
origination, because wholesale origination does not require the establishment
of costly office space and the related overhead expense. This operating
structure enables the Company to quickly enter new markets.
THE RETAIL ORIGINATION DIVISION
Retail loan origination involves the direct solicitation of realtors,
builders and other end borrowers for the origination of mortgage loans. The
Company derives revenues from the premium that is received from the purchaser
of the loan. Generally, that premium is shared on a negotiated basis with loan
officers who procure the loan and assist in the loan origination process.
The Company sells substantially all of the mortgage loans that it produces.
The Company sells these loans to investors (which may include brokers/dealers,
banks, thrifts, insurance companies, and state and local housing
3
<PAGE>
finance agencies), either as individual loans or pursuant to certain bulk
purchase commitments. The Company also engages in the origination and brokerage
of loans on commercial real estate assets, including shopping centers, office
properties and other commercial loans. The Company either brokers (e.g.
arranges for the loan from third-party lenders) or funds and services
commercial loans.
The Company's loan origination activities are conducted through its corporate
headquarters offices in Oak Brook, Illinois; Creve Coeur, Missouri; Las Vegas,
Nevada and Irvine, California.
THE SERVICING DIVISION
The Company's long term plans include the servicing of select loans that it
originates. Loan servicing consists of collecting principal and interest
payments from borrowers, remitting aggregate principal and interest payments to
investors, making cash advances, when required, accounting for principal and
interest, collecting funds for payment of mortgage-related expenses, such as
taxes and insurance, inspecting the mortgage premises as required, contacting
delinquent mortgagors, conducting foreclosures and property dispositions in the
event of unremedied defaults and generally administering the mortgage loans.
QUALITY CONTROL
In order to ensure that the Company originates high quality mortgage loans,
it has retained the services of a quality control company with an industry wide
reputation to conduct evaluations of the Company's loan origination activities
on a monthly basis.
The Company's offices are located at 600 Enterprise Drive, Suite #206, Oak
Brook, Illinois 60521 and its telephone number is (630) 571-7222.
THE OFFERING
Securities Offered.................... 800,000 shares of Common Stock to
be issued and sold by the Company
("Common Stock" or "Shares").
Common Stock Outstanding Before
Offering(1)..........................
3,100,029(3)
Common Stock To Be Outstanding After
Offering(2)..........................
3,900,029(3)
Use of Proceeds....................... For general working capital purpos-
es, including capital to support
expansion of the Company's retail
and wholesale loan origination, and
servicing activities.
Proposed CSE Symbol(2)................ UFM
- --------
(1) Unless otherwise indicated, references in this Prospectus to Common Stock
Outstanding Before and After this offering do not include (i) issuance of
up to 80,000 shares (92,000 shares if the overallotment option is
exercised) of Common Stock issuable upon exercise of the Underwriter's
Warrant; (ii) 500,000 shares reserved for issuance under the Company's Non-
Qualified and Incentive Stock Option Plan (the "Stock Option Plan"); and
(iii) up to 242,000 shares of Common Stock issuable upon exercise of
certain Warrants as described herein. See "Description of Securities" for a
description of securities issued in connection with certain prior
financings of the Company.
4
<PAGE>
(2) CSE symbols do not imply that a meaningful or sustained trading market for
the securities will develop.
(3) As of March 31, 1997.
RISK FACTORS
The securities offered hereby involve a high degree of risk and immediate and
substantial dilution. See "Risk Factors" and "Immediate and Substantial
Dilution."
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following financial and operating information of the Company does not
purport to be complete and is qualified in its entirety by reference to the
more detailed financial and operating information contained elsewhere herein.
See "Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDING NINE MONTHS ENDED
APRIL 30, JANUARY 31,
---------------------- -----------------------
1995 1996 1996 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of earnings data:
Total revenues............... $2,866,474 $ 6,442,428 $ 4,791,547 $ 4,558,438
Total expenses............... 2,789,761 6,434,499 4,605,498 5,023,636
Earnings (loss) before income
taxes....................... 76,713 7,929 186,049 (465,198)
Income taxes................. 17,630 -0- 57,527 -0-
Net earnings (loss).......... 59,083 7,929 128,522 (465,198)
Dividends paid on preferred
stock....................... 25,515 -0- -0- -0-
Net income (loss) applicable to
Common Shareholders........... $ 33,568 $ 7,929 $ 128,522 $ (465,198)
Earnings (loss) Per Share:
Earnings (loss) per common
share....................... $ 0.007 $ 0.003 $ 0.043 $ (0.150)
Number of shares outstanding... 4,530,000 3,001,974 3,001,974 3,095,029
Balance Sheet Data:
Total assets................. $7,579,307 $19,522,331 $19,049,406 $11,104,707
Total liabilities............ $5,785,846 $17,847,312 $17,127,422 $ 9,079,886
Stockholder's equity......... $1,793,461 $ 1,675,019 $ 1,921,984 $ 2,024,821
</TABLE>
- --------
5
<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk. Prospective
investors should carefully consider, among other things, the following risk
factors before a decision is made to purchase any Shares.
RISKS RELATING TO FAILURE OF THE PROPOSED PUBLIC OFFERING
The Company previously endeavored to sell certain of its securities pursuant
to the Prior Registration Statement. The Company was unsuccessful in those
endeavors, in part, because it was unable to attract one or more securities
underwriting firms to conclude a "firm commitment" underwriting of the
Company's securities.
Even though the Company has entered into a letter of intent with a
securities underwriting firm regarding a "firm commitment" public offering, no
assurance can be given that the public offering will be consummated. The
letter of intent sets forth various matters which could cause this offering
not to proceed. See "Description of Securities" and "Underwriting."
RISKS RELATING TO REGISTRATION RIGHTS OF CERTAIN SHAREHOLDERS AND WARRANT
HOLDERS.
The Company previously issued 568,187 shares of restricted Common Stock and
warrants to purchase 242,000 shares ("Shares"). The impact of the subsequent
sales of these Shares could have a depressive effect upon the public market
price for the Shares held by purchasers of Shares in this offering.
RISKS RELATING TO SERVICING OPERATIONS
The Company's mortgage banking activities principally have focused on retail
loan origination for the period from inception to date. The Company intends to
expand its loan servicing activities and those operations will be subject to
all of the risks inherent in the establishment of a new business enterprise,
including the absence of a substantial operating history, and if the Company
decides to establish an internal serving department, the need to assemble an
experienced administrative staff.
The success of any mortgage servicing operation that may be expanded by the
Company will depend in part on the Company's ability to sell promptly those
mortgage loans to investors, with servicing rights retained. Accordingly,
adverse changes in the secondary market, including the level of activity or
underwriting criteria of FNMA, FHLMC and other investors could have a material
adverse effect on this aspect of the Company's business.
RISKS RELATING TO CREDIT FACILITIES
The Company has available four (4) credit facilities from three (3) lenders
for up to Twenty Two Million Five Hundred Thousand Dollars ($22,500,000) for
the purpose of funding loans.
One of the credit facilities for up to Ten Million Dollars ($10,000,000)
expired on May 1, 1997. The lender has advised that it will extend the credit
facility until July 30, 1997, when the Company's audited fiscal year end
financial statements are expected to be available. If the facility is not
extended for another year at that time, then the Company would be obligated to
repay all amounts extended to it and obtain a substitute credit facility. If a
substitute credit facility is not available to the Company, then the Company's
loan origination activities, and revenues derived therefrom, could be
adversely impacted. No assurance can be given that a substitute credit
facility will be available to the Company.
The other $10.0 million facility expires on October 1, 1997. The Company
expects that this credit facility will be renewed, but no assurance can be
given regarding such renewal. The Company also has available a commercial
credit facility of up to One Million Five Hundred Thousand Dollars
($1,500,000) for the purpose of originating and servicing commercial loans and
another credit facility for One Million Dollars ($1,000,000) for loan
repurchases from investors. There can be no assurance that these or other
credit facilities will continue to be available to the Company on an
indefinite basis.
6
<PAGE>
RISKS RELATING TO AVAILABILITY OF PERSONAL GUARANTIES
Certain of the Company's credit facilities have been personally guarantied
by Mr. Joseph Khoshabe, the Company's President. Mr. Khoshabe does not have
any obligation to make any personal guaranties available to the Company in the
future. The absence of such personal guaranties in the future may adversely
affect the Company's ability to borrow.
GENERAL BUSINESS RISKS
The Company's business is subject to various business risks. The Company's
mortgage banking activities are dependent on the demand for mortgage loans by
potential borrowers and investors. Changes in the level of consumer
confidence, real estate values, prevailing interest rates, and investment
returns expected by the financial community could make mortgage loans of the
type arranged by the Company less attractive to borrowers or investors.
The Company's long-term strategy is to expand its loan servicing division.
Although mortgage servicing fees generally provide more predictable cash flow
as compared with income from mortgage origination, which may fluctuate with
general economic conditions, servicing activities also entail certain risks.
In addition, the Company may be required to advance delinquent loan payments
pursuant to the regulations of FNMA and FHLMC; and the requirements of certain
private investors. Although the Company would be expected to be reimbursed for
all or a portion of such advances, it would not be compensated for the costs
of making such advances.
The risks to which the Company's business is subject becomes more acute in
an economic slowdown or recession. During such periods, foreclosures and
losses to investors generally increase and could result in an increased
incident of claims and legal actions against the Company. In addition, such
conditions could lead to a potential decline in demand for the Company's loan
origination services. Although the Company's retail and wholesale loan
origination activities occur primarily in certain states, it is anticipated
that its loan servicing could include properties in states other than those
where it conducts origination activities. Adverse economic conditions could
result in reduced loan production by the Company and could cause an increase
in delinquencies and foreclosures relating to loans serviced by the Company in
the future.
In addition, the mortgage banking business is highly competitive and price
sensitive, and some of the Company's competitors have greater financial
resources and pricing flexibility than the Company. See "The Company and its
Business."
INTEREST RATE RISKS
Prevailing market interest rates, which have an impact on borrower decisions
to obtain new loans or to refinance existing loans, affect the Company's
ability to originate mortgage loans. When interest rates decrease, the
economic advantages of refinancing mortgage loans increase. However, when
interest rates decrease, increases in the rate of prepayments of mortgage
loans may reduce the period during which the Company earns servicing income
from loan servicing activities. The Company believes that these effects should
be offset by increased loan origination and a related increase in the size of
the Company's servicing portfolio. Furthermore, as a result of the Company's
strategy of maintaining continuing customer relationships, the Company
historically has been able to recapture a substantial amount of refinanced
loans and home purchase mortgages from prior customers. No assurance can be
given that the Company will be able to recapture such loans in the future.
NEED FOR ADDITIONAL CAPITAL TO IMPLEMENT LONG-TERM PLANS
The Company's existing capital, the proceeds of this offering and other
financings, its credit facilities, as well as cash flow expected to be
generated from operations, are expected to satisfy the Company's cash
requirements for at least the next twelve (12) months. However, management
believes that the Company will
7
<PAGE>
require additional credit over the next three (3) years in order to expand its
loan origination and servicing capabilities. The Company is presently in
discussions with various lenders for additional lines of credit, and
management believes that the increase in the Company's equity as a result of
this financing will enhance the Company's ability to obtain the additional
credit it will require to expand its business, and reduce borrowing costs. If
such additional credit is not available to the Company, then the Company could
be required to reduce the scope of its operations, which could adversely
affect the investment experience of its stockholders.
RISKS ASSOCIATED WITH APPROVAL AS A FHLMC AND A FNMA SERVICER
The Company is an approved seller/servicer of mortgage loans for FHLMC and
FNMA. In addition, the Company is an approved mortgagee by HUD and is
qualified to originate mortgage loans insured by the FHA and VA. If the
Company fails to comply with the seller/servicer guidelines relating to its
loan origination and servicing activities, its approval as a seller/servicer
could be withdrawn and its servicing rights could be transferred to another
servicer without compensation to the Company.
RISKS ASSOCIATED WITH REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY
When a mortgage loan originator (retail or wholesale) sells a mortgage loan
to FNMA, FHLMC or other investors, it makes certain representations and
warranties as to the compliance by the originator with applicable underwriting
guidelines. A loan originator or the purchaser of loan servicing rights
generally becomes obligated to the investor with respect to the accuracy of
those representations and warranties, and if those representations and
warranties are incorrect, the investor may require the servicer or the lender
who originated the loan to repurchase the mortgage loan. Consequently, any
loss resulting from a material inaccuracy in the representations and
warranties would fall on the servicer or the Company as the originating
seller/servicer of the loan. The Company will attempt to limit its exposure to
repurchase risks through (i) quality control requirements imposed on its
origination staff, both internally and through third party quality control
experts, and (ii) by negotiating appropriate representations and warranties
and indemnification from entities from which it acquires mortgage loans. In
addition, with respect to mortgage loans originated by it, the Company will be
required in the ordinary course of business, to make representations and
warranties to the purchasers of servicing rights, and investors and insurers
of such loans. Losses resulting from a material inaccuracy in those
representations and warranties would fall on the Company. From time to time,
the Company could be obligated to repurchase loans as a result of breach of
such representations and warranties. A breach or breaches of representations
and warranties could have a material adverse affect upon the financial
condition of the Company.
RISKS ASSOCIATED WITH LACK OF DIVERSIFIED PORTFOLIO
In the event the Company services loans in geographic markets which suffer
from slow growth or poor economic conditions, the Company could experience a
high rate of delinquency and foreclosures. Such conditions could materially
and adversely effect the Company's revenue and net income. Although the
Company might attempt to reduce such risk through the acquisition of servicing
portfolios in diverse geographic regions, there can be no assurance that such
attempts would be successful.
GREATER RESOURCES OF COMPETITORS
The mortgage banking industry is competitive and competition is based
heavily on price. Many of the Company's competitors have greater financial
resources than the Company and consequently may be able to achieve economies
of scale that are unavailable to the Company.
REGULATION
Mortgage banking is a highly regulated industry. The industry is subject to
the rules and regulations of, and examination by, FNMA, FHLMC, FHA, the
Government National Mortgage Association ("GNMA" or "Ginnie
8
<PAGE>
Mae"), the Veteran's Administration ("VA") and state regulatory authorities
with respect to originating, processing, underwriting, selling, securitizing
and servicing residential mortgage loans. In addition, there are other federal
and state statutes and regulations affecting such activities. These rules and
regulations, among other things, govern how mortgage originators originate
loans; and with respect to loan servicing, govern how mortgage servicers
process a mortgagor's payment, require an annual analysis of escrow balances
and also regulate the procedure for making investor payments.
There also are numerous rules and regulations imposed on mortgage loan
originators and servicers. These rules and regulations require originators to
obtain or maintain licenses, establish eligibility criteria for mortgage
loans, prohibit discrimination, provide for inspections and appraisals of
properties, require credit reports on prospective borrowers, regulate payment
features and, in some cases, fix maximum interest rates, fees and loan
amounts. Failure to comply with these requirements could lead to loss of
approved status, termination of servicing contracts without compensation to
the servicer, demands for indemnification or loan repurchases, class action
lawsuits and administrative enforcement actions. There can be no assurance
that more restrictive laws, rules and regulations will not be adopted in the
future, which could make compliance more difficult and expensive.
DEPENDENCE UPON THE PRESIDENT
The success of the Company generally is dependent upon Mr. Khoshabe, its
president. The loss of the services of Mr. Khoshabe could have an adverse
effect upon the Company if a replacement cannot be quickly retained. No
assurance can be given that a suitable replacement could be attracted to the
Company. The Company does not have "key-man" life insurance on the life of Mr.
Khoshabe. See "Management." The Company also has an employment agreement with
Mr. Khoshabe wherein he has agreed to maintain his employment with the Company
for a term of 5 years commencing from the effective date of the registration
statement relating to this Prospectus. See "Management--Compensation of
Directors and Executive Officers."
DIVIDEND POLICY
The Company has never declared or paid a dividend on its Common Stock, and
management expects that the substantial portion of the Company's future
earnings will be retained for expansion or development of the Company's
business. The decision to pay dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition, and other relevant
factors such as loan covenants or other contractual obligations. See "Dividend
Policy."
CONTROL BY THE PRESIDENT
The Joseph Khoshabe Trust, dated September 22, 1995, ("J.K. Trust") of which
Mr. Joseph Khoshabe is the trustee, currently owns approximately 81.7% of the
outstanding Common Stock of the Company. Upon completion of this offering, the
J.K. Trust will own approximately 64.9% of the outstanding Common Stock of the
Company. Accordingly, the J.K. Trust and indirectly, Mr. Joseph Khoshabe, the
President of the Company, will continue to exercise control over the Company,
including control over the election of directors and the appointment of
officers of the Company, after the completion of this offering. The practical
effect of Mr. Khoshabe's control over the election of the Board of Directors
is that Mr. Khoshabe's employment with the Company cannot be terminated. For
example, if the Board of Directors were to terminate Mr. Khoshabe's employment
contract, then Mr. Khoshabe, as the trustee of the J.K. Trust could call a
special meeting of shareholders. At such special meeting, the J.K. Trust could
vote to remove all directors other than Mr. Khoshabe. The reconstituted Board
of Directors could then reemploy Mr. Khoshabe.
9
<PAGE>
NO PRIOR PUBLIC MARKET FOR SECURITIES; POSSIBLE VOLATILITY OF SECURITIES
PRICES
Prior to this Offering, there has been no public market for the Company's
securities. Although the Company intends that its securities will be quoted on
the Chicago Stock Exchange ("CSE") there can be no assurance that the
Company's securities will be designated for quotation on CSE or, if so
designated, that the Company will be able to maintain such designation. There
also can be no assurance that an active trading market will develop after this
offering, or that, if developed, it will be sustained. Recent history relating
to the market prices of newly public companies indicates that, there may be
significant volatility in the market for such securities because of factors
unrelated, as well as related, to such company's operating performance.
ARBITRARY DETERMINATION OF OFFERING PRICE
The public offering price of the Shares has been arbitrarily determined by
negotiations between the Company and the Underwriter. Among the factors
considered in determining the offering price were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the
general condition of the securities market. However, the offering price of the
Shares does not necessarily bear any relationship to the Company's assets,
book value, earnings, or any other established criterion of value. See
"Underwriting."
MARKET OVERHANG FROM WARRANTS
Immediately after the offering, the Company will have outstanding warrants
to purchase 242,000 Shares, including warrants issued in connection with
certain prior financings of the Company. To the extent that such warrants are
exercised, dilution to the interests of the Company's stockholders may occur.
Moreover, the terms upon which the Company would be able to obtain additional
equity capital may be adversely affected since the holders of the outstanding
warrants can be expected to exercise them, to the extent they are able to, at
a time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
warrants. Furthermore, the sale of Common Stock or other securities held by or
issuable to the holders, or merely the potential of such sales, could have an
adverse effect on the market price of the Company's securities. See
"Description of Securities."
STOCK OPTION PLAN
The Company has reserved 500,000 shares of its Common Stock for issuance
upon exercise of stock options (for which no options have been granted)
pursuant to its Non-Qualified and Incentive Stock Option Plan ("Plan").
Exercise of outstanding stock options will reduce the percentage of Common
Stock held by the public stockholders and dilute the market value for those
shares. Further, the terms on which the Company could obtain additional
capital during the life of the stock options may be adversely affected, and it
might be expected that the holders of the stock options would exercise same at
a time when the Company would be able to obtain equity capital on terms more
favorable than those provided for in the stock options. The Company may file a
registration statement under the Act to register Common Stock to be issued to
employees and others pursuant to the Plan. Exercise of these registration
rights will result in dilution of the interest of the public stockholders and
could involve a substantial expense to the Company and could prove a hindrance
to future financings. See "Description of Securities" and "Underwriting."
POSSIBLE RESALES UNDER RULE 144
After the consummation of the offering, approximately 3,100,029 shares of
Common Stock held by the Company's present stockholders will not have been
registered under the Act, but may, under certain circumstances, be available
for public sale by means of ordinary brokerage transactions in the open market
pursuant to Rule 144, promulgated under the Act, subject to certain
limitations. In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
10
<PAGE>
circumstances, sell within any three-month period the number of securities
which does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume of the class during the four
calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitation, by a person who
is not an affiliate of the Company and who has satisfied a three-year holding
period. The possibility of any such sale may adversely affect the market price
of the Company's securities. In addition, holders of warrants, the holders of
Shares issuable upon exercise of stock options granted pursuant to the Stock
Option Plan and Shares issued with respect to certain prior financings of the
Company, have certain registration rights under the Act, which would permit
the future public sale of the underlying shares of Common Stock.
CSE AND LOW STOCK PRICES
The trading of the Company's stock on the CSE is conditioned upon the
Company meeting certain asset, capital and surplus, earnings and stock price
tests. If the Company fails any of these tests, the Common Stock and Warrants
may be delisted from trading on the CSE. The effects of delisting include the
limited release of the market prices of the Company's securities and limited
news coverage of the Company. Delisting may restrict investors' interest in
the Company's securities and materially adversely affect the trading market
and prices for such securities and the Company's ability to issue additional
securities or to secure additional financing. In addition to the risk of
volatility of stock prices and possible delisting, low price stocks are
subject to the additional risks of additional federal and state regulatory
requirements and the potential loss of effective trading markets. In
particular, if the Common Stock were delisted from trading on the CSE and the
trading price of the Common Stock was less than $5.00 per share, the Common
Stock could be subject to Rule 15c2-6 under the Securities Exchange Act of
1934, as amended, which, among other things, requires that broker/dealers
satisfy special sales practice requirements, including making individualized
written suitability determinations and receiving any purchaser's written
consent prior to any transaction. If the Company's securities were delisted
and the trading price was less than $5.00 per share, the Company's securities
also could be deemed penny stocks under the Securities Enforcement and Penny
Stock Reform Act of 1990, which would require additional disclosure in
connection with trades in the Company's securities, including the delivery of
a disclosure schedule explaining the nature and risks of the penny stock
market. Such requirements could severely limit the liquidity of the Company's
securities and the ability of purchasers in this offering to sell their
securities in the secondary market.
AFFECT OF FUTURE ISSUANCE OF PREFERRED SHARES
The Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designations preferences and
relative participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including dividend rights, terms of
redemption (including sinking fund provisions), conversion rights and
liquidation preferences of the shares constituting any series, without further
vote or action by the shareholders. The issuance of preferred stock by the
Board of Directors could adversely affect the rights and/or voting power of
holders of Common Stock. The authority possessed by the Board of Directors to
issue preferred stock potentially could be used to discourage attempts by
others to obtain control of the Company through merger, tender offer, proxy
contest or otherwise, by making such attempts more difficult to achieve or
more costly. See "Description of Securities."
CONFLICTS OF INTEREST
The Board of Directors generally has the responsibility for determining the
compensation of the employees of the Company, including the Company's
officers. Prior to the election of the additional Board members as described
herein, no independent outside authority has reviewed or approved the
decisions of the Board of Directors concerning compensation matters.
Historically, Mr. Joseph Khoshabe, as the sole director, set his own
compensation. Ninety (90) days after the completion of the offering described
in this Prospectus, three (3) non-
11
<PAGE>
employee designees have agreed to become members of the Board. It is
contemplated that audit and compensation committees composed of non-employee
members of the Board of Directors will be established. See "Management."
POTENTIAL EXPENSES ARISING FROM INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation and Bylaws of the Company provide for
indemnification of each director and officer or former director or officer or
any person who may have served at the request of the Company as a director or
officer of another corporation in which the Company owns securities or is a
creditor. Such provisions eliminate, with certain exceptions, the personal
liability of the directors to the Company and the Company's stockholders for
monetary damages as a result of a breach of fiduciary duty, making it more
difficult to assert a claim and obtain damages from a director in the event of
a breach of his or her fiduciary duty. The Company will indemnify against
reasonable costs and expenses incurred in connection with any action, suit or
proceeding to which any of the individuals described above were made a party
by reason of his or her being or having been such a director or officer,
unless such director has been adjudicated to have been liable for negligence
or misconduct in his or her corporate duties. As of the date of this
Prospectus, the Company is not aware of any existing or pending litigation
involving a director that will require indemnification by the Company. To the
extent the Company is required to expend funds to indemnify officers and
directors, there could be a materially adverse effect on the financial
condition of the Company.
Notwithstanding the foregoing indemnification provisions of the Company's
Articles of Incorporation and Bylaws, the Company has been informed that, in
the opinion of the Commission, indemnification for liabilities arising under
the Securities Act is against public policy and is therefore unenforceable.
See "Description of Securities--Indemnification of Officers and Directors."
DILUTION
Assuming a public offering price of $6.50 per share for the sale of the
shares offered hereby, purchasers of the shares will incur immediate dilution
of approximately $5.18 per share in net tangible book value. See "Risk
Factors--Control by the President."
LACK OF UNDERWRITING HISTORY
This is the first public offering in which Mills Financial Services, Inc.
has participated on a "firm commitment" basis. Prospective purchasers of the
Shares of Common Stock offered hereby should consider the limited experience
of Mills Financial Services, Inc. in evaluating this Offering. See
"Underwriting."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The Company believes that this Prospectus contains forward-looking
statements, including statements regarding, among other items, the Company's
future plans and growth strategies and anticipated trends in the industry in
which the Company operates. These forward-looking statements are based largely
on the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
the factors described herein, including, among others, regulatory or economic
influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained in this Prospectus
will in fact transpire or prove to be accurate.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, assuming an initial public offering price of $6.50 per share
and after deducting underwriting discounts, the underwriter's non-accountable
expense allowance and other expenses of the offering estimated at an aggregate
of approximately $1,024,500 (approximately $1,125,900 if the over-allotment
option is exercised in full), will be
12
<PAGE>
$4,175,500 (approximately $4,854,100 if the over-allotment option is exercised
in full). The Company intends to use the net proceeds of this Offering
approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
DOLLAR OF NET
DESCRIPTION AMOUNT PROCEEDS
----------- ----------- -----------
<S> <C> <C>
Originate Mortgage Loans.......................... $2,000,500 47.9%
Redemption of a portion of Series A Preferred
Stock............................................ 750,000 18.0%
Retirement of Convertible Debentures.............. 425,000 10.1%
General Working Capital and Capital Expenditures
purposes......................................... 1,000,000 24.0%
---------- -----
</TABLE>
See "Certain Relationships and Related Transactions" for additional
information regarding the preferred stock held by the J.K. Trust.
While the foregoing represents the Company's present intention with respect
to the use of the offering proceeds, capital requirements or business
opportunities, none of which are currently anticipated, could cause management
to elect to use proceeds for other general corporate purposes and for other
purposes not contemplated at this time. Pending the use of the net proceeds,
the Company will invest them in money market accounts and short-term
certificates of deposit.
DIVIDEND POLICY
The Company has never declared or paid a dividend on its Common Stock, and
management expects that the substantial portion of the Company's earnings, if
any, for the foreseeable future will be used to expand loan origination and
servicing capabilities. The decision to pay dividends, if any, in the future
is within the discretion of the Board of Directors and will depend upon the
Company's earnings, its capital requirements, financial condition and other
relevant factors such as loan covenants or other contractual obligations. See
"Risk Factors--Dividend Policy."
DETERMINATION OF THE OFFERING PRICE
No market for the Shares has existed prior to this offering, and no
assurance can be made that a viable public market will be developed or be
sustained after the offering. The initial public offering price of the Shares
has been determined by negotiations among the Company and the Underwriter.
Among the factors considered by the Company and representatives of the
Underwriter in determining the initial public offering price of the Shares, in
addition to prevailing market conditions, were the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of
the above factors in relation to market valuations of companies in related
businesses.
DILUTION
At January 31, 1997, the Company had outstanding an aggregate of 3,095,029
shares of Common Stock having an aggregate net tangible book value of
$959,821, or approximately $0.31 per share. Net tangible book value per share
consists of total assets less intangible assets and liabilities, divided by
the total number of shares of Common Stock outstanding.
After giving effect to the sale of 800,000 shares of Common Stock and
assuming a maximum public offering price of $6.50 per share, the pro forma net
tangible book value of the Common Stock at January 31, 1997 would be
$5,133,821, or approximately $1.32 per share. This represents an immediate
increase in pro forma net tangible book value of $1.01 per share to the
present shareholders and an immediate dilution of $5.18 per share to the
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<PAGE>
public purchasers. The following table illustrates the dilution which investors
participating in this offering will incur and the benefit to current
shareholders as a result of this offering:
<TABLE>
<S> <C> <C>
Public offering price per share (1)............................... $6.50
Net tangible book value per share before Offering (2)........... .31
Increase per share attributable to Shares offered hereby........ 1.01
----
Pro forma net tangible book value per Share after offering........ 1.32
-----
Dilution of net tangible book value per Share to purchasers in
this offering.................................................... $5.18
=====
</TABLE>
- --------
(1) Represents the assumed public offering price per share of Common Stock
before deductions of underwriting discounts and commissions and estimated
expenses of the offering.
(2) Assumes no exercise of Warrants or the Underwriters' over-allotment option.
See "Description of Securities" and "Underwriting."
The following table sets forth the number and percentages of shares of Common
Stock issued, and the amount and percentage of consideration and average price
per share paid by existing shareholders of the Company as of January 31, 1997,
and to be paid by purchasers pursuant to this offering (based upon the
anticipated maximum public offering price of $6.50 per Share and before
deducting underwriting discounts and commissions and estimated expenses of this
offering).
<TABLE>
<CAPTION>
OWNERSHIP CONSIDERATION
----------------- ------------------
NUMBER OF AVERAGE PRICE
SHARES PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
New Shareholders.......... 800,000 20.5% $5,200,000 82.3% $6.50
Existing Shareholders..... 3,095,029 79.5% $1,112,000 17.7% $ .36
--------- ------ ---------- ------
3,895,029 100.00% $6,312,000 100.00%
========= ====== ========== ======
</TABLE>
The foregoing table gives effect to the sale of the Shares offered hereby and
does not give effect to the exercise of the Underwriters' over-allotment option
or any Warrants.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
January 31, 1997; (ii) proforma as of January 31, 1997 reflecting the sale of
securities from the 1996 Bridge Financing subsequent to January 31, 1997; and
(iii) proforma as adjusted as of January 31, 1997 to give effect to the receipt
and anticipated use of the estimated net proceeds of this offering based upon
an assumed maximum public offering price of $6.50 per share.
<TABLE>
<CAPTION>
JANUARY 31, 1997
-----------------------------------
PROFORMA
ACTUAL PROFORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable and line of credit........... $ 8,483,790 $ 8,483,790 $ 8,483,790
----------- ----------- -----------
1996 Bridge Financing Convertible
Debentures................................ 375,000 425,000 --
Series A Preferred Stock, no par value; no
stated value per share; authorized 213
shares; issued and outstanding--213 shares
actual and proforma, 63 shares proforma as
adjusted.................................. 1,065,000 1,065,000 315,000
Stockholders' Equity
Common Stock, no par value; authorized--
20,000,000 shares; issued and
outstanding--3,095,029 actual; 3,100,529
proforma; and 3,900,529 proforma as
adjusted................................ 945,397 945,397 5,119,397
Retained Earnings........................ 14,424 14,424 14,424
----------- ----------- -----------
Total Stockholders' Equity............. 959,821 959,821 5,133,821
----------- ----------- -----------
Total Capitalization................... $10,883,611 $10,933,611 $13,932,611
=========== =========== ===========
</TABLE>
14
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company, founded in 1986, operates as a full-service mortgage banking
company engaged in the origination and sale of first mortgage loans secured by
residential real estate. On a limited scale, the Company also originates and
services commercial loans; and services residential mortgage loans.
RESULTS OF OPERATIONS
Two Years Ended April 30, 1996
Commissions and fees increased from $2,833,872 for the year ended April 30,
1995 to $5,810,360 for the year ended April 30, 1996. This percentage increase
of approximately 105% is primarily the result of an increase in the number of
loan originations from 1049 during the year ended April 30, 1995 to 1656
during the year ended April 30, 1996. Aggregate loan volume originated
increased from $132 million to $208 million between the same periods. The
increase in loan originations was the result of increased marketing activities
and expansion of the Company's sales organization.
Interest income increased from $32,162 for the year ended April 30, 1995 to
$632,068 for the year ended April 30, 1996. This increase is attributable to
increased loan activity and recording of certain interest transactions on a
gross rather than net basis.
Salary and commission expenses increased from $1,431,830 for the year ended
April 30, 1995 to $4,228,955 for the year ended April 30, 1996. This increase
was directly attributable to the increased number of loan originations and an
investment in the expansion of the Company's sales organization during fiscal
1996. The number of loan officers or account executives increased from 2 to 22
between periods. The increase was offset partially by the President of the
Company foregoing compensation during fiscal 1996. Salary and compensation as
a percentage of revenues increased from approximately 50% to 65% accordingly.
Selling and administrative expenses increased from $1,041,436 for the year
ended April 30, 1995 to $1,745,754 for the year ended April 30, 1996. This
percentage increase of approximately 68% reflected increased expenses related
to the origination of additional loans and the expansion of sales organization
locations. Despite the increase in selling and administrative expense, selling
and administrative expenses as a percentage of revenues decreased from
approximately 36% for the year ended April 30, 1995 to approximately 27% for
the year ended April 30, 1996.
Depreciation expense increased slightly, from $27,489 for the year ended
April 30, 1995 to $32,658 for the year ended April 30, 1996 principally as a
result of additional computer equipment acquired in fiscal 1996.
Interest expense increased from $271,297 for the year ended April 30, 1995
to $427,182 for the year ended April 30, 1996. This approximate 57% increase
in interest expense was the result of increased use by the Company of its
lines of credit to fund increased loan originations.
As a result of the foregoing, net income after tax decreased from $59,083
for the year ended April 30, 1995 to $7,929 for the year ended April 30, 1996.
The effective income tax rate was 23% for fiscal 1995. The Company did not
make a provision for income tax in fiscal 1996.
Nine Months ended January 31, 1996 and 1997
Commissions and fees decreased from $4,410,121 for the nine months ended
January 31, 1996 to $4,195,163 for the comparable period in fiscal 1997. This
percentage decrease of approximately 5% is principally the result of a
decrease in the number of loan originations from period to period.
15
<PAGE>
Interest income decreased from $381,426 for the nine months ended January
31, 1996 to $363,255 for the comparable period in fiscal 1997. The decrease in
interest income of approximately 5% between periods is attributable to the
decrease in loan originations.
Salary and commission expenses decreased from $3,097,700 for the nine months
ended January 31, 1996 to $3,058,293 for the nine month period ended January
31, 1997. This percentage decrease of approximately 1% was directly
attributable to the decreased number of loan originations, and elimination of
non-producing personnel in the sales organization. These decreases were offset
by payments made for severances and a resumption of the President's
compensation. As a result, salary and commission expenses as a percentage of
revenues increased slightly from approximately 65% to 67% between periods.
Selling and administrative expenses decreased from $1,168,656 for the nine
month period ended January 31, 1996 to $1,078,986 for the nine month period
ended January 31, 1997. This percentage decrease of approximately 8% reflects
reduced expenses related to the decreased loan originations and the lower
costs associated with a reduction in the sales organization. Selling and
administrative expenses as a percentage of revenues was approximately 24% for
both nine month periods.
Depreciation expense increased from $25,413 for the nine months ended
January 31, 1996 to $29,423 for the nine months ended January 31, 1997.
For the nine months ended January 31, 1997, the Company recognized a loss
from a judgment rendered against the Company in the United States District
Court regarding past transactions with a title company. Total costs and
expenses, including the amount of the judgment and associated legal expenses
totaled approximately $675,000 through January 31, 1997. The Company has
appealed the judgment order, but there can be no assurances that the Company
will recover any, or all, of the judgment.
Interest expense decreased from $314,729 for the nine month period ended
January 31, 1996 to $181,934 for the nine month period ended January 31, 1997.
This decrease was attributable to the decrease in short term debt in
connection with loan origination activities.
As a result of the foregoing, net income decreased from $128,522 for the
nine months ended January 31, 1996 to a loss of $465,198 for the nine months
ended January 31, 1997. Excluding the effect of the judgment, income before
taxes would have increased from $186,049 to $209,802 between periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities increased from cash flow used of $83,730
for the year ended April 30, 1995 to cash flow generated of $275,546 for the
year ended April 30, 1996, enhanced somewhat by the President foregoing
compensation during the year. Cash flow used in operating activities increased
from $17,249 for the nine months ended January 31, 1996 to $910,971 for the
nine months ended January 31, 1997 principally due to the unfavorable court
judgment. The cash flow effect of the judgment was partially mitigated by the
sale of $565,000 of Series A Preferred Stock.
Capital expenditures for the year ended April 30, 1996 were approximately
$66,000 principally in computer technology and to a lesser extent for the
expansion of sales organization facilities. The Company believes it will
continue to make investments in computer technology in the near future to
upgrade and maintain its product and service offerings. The Company believes
that such investments could aggregate $200,000 to $300,000 over the next two
years, but has no specific plans at present for such expenditures.
The Company may consider acquisitions of other mortgage businesses as part
of implementing its strategies. There are no specific plans at present for
such expenditures.
Cash flow requirements depend on the level and timing of the Company's
activities in loan originations in relation to the timing of the sale of such
loans. In addition, the Company requires cash flow for the payment of
16
<PAGE>
operating expenses, interest expense and capital expenditures. Currently, the
Company's primary sources of funding are borrowings under warehouse lines of
credit, proceeds from the sale of loans in the secondary market and internally
generated funds. Management believes that a larger equity base resulting from
this offering should increase the amount of credit available to the Company.
Historically, the Company has funded its growth, in large part, from its
access to lines of credit and its operating activities. See "Risk Factors."
The Company has been additionally capitalized by its President, Joseph
Khoshabe, through various purchases of Common Stock and Series A Preferred
Stock. Further, the Company has sold Common Stock, debentures and warrants
during the past four years at various times, principally to fund the costs
associated with a contemplated, but uncompleted, public offering in late
fiscal 1994 and fiscal 1995. These transactions are more fully described in
the section entitled "Historical Security Placements."
The Company is obligated to use $750,000 of the proceeds of this Offering to
redeem a portion of the Series A Preferred Shares held by the J.K. Trust, and
$425,000 of the proceeds to retire certain convertible debentures. The Company
anticipates employing the remainder of the net proceeds of this financing as
additional equity to commit to the funding of mortgage loans and for the
purpose of supporting increased lines of credit to be used to fund such loans.
Although the Company cannot be assured of the availability of additional
credit, the Company reasonably anticipates that the availability of the net
proceeds of this Offering will result in an increase in the availability of
credit to the Company.
The commitment of additional capital and an increased credit amount will
permit the Company to fund or purchase a greater number of mortgage loans. The
ability of the Company to profit from such increased funding capability will
depend upon the Company's ability to originate additional loans or purchase
loans which generate fees, commissions and net interest income in the
aggregate which exceeds the Company's expenses. There can be no assurance that
the Company will be able to employ the additional capital and credit resources
to fund transactions which result in a profit to the Company.
The long-term plans of the Company also are to engage in the business of
servicing mortgage loans. In order to engage in this business, the Company
will be required to retain the servicing rights on the loans which it
originates. Such retention will result in a reduction in the revenue available
to the Company upon the sale of such mortgage loans. In such event, the
Company will be required to employ capital to finance the retention of
servicing rights. Such capital principally would be expended to pay the costs
associated with loan origination, such as loan officer compensation and
miscellaneous overhead expenses. However, the retention of servicing rights
also creates an asset on the Company's balance sheet.
The Company will be required to obtain additional capital to achieve its
long-term objectives. The Company has no commitments to obtain such capital
and there can be no assurance that such capital will be available to the
Company in the future or, if available, will be on terms acceptable to the
Company.
The Company's existing capital, the proceeds of this offering and other
financing, its credit facilities, as well as cash flow expected to be
generated from operations, are expected to satisfy the Company's cash
requirements for at least the next twelve (12) months, and principally will be
applied to originate loans. However, management believes that the Company will
require additional credit over the next three (3) years in order to expand its
loan origination capabilities and expand its loan servicing business. The
Company is presently in discussions with various lenders for additional lines
of credit, and management believes that the increase in the Company's equity
as a result of this financing will enhance the Company's ability to obtain the
additional credit it will require to increase its servicing portfolio of
mortgage loans, and reduce borrowing costs. If such additional credit is not
available to the Company, the Company could be required to reduce the scope of
its operations, which could adversely affect the Company's results of
operation.
17
<PAGE>
INDUSTRY TRENDS
The growth in volume that the mortgage industry has seen over the past few
years has resulted from a general downward trend in interest rates. The
Company believes that mortgage volume may tend to decrease on a relative basis
in higher interest environments, but higher interest rates generally result in
smaller mortgage companies leaving the market resulting in potentially larger
market shares for continuing mortgage bankers. The Company believes that
proceeds from the financing will position the Company to realize opportunities
in such an environment, but there can be no assurance that it will be able to
do so.
The Company also believes that the industry will continue to offer broader
and more diversified product offerings and that technology will play an
increasing part in real estate transactions, including expanded use of
Internet capabilities. The Company believes that the proceeds from the
financing will allow the Company to make the necessary investments in these
technologies as part of its working capital requirements.
The Company's business base is concentrated principally in the Midwest and
California and, as such, may be subject to the effects of economic conditions
and real estate markets specific to such locales.
INFLATION AND SEASONALITY
The Company believes the effect on inflation, other than its potential
effect on market interest rates, has been insignificant. Seasonal fluctuations
in mortgage originations generally do not have a material effect on the
financial condition or results of operations of the Company.
ACCOUNTING DEVELOPMENTS
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"). SFAS 125, among other things, provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities. SFAS 125 requires that after a transfer of financial assets,
an entity recognize 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
also requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured at
fair value. SFAS 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996 and
is to be applied prospectively. The Company expects that the impact of SFAS
125 on the results of operations, financial condition, or liquidity will be
immaterial.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Board of Directors authorized the issuance of 213 shares of
Series A Non-Voting Preferred Stock ("Preferred Stock"). The outstanding
shares of Preferred Stock were purchased from the Company for total cash
consideration of $1,065,000 or $5,000 per share. The 213 shares of Preferred
Stock includes 113 shares purchased by the J. K. Trust on June 10, 1996 for a
cash payment to the Company of $565,000. The J. K. Trust purchased these
shares of Preferred Stock as a capital infusion to compensate for the $565,000
judgment that was paid in the Lawyers Title Litigation. See "Legal
Proceedings."
Upon consummation of the offering, 150 shares of the Preferred Stock will be
redeemed by the Company for a redemption price of $750,000 and no longer will
be outstanding.
The redemption price for the Preferred Stock represents the original
purchase price for such shares. The decision to redeem the shares by the
Company was made solely by the holder of such shares, namely Mr. Joseph
Khoshabe, the President and then sole director of the Company.
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<PAGE>
The J. K. Trust for which Mr. Joseph Khoshabe is the trustee will continue
to hold sixty-three (63) shares of Preferred Stock after the redemption
described above.
The Company also has paid variable dividends with respect to the Preferred
Stock as determined by the Board of Directors of the Company on an annual
basis. Once again, the decision to pay variable dividends with respect to the
Preferred Stock historically was made by Mr. Joseph Khoshabe as the sole
director of the board of directors. See "Financial Statements."
The J. K. Trust has agreed with the Underwriter that it will not sell within
twelve (12) months of the effective date of this registration statement more
than 100,000 shares of Common Stock, and that any such sale(s) shall not
commence earlier than six (6) months after such effective date. See
"Underwriting."
As an affiliate of the Company within the meaning of Rule 144(a)(1), J.K.
Trust will be subject to the volume limitations of Rule 144(e) with respect to
any sales by it. Generally, the maximum amount of securities which can be sold
by a control affiliate during a three-month period pursuant to Rule 144 is
limited to the greater of one percent of the outstanding securities of the
Company or the average weekly volume traded for the four week period prior to
the date of filing the required notification of sale.
PRINCIPAL STOCKHOLDER
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock at the date of
this prospectus, as adjusted to reflect the sale of the Common Stock offered
hereby, by (i) each person known by the Company to beneficially own more than
5% of the Company's Common Stock, (ii) the Company's sole director, and (iii)
the officer and director of the Company beneficially owning such Common Stock.
The Company believes that Mr. Joseph Khoshabe as trustee of the Joseph
Khoshabe Trust, under trust agreement dated September 22, 1995 (the "J.K.
Trust"), has sole investment and voting power with respect to the shares
beneficially owned by him.
<TABLE>
<CAPTION>
PERCENT OWNED(1)
NUMBER OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- ------------------------------------ --------- -------- --------
<S> <C> <C> <C>
J. K. Trust...................................... 2,531,842 76.4% 61.5%
c/o United Financial Mortgage Corp.
600 Enterprise Drive
Suite 206
Oak Brook, IL 60521
Rocco Cappiello.................................. 211,150(2) 6.4% 5.1%
30 S. Wacker
Suite 1310
Chicago, Illinois 60606
</TABLE>
- --------
(1) The computations include the issuance of 242,000 shares of Common Stock
upon exercise of various outstanding warrants which are exercisable within
60 days of the date of this Prospectus. See "Description of Securities--
Warrants."
(2) The listed beneficial owner has the right to acquire 195,000 of such
shares within sixty (60) days of the effective date of the registration
statement relating to this Prospectus upon exercise of a warrant. See
"Description of Securities--Advisor Warrants."
The J. K. Trust is the principal shareholder of the Company. Mr. Khoshabe
originally purchased the shares and then had them reregistered in the name of
the J. K. Trust for estate planning purposes. Mr. Khoshabe as the trustee of
the J. K. Trust is the beneficial owner of 2,531,842 shares of the Common
Stock of the Company. In connection with the organization of the Company and
its initial capitalization, the J. K. Trust paid a total of $130,070 for 100%
of the Company's common stock. Therefore, the J. K. Trust purchased its
ownership interest in the Company for $.051 per share.
The J. K. Trust has agreed with the Underwriter and the Company, with the
exception of 100,000 shares which may be sold six (6) months after the
effective date of this offering, that it will not sell the remainder of the
shares held by it for a period of twelve (12) months after the effective date
of the registration statement relating to this Prospectus.
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<PAGE>
On December 15, 1993, the Company entered into an agreement with Mr.
Khoshabe, the President of the Company, wherein Mr. Khoshabe's Common Stock
holdings in the Company would not be diluted below 63.3% of the Company's
outstanding Common Stock for a ten (10) year term, without his prior written
consent, subject to adjustment for any sale(s) of shares of Common Stock by Mr.
Khoshabe. On June 10, 1994, the Company and Mr. Khoshabe entered into an
agreement terminating and cancelling the anti-dilution agreement in all
respects.
THE COMPANY AND ITS BUSINESS
MORTGAGE BANKING OPERATIONS
GENERAL
The Company was formed as an Illinois corporation in April of 1986 to engage
in the business of mortgage banking. The Company is licensed as a mortgage
banker in the states of Arkansas, California, Colorado, Delaware, Florida,
Illinois, Indiana, Kentucky, Maryland, Missouri, New Mexico, Oregon, South
Carolina, Utah, Washington, Wisconsin and Texas. The Company also does business
in other states that do not have mortgage banking licensure statutes,
including, Idaho, Kansas, Minnesota, Montana, Ohio, Oklahoma, West Virginia and
Wyoming. The Company's mortgage banking business has principally focused on
retail and wholesale residential mortgage origination activities. The Company
intends to expand its mortgage servicing activities by retaining servicing on
selected loans that it produces. The Company's principal lines of business are
conducted through the Retail Origination Division; the Wholesale Origination
Division and the Servicing Division. The Company's Retail and Wholesale
Origination business is principally conducted in the states of Illinois,
California, Nevada, Missouri, Virginia and Florida.
The loans that the Company originates and expects to service primarily are
first mortgages secured by single (one to four units) family residences,
although the Company also may originate, sell and service loans secured by
first mortgages on multi-family residential properties (more than four units)
and to a lesser extent, other mortgage assets.
The Company's loan production activities generate revenue through (i)
origination fees and gains on the sale of loans to broker-dealers and
institutional investors, and (ii) interest on mortgage loans held, or
"warehoused" from their origination or purchase until their sale to broker-
dealers and institutional investors. The Company's expanded loan servicing
division is expected to produce income from loan servicing fees.
The Company also engages in the brokerage or origination of loans on
commercial real estate, including shopping centers, office properties and other
commercial loans. The Company either brokers (e.g. arranges for the loan from
third-party lenders) or funds and services these commercial loans. Commercial
loans may be brokered to other financial institutions, in which case, the
Company receives a negotiated fee. If the Company originates and services a
commercial loan, then revenues are earned based upon the difference in the
interest rate paid to the issuer of the credit line and the interest rate paid
by the borrower.
At this time, the Company's primary sources of loan originations are its
Wholesale and Retail Divisions. On March 31, 1997, the Company's Retail
Division operated three (3) full service retail origination offices. At such
date, the retail offices were located in three (3) states and were staffed by
approximately 50 employees, including commission-based loan officers. The
retail offices are currently located as follows: Oak Brook, Illinois; Creve
Coeur, Missouri, and Las Vegas, Nevada. Wholesale origination principally is
conducted from the Company's offices in Oak Brook, Illinois and Irvine,
California. Retail origination accounts for approximately 30%; wholesale
origination accounts for 70% and servicing accounts for less than 1% of the
Company's revenues as of April 30, 1996.
THE WHOLESALE ORIGINATION DIVISION
Wholesale loan origination involves the purchase of loans from mortgage
brokers. The Company realizes revenues from the sale of such loans to investors
for a price greater than the amount paid to the mortgage broker. The timing of
the sale of loans to investors and failure to comply with investor underwriting
guidelines could result in losses on loan sales. Management believes that
substantially all underwriting and related issues generally
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<PAGE>
are resolved with the investor prior to closing. Wholesale loan origination
tends to be less profitable on a per loan basis than retail origination, but
expansion into the wholesale sector is less costly than retail origination
because wholesale origination does not require the establishment of costly
office space and the related overhead expense. Wholesale account executives
generally work from their homes or in shared office suites. This operating
structure enables the Company to quickly enter new markets.
The Company's Wholesale Division, which was established in June, 1994
operates from its corporate headquarters in Oak Brook, Illinois and Irvine,
California. Through the Wholesale Division, the Company acquires loans from a
network of mortgage brokers and other financial intermediaries, including
banks, who are screened by the Company.
In addition to loan processing performed by the correspondent, the Wholesale
Division performs its own underwriting prior to committing to acquire such
loans. Correspondents qualify to participate in the Wholesale Division's loan
acquisition program after a review of their reputation, mortgage lending
experience and financial condition, including a review of references and
financial statements. No single correspondent accounts for a significant
portion of the Wholesale Division's mortgage loan production.
THE RETAIL ORIGINATION DIVISION
Retail loan origination involves the direct solicitation of realtors,
builders and other end borrowers for the origination of mortgage loans. The
Company derives revenues from the premium that is received from the purchaser
of the loan. Generally, that premium is shared on a negotiated basis with loan
officers and others who procure the loan and assist in the loan origination
process.
The Company's Retail Origination Division solicits loans directly from
consumers and through real estate brokers, builders and other real estate
professionals. In developing its retail network, the Company has followed a
strategy of establishing offices in areas where its experience indicates
strong loan demand. This gives the Company added flexibility to open and close
offices as dictated by mortgage demand. See "Loan Funding and Warehousing."
Establishing a reputation for prompt and responsive customer service is
another integral component of the Company's marketing strategies. The Company
believes that the ability to process loan applications quickly provides a
distinct advantage over its competitors. The average period between receipt of
a loan application and the Company's final lending commitment is generally
less than 10 days. The Company endeavors to process loans quickly, while
maintaining comprehensive underwriting controls through its automated
techniques for loan origination, processing, underwriting and closing. The
Company's computer system integrates the Company's loan origination activities
to expedite loan processing, and enhances its ability to respond to market
opportunities.
QUALITY CONTROL OF MORTGAGE ORIGINATION
In order to ensure that the Company originates high quality mortgage loans,
it has retained the services of one of a quality control company with an
industry wide reputation to conduct evaluations of the Company's loan
origination activities on a monthly basis. The quality control company
generally reviews approximately ten percent of the Company's loan origination
files.
LOAN PROCESSING AND UNDERWRITING
Loan applications generally are prepared by Company loan officers and
verified by personnel in the Company's Retail Origination Division.
Verification procedures, include, among other things, obtaining: (i) written
confirmations of the applicant's income and bank deposits, (ii) a formal
credit report on the applicant from a credit reporting agency, (iii) a
preliminary title report, and (iv) a real estate appraisal. Appraisals for
conventional and FHA loans are prepared by third party, unaffiliated
appraisers who are pre-approved based upon their experience, education and
reputation standards. Completed loan applications are then transmitted to the
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<PAGE>
Company's Underwriting Department or to underwriting sub-contracting companies
who provide underwriting services to the Company. The Underwriting Department
of the Company or its sub-contractors contain experienced staff who verify the
completeness and accuracy of application information, and determine its
compliance with the Company's underwriting criteria and those of applicable
government agencies or other investors.
Underwriting criteria include loan-to-value ratios, borrower income
qualifications, investor requirements, insurance and property appraisal
requirements. The Company's underwriting guidelines for FHA, VA, FNMA and
FHLMC loans comply with the written underwriting guidelines of the relevant
agency.
The Company's underwriting guidelines for "non-conforming" loans are based
upon the underwriting standards required by investors to whom such loans are
sold. "Non-Conforming" loans generally include loan products that do not
comply with the underwriting guidelines of Freddie Mac, Fannie Mae, FHA or VA.
The Company believes that the implementation and enforcement of comprehensive
underwriting guidelines are expected. Non-conforming loans generally are
underwritten by the Company in accordance with the written underwriting
guidelines of the applicable investor who purchases the loans.
Most of the Company's underwriting personnel function independently of the
Company's loan origination personnel and do not report to any individual
directly involved in the loan origination process.
The Company's internal Quality Control Department reviews the Company's
origination activities including approximately one hundred percent (100%) of
all closed loans in order to enhance the ongoing evaluation of the loan
processing function, including employees, credit reporting agencies and
independent appraisers. In conducting such reviews, the Quality Control
Department reviews the loan applications for compliance with federal and state
lending standards, which involves a second verification of employment prior to
loan closing, reconfirming banking information, and obtaining separate credit
reports and property appraisals. The Quality Control Department submits all
review results directly to the president of the Company.
LOAN COMMITMENTS
Subsequent to underwriting approval, prior to loan funding, the Company
issues loan commitments to qualified applicants. Commitments indicate loan
amount, fees, funding conditions, approval expiration dates and interest
rates. Commitments providing for "fixed" interest rates beyond sixty (60) days
generally are not issued, unless the Company receives an appropriate fee
premium based upon the assessment of the risk associated with a longer
commitment period.
TYPES OF LOANS ORIGINATED
The Company makes available on a retail and wholesale basis a wide variety
of mortgage products that are designed, in conjunction with the prospective
purchasers of such loans, to respond to consumer needs and competitive
factors.
Virtually all residential mortgage loans produced by the Company fall into
three (3) categories, which relate to the type of investors that will
subsequently purchase such loans. These categories are (i) loans that comply
with the requirements for sale to, or exchange for securities issued by FNMA
and FHLMC ("conforming conventional loans"); (ii) loans insured by the FHA or
partially guaranteed by the VA (collectively "Government Loans"); and (iii)
loans secured by mortgage liens or trust deeds on single (one to four unit)
family homes, which do not conform to FNMA, FHLMC, FHA or VA requirements
("nonconforming conventional loans") because of certain loan characteristics
and/or non-conforming credit issues.
22
<PAGE>
The following table sets forth the number and dollar amount of the Company's
mortgage loan production on both a retail and wholesale basis for the periods
indicated (differences are due to rounding):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ---------
(APPROXIMATE VOLUME OF LOANS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Residential Loans
Number of loans.. 1,656 1,049 1,340 952 647 304
Volume of loans.. $ 200 $ 71 $ 153 $ 82 $ 56 $ 26
</TABLE>
The Company offers 15-year and 30-year conventional mortgages and 15-year
and 30-year FHA and VA mortgages, as well as special products designed to
offer lower rates or lower principal and interest payments to its customers.
The Company offers a wide variety of combinations of interest rates and points
on many of its products so that its customers may elect to pay higher points
at closing and lower interest rates over the life of the loan, or pay a higher
interest rate and reduce or eliminate points payable at closing. The Company
also has "limited document" loan programs which do not require verification of
assets or income, first time home buyer programs and loan programs for sub-par
credits. In addition, the Company offers buydown-type mortgages, which allow
the borrower to make lower monthly payments for the first one, two or three
years of the loan. While the Company offers both fixed rate mortgages and
adjustable rate mortgages ("ARMs") and other residential mortgages, the demand
for fixed rate mortgages tends to increase in low interest rate periods and
decrease when rates are higher on a relative basis.
Conforming conventional loans originated by the Company under FNMA or FHLMC
programs have maximum loan sizes which are larger than those loans qualifying
for the FHA and VA programs. The Company offers to make or purchase loans with
principal balances in excess of the FNMA and FHLMC maximum amounts ("jumbo
loans"), although the Company generally does not make or acquire single family
loans in excess of $1 million.
Mortgage loans originated by the Company are either purchase money loans,
which fund the purchase of primarily owner-occupied residential real property,
or refinance loans, which repay and replace existing mortgage loans. The
volume of refinance loans as a percentage of the Company's total mortgage loan
origination volume for the periods ended April 30, 1996, 1994, 1993 and 1992
was approximately twenty percent (20%), sixty percent (60%), fifty percent
(50%) and sixty percent (60%) respectively. At April 30, 1996, approximately
thirty percent (30%) of the Company's loan applications in process were
refinance loans. At December 30, 1996, approximately fifty percent (50%) of
the Company's loan applications in process were refinance loans. See "The
Company and its Business--Mortgage Banking Operations--Mortgage Servicing"
below.
LOAN FUNDING AND WAREHOUSING
The Company's mortgage loans on both a retail and wholesale basis are funded
with available cash resources and borrowings under lines of credit with banks.
See "Risk Factors--Availability of Funding Sources." The Company repays
borrowings and replenishes its cash resources with the proceeds from the sale
of mortgage loans. Borrowings under the lines of credit generally are based on
the prime rate of the lending bank.
The Company normally "warehouses" or holds, mortgage loans funded as
described above for ten (10) to one hundred eighty (180) days (on average
twenty (20) days during the year ended April 30, 1996), depending upon the
delivery dates negotiated with institutional investors, the volume of loan
origination, the availability of cash resources and the amount available under
warehousing lines of credit. The Company receives, as net interest income, the
difference between the interest received on mortgage loans held prior to sale
and the interest paid by the Company under such lines of credit. The Company
attempts to mitigate interest rate risk by warehousing mortgage loans for
relatively short time periods. This is accomplished by selling the loan to the
preselected investor as soon as possible after the loan closing. As described
above, this "holding" period averaged 20 days
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<PAGE>
during the year ended April 30, 1996. Although this strategy may limit the
amount of net interest income, management believes this strategy is prudent,
because it protects the Company from unexpected interest rate fluctuations.
SALE OF LOANS
Mortgage loans originated by the Company on both a retail and wholesale
basis are sold to investors in the secondary market. In the future, the
Company expects to retain the right to service such loans on a selected basis
to build a high quality servicing portfolio. Conventional conforming loans
generally are sold for cash as individual whole loans to investors. The
Company is an approved seller/servicer with FNMA and FHLMC. The Company
expects to sell loans to FNMA and to FHLMC for cash or in exchange for
securities issued by FNMA and FHLMC which are then sold to securities dealers.
In connection with such exchanges, the Company will be required to pay a fee
for agency guarantees of principal and interest payments to holders of the
securities backed by the mortgage loans. The Company generally sells its
conventional non-conforming loans to institutional investors in privately
negotiated transactions. During fiscal 1996, virtually all of the Company's
mortgage loans were sold to non-agency investors. Loans generally are sold
pursuant to commitments negotiated with institutional investors to purchase
loans meeting defined criteria. The Company expects to enter into new
commitments with these investors in the ordinary course of its business.
In the ordinary course of business, the Company makes representations and
warranties to the purchasers and insurers of mortgage loans and remains liable
on VA loans in excess of the amounts guaranteed by the VA. Losses relating to
such representations and warranties and contingent VA loan exposures have been
immaterial.
In connection with loan exchanges and sales, the Company makes
representations and warranties customary in the industry relating to, among
other things, compliance with laws, regulations, program standards and
information accuracy. In the event of a breach of these representations and
warranties, the Company could be required to repurchase such loans. In fiscal
years 1996, 1995, 1994, 1993 and 1992, the Company has not experienced any
losses relating to such representations and warranties or to its contingent VA
loan exposure.
THE SERVICING DIVISION
The Company's long term strategy is to expand its loan servicing division.
Loan servicing includes collecting and remitting loan payments, accounting for
principal and interest, holding escrow funds for payment of mortgage related
expenses such as taxes and insurance, making advances to cover delinquent
payments, making inspections as required of the mortgaged premises, contacting
delinquent mortgagors, supervising foreclosures and property dispositions in
the event of unremedied defaults and generally administering the loans.
Servicing compensation generally ranges from .25% to .50% per annum on the
outstanding principal balances of the loans. Servicing fees would be collected
from monthly mortgage payments. Other sources of loan servicing revenues may
include late charges and use of funds benefits.
As a servicer of mortgage loans underlying mortgage backed securities issued
by FNMA, FHLMC, GNMA or other investors, the Company will be obligated to make
timely payments of principal and interest to security holders, whether or not
such payments have been made by borrowers on the underlying mortgage loans.
With respect to mortgage loans securitized through GNMA programs, the Company
will be fully insured by FHA against foreclosure loss on FHA loans, and the VA
would guarantee against foreclosure loss on VA loans, subject to a limitation
of the lesser of 25% of the loan amount and $46,000. Although FNMA, FHLMC and
GNMA would be obligated to reimburse the Company for principal and interest
payments advanced by the Company as a servicer, the funding of delinquent
payments or the exercise of foreclosure rights involves prospective costs to
the Company.
The Company expects that an important source for its loan servicing
portfolio will be selected loans produced by the Company. The servicing rights
for selected loans will be retained by the Company after such loans are sold
to investors. In addition, the Company intends to supplement its servicing
portfolio by purchasing
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<PAGE>
mortgage servicing rights relating to loans originated by other lenders. Such
purchases will be made only after the Company has conducted a due diligence
analysis of the loan portfolio.
The Company intends to provide low cost and flexible servicing that is
responsive to the needs and requirements of its customers and investors.
SEASONALITY
The mortgage loan origination business is generally subject to seasonal
trends. These trends reflect the general pattern of sale and resale of homes.
Loan origination typically peaks during the spring and summer seasons, and
declines to lower levels from mid-November through January. The mortgage
servicing business is generally not subject to seasonal trends.
COMPETITION
The mortgage banking industry is highly competitive. The Company competes
with other financial institutions, such as mortgage banks, state and national
banks, savings and loan associations, savings banks, credit unions and
insurance companies and mortgage bankers. Some of the Company's competitors
have financial resources that are substantially greater than those of the
Company, including some competitors which have a significant number of offices
in areas where the Company conducts its business. The Company competes
principally by offering loans with competitive features, by emphasizing the
quality of its service and by pricing its range of products at competitive
rates.
Although the mortgage business is competitive, it is also fragmented in that
no single lender has a significant market share of total origination volume.
Overall mortgage origination volume is shared in varying percentages among
commercial banks, savings and loan and mortgage banking companies.
Historically, mortgage banks have had as estimated twenty-thirty percent (20-
30%) share of total origination volume. Commercial banks, savings banks,
savings and loan associations and mortgage banking companies service the bulk
of residential mortgages. Market shares among competitors generally shift more
slowly in servicing than in origination. Management of the Company does not
anticipate any significant changes in the market share described above in the
near term.
REGULATION
The Company's mortgage banking business is subject to the rules and
regulations of FHA, VA, FNMA, FHLMC and GNMA with respect to originating,
processing, selling and servicing mortgage loans. Those rules and regulations,
among other things, prohibit discrimination and establish underwriting
guidelines which include provisions for inspections and appraisals, require
credit reports on prospective borrowers and fix maximum interest rates.
Moreover, lenders are subject to FNMA, FHA, FHLMC, GNMA and VA examinations at
any times to assure compliance with the applicable regulations, policies and
procedures.
The Company's mortgage loan production activities are subject to the Truth-
in-Lending Act and Regulation Z promulgated thereunder. The Truth-in-Lending
Act contains disclosure requirements designed to provide consumers with
uniform, understandable information with respect to the terms and conditions
of loans and credit transactions in order to give them the ability to compare
credit terms. The Truth-in-Lending Act also guarantees consumers a three day
right to cancel certain credit transactions, including any refinance mortgage
or junior mortgage loan on a consumer's primary residence. The Company
believes that it is in substantial compliance in all material respects with
the Truth-in-Lending Act.
The Company also is required to comply with the Equal Credit Opportunity Act
of 1974, as amended ("ECOA"), which prohibits creditors from discriminating
against applicants on the basis of race, color, sex, age or marital status.
Regulation B promulgated under ECOA restricts creditors from obtaining certain
types of information from loan applicants. It also requires certain
disclosures by lenders regarding consumer rights and requires lenders to
advise applicants of the reasons for any credit denial. In instances where the
applicant is
25
<PAGE>
denied credit or the rate or charge for loans increases as a result of
information obtained from a consumer credit agency, another statute, the Fair
Credit Reporting Act of 1970, as amended, requires the lenders to supply the
applicant with a name and address of the reporting agency.
The Federal Real Estate Settlement Procedure Act ("RESPA") imposes, among
other things, limits on the amount of funds a borrower can be required to
deposit with the Company in an escrow account for the payment of taxes,
insurance premiums or other charges. The Company has policies, procedures and
systems in place to ensure compliance with RESPA.
The Company believes it is in possession of all licenses in those states in
which it does business that require such licenses, except where the absence of
such licenses is not material to the business and operations of the Company as
a whole. Conventional mortgage operations also may be subject to state usury
statutes. FHA and VA loans are exempt from the effect of such statutes.
EMPLOYEES
As of April 30, 1996, the Company had approximately 50 employees,
substantially all of whom were full-time employees. Of these, approximately 21
were employed at the Company's Oak Brook, Illinois headquarters and the
remainder were employed at the branch offices, including employees who are
commission-based loan officers. None of the Company's employees is represented
by a union. The Company considers its relations with its employees to be good.
PROPERTIES
The Company's corporate and administrative headquarters are located in
leased facilities in Oak Brook, Illinois. These facilities comprise
approximately 3,468 square feet of space in a building leased by the Company
for a ten year term at annual rate of approximately $9.50 to $15.63 per square
foot, triple net, which lease expires in 2003. In addition, at April 30, 1996,
the Company leased an aggregate of approximately 1,146 square feet in Las
Vegas, Nevada; 1,475 square feet in Irvine, California; and 900 square feet in
St. Louis, Missouri. The leases for Las Vegas, Nevada and Irvine California
are on a month to month basis. The Company has no liability with respect to
the lease at Creve Coeur, Missouri. The aggregate annual lease payments on
properties leased by the Company as of April 30, 1996 was $177,612.00. The
Company believes that its present facilities are adequate for its current
level of operations.
Lease commitments for the five (5) years following April 30, 1996 are as
follows:
<TABLE>
<S> <C>
April 30, 1997................................................. $43,168
April 30, 1998................................................. $45,059
April 30, 1999................................................. $47,308
April 30, 2000................................................. $49,692
April 30, 2001................................................. $52,160
</TABLE>
The Company's corporate headquarters are located at 600 Enterprise Drive,
Suite #206, Oak Brook, Illinois 60521 and its telephone number is (630) 571-
7222.
LEGAL PROCEEDINGS
Except as described below, the Company is not a party to any material
litigation nor is management aware of any material threat of litigation.
Lawyers Title Insurance Corporation v. Dearborn Corporation
In June, 1995, Lawyers Title initiated a non-wage garnishment proceeding
against the Company and its bank which resulted in a lien being placed upon
the Company's bank account in the amount of $565,649.26 ("Lawyers
26
<PAGE>
Title Litigation"). Lawyers Title had previously obtained a judgment by
default against Dearborn Title Corporation and its president, Eileen Rasulis,
in the amount of $5,931,494.59. Lawyers Title claimed entitlement to monies
purportedly held by the Company on the grounds that the money was tendered to
the Company by Dearborn Title in the mistaken belief that this money was owed
to the Company as a replacement for a funding check relating to a particular
real estate refinancing transaction which had previously been returned to
Dearborn for insufficient funds.
The Company has vigorously denied that Lawyers Title is entitled to these
funds and has claimed that Dearborn Title owed to the Company sums in excess
of $700,000.00 and that the Company is entitled to retain these funds.
On October 10, 1996, the United States District Court entered judgment in
favor of Lawyers Title and against the Company in the amount of $583,049.26.
On November 6, 1996, the Company appealed the October 10, 1996 judgment order
to the United States Court of Appeals for the Seventh Circuit. The appeal is
pending.
Jeske and Levin v. United Financial Mortgage
In February, 1996, Keith Jeske and Mark Levin filed a complaint against the
Company and Joseph Khoshabe in the United States District Court for the
District of Nevada. The complaint alleges breach of oral and written
agreements, fraudulent inducement, unjust enrichment and other charges
relating to the purported breach of a branch office agreement entered into
between the Company and Levin and Jeske regarding the operation of a Las Vegas
branch office. Levin and Jeske alleged that the Company, among other things,
refused to pay payroll expenses and other fees incurred by the branch office
and misrepresented that the Company was VA approved and could provide VA loans
through the branch office. The complaint seeks an unspecified amount of
damages in excess of $50,000. The Company denies that any liability is owing
to either Jeske or Levin, intends to vigorously defend against the allegations
and has filed counterclaims alleging damages in excess of $100,000.
Creed v. United Financial Mortgage Corp.
In March of 1996, David Creed filed a complaint in the State court for Clark
County, Nevada, alleging that the Company, Jeske and Levin breached an
agreement with him to pay certain compensation of approximately $100,000.
Jeske and Levin filed a cross-claim against the Company and Joseph Khoshabe,
alleging claims identical to their Federal District Court action. The Company
and Joseph Khoshabe have answered both the complaint and cross-claims, denying
any liability to Creed, Jeske or Levin. In addition, a motion to dismiss will
be filed after discovery on behalf of Joseph Khoshabe on the grounds that he
is not party to any of the agreements and is not the alter-ego for the
Company. The Company intends to vigorously defend against the allegations, and
has also filed counter-claims against Creed, Levin and Jeske alleging that
these individuals breached the branch office agreement and also alleging that
Levin and Jeske unlawfully converted monies belonging to the Company.
State of Nevada Office of Labor Commissioner
In October, 1995, the Company was notified by the State of Nevada's Office
of Labor Commissioner that certain wage claims had been filed by 18
individuals, including Jeske and Levin relating to unpaid wages totaling
approximately $32,000. The Company has denied responsibility for these claims
and affirmatively stated that pursuant to the branch office agreement, Jeske
and Levin are solely and exclusively responsible for these claims.
Schweigert v. United Financial Mortgage Corp.
The plaintiff in this action alleges wrongful termination of employment from
the Company and damages relating thereto in excess of $50,000. The Company
intends to vigorously defend this litigation and does not believe that it has
any liability with respect to this claim.
27
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Joseph Khoshabe 52 President, Chief Executive Officer,
and Sole Director
Steve Y. Khoshabe 25 Executive Vice President and Chief Financial Offi-
cer
Glen H. Schap 49 Vice President and Secretary
Bruce M. Becker 32 Nominee Director
David B. Mirza 58 Nominee Director
Robert S. Luce 50 Assistant Secretary and Nominee Director
</TABLE>
The Company has nominated Mr. Bruce M. Becker, Dr. David B. Mirza and Mr.
Robert S. Luce to become directors of the Company. Messrs. Becker, Mirza, and
Luce have agreed to become directors of the Company ninety (90) days after the
closing of the transactions contemplated in this prospectus. No assurance can
be given that any such director might change his decision to become a director
at some later date.
JOSEPH KHOSHABE has been President and Chief Executive Officer of the
Company since its formation in 1986. Mr. Khoshabe is responsible for the day-
to-day administration of all operating activities at the Company, including
the supervision of all loan origination activities; personnel management and
financial matters affecting the Company. Prior to formation of the Company,
Mr. Khoshabe was an executive with the Cracker Jack Division of Borden, Inc.,
where he was employed for approximately 19 years. Mr. Khoshabe holds a
Bachelor of Arts Degree in Business Administrative/Economics from Governors
State University and a Bachelor of Science/Accounting from Tehran University
STEVE Y. KHOSHABE joined the Company in December 1994 and became Executive
Vice President and Chief Financial Officer of the Company on June 3, 1996. Mr.
Khoshabe is the son of Mr. Joseph Khoshabe. Mr. Khoshabe was a student at the
Loyola University of Chicago, Graduate School of Business prior to joining the
Company. Mr. Khoshabe holds a Bachelor of Science degree in
Marketing/Economics from Bradley University and a Masters of Business
Administration/Finance from Loyola University of Chicago. Mr. Steve Khoshabe's
principal responsibilities include the monitoring of interest rates on the
Company's numerous loan products, quality control and managing the Company's
secondary marketing activities.
GLEN A. SCHAP joined the Company in 1992 as Vice President and Secretary.
Mr. Schap manages the Company's loan origination activities. Mr. Schap's
responsibilities include loan closing and the packaging and delivery of closed
loans to investors. Mr. Schap was associated with commercial and residential
loan departments of various banks and financial services companies for 15
years prior to joining the Company. Mr. Schap holds a degree in Economics from
Northeastern Illinois University.
BRUCE M. BECKER has been a Senior Vice President and Financial Consultant of
Smith Barney, Inc. for the last five years. In this capacity, Mr. Becker is
responsible for advising individual investors and facilitating fixed income
investing for small and medium sized financial institutions. Mr. Becker is a
graduate of Southern Methodist University and holds a Bachelor of Science
degree in Business Administration/Finance.
DR. DAVID B. MIRZA has been employed at Loyola University, Chicago School of
Business Administration as an Associate Professor and Chair of the Economics
Department for the past five years. Prior to joining the faculty at Loyola
University, Mr. Mirza taught at Kalamazoo College and Dartmouth College. Dr.
Mirza holds a B.A. degree from Earlham College and a Ph.D. degree in Economics
from Northwestern University
ROBERT S. LUCE is an attorney who has been practicing financial services law
for 25 years, and provides legal services to the Company on certain matters
from time to time.
Directors are elected at each annual meeting of stockholders and serve until
the next annual meeting. Executive officers are elected at each annual meeting
of the Board of Directors and, subject to individual contractual arrangements,
serve at the pleasure of the Board of Directors. For a further description of
the employment agreement between the Company and its President, see
"Management--Employment Agreement."
28
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION(1)(2)(3)(4)(6)
------------------ ---- ------ ----- ---------------------------
<S> <C> <C> <C> <C>
Joseph Khoshabe, Presi-
dent 1996 -0- -0- $5,661
1995 $160,000 -0- $5,661
1994 $162,352 -0- $5,661
1993 $128,000 -0- $5,661
Steve Y. Khoshabe, Exec-
utive Vice President(5) 1996 $ 40,393 -0- -0-
Glen A. Schap 1996 $ 25,333 -0- -0-
1995 $ 28,754 -0- -0-
1994 $ 26,083 -0- -0-
1993 $ 32,710 -0- -0-
</TABLE>
- --------
(1)Includes: $1,980 for annual disability premiums; $1,181 for annual health
insurance premiums for Mr. Khoshabe and his dependents; and $2,500
for annual premiums for $700,000 life insurance on Mr. Khoshabe of
which Mr. Khoshabe's wife is the sole beneficiary.
(2) None of the Nominee Directors have received any director
compensation from the company
(3) Does not include a $25,000 annual car allowance payable to Mr.
Joseph Khoshabe
(4) Does not include a $7,200 annual car allowance payable to Steve
Khoshabe and $2,210 of annualized health plan premiums.
(5) Effective as of July 1, 1997, Mr. Steve Khoshabe's annual base
salary will be increased to $90,000. This increase is attributable
to an anticipated significant increase in his responsibilities as a
consequence of the public offering by the Company.
(6) In the period May 1, 1996 to date, Mr. Joseph Khoshabe has been
paid a salary of $15,000 per month and the other compensation
stated in footnote 1 above, but excluding $2,500 for the annual
premiums for $700,000 of life insurance on Mr. Khoshabe. Mr.
Khoshabe pays this premium from his personal funds.
EMPLOYMENT AGREEMENT FOR JOSEPH KHOSHABE
The Company has entered into an Employment Agreement with Mr. Joseph Khoshabe
to retain his services to the Company as President and Chief Executive Officer.
The Employment Agreement contains the following important terms:
<TABLE>
<CAPTION>
Term Five (5) Years(1)
<S> <C>
Annual Salary $250,000 (2)
Annual Increases 10%
Health Insurance for Mr. Khoshabe
and his family $ 5,000 (Annual Estimated Premium)(3)
Life insurance of $700,000 payable
to his spouse $ 2,500 (Annual Premium)
Car Allowance $ 25,000 (Per Annum)
Long Term Disability Insurance $ 1,980 (Annual Premium)(3)
</TABLE>
Incentive Compensation:
Additional cash compensation in the amount of ten
percent (10%) of any increase in the Company's net
income before income taxes as compared to the
preceding fiscal year.
- --------
(1) Commencing from the effective date of the registration statement relating
to this Prospectus.
(2) The Annual Salary will be retroactive to March 1, 1997, if the public
offering contemplated by this registration statement closes.
(3) These items may increase in the future subject to premium costs.
29
<PAGE>
The Employment Agreement may be terminated by the Board of Directors only by
unanimous vote and Mr. Khoshabe will be a member of the Board of Directors
after the three (3) additional nominees assume their directorships.
STOCK OPTION PLAN
On December 15, 1993 the Company adopted a Non-Qualified and Incentive Stock
Option Plan (the "Stock Option Plan" or "Plan") which provides for the grant
of non-qualified stock options ("Non-Qualified Options"), and incentive stock
options ("Incentive Options"). 500,000 shares of Common Stock have been
reserved for issuance under the Plan. The Plan is administered by a Stock
Option Committee appointed by the Board of Directors. Members of the Stock
Option Committee may not participate in the Plan. No options have been granted
under the Plan.
All salaried officers and key employees of the Company and any subsidiaries
are eligible to receive options under the Plan. The total amount of Common
Stock for which options may be granted to any one person may not exceed 10% of
the total shares reserved for issuance under the Plan. The Plan will terminate
by its terms on December 31, 2003 and also may be terminated at any time by
the exercise of all outstanding options.
Options granted may be exercisable for up to ten years. If any options
granted under the Plan expire, terminate or are canceled for any reason
without having been exercised in full, the corresponding number of unpurchased
shares reserved for issuance upon exercise thereof will again be available for
the purposes of the Plan. The purchase price of the Common Stock under each
option shall not be less than the fair market value of the Common Stock on the
date on which the option is granted. The option price is payable either in
cash, by the delivery of shares of the Company's common stock, or a
combination of cash and shares.
Options will be exercisable immediately, after a period of time or in
installments. Options will terminate not later than the expiration of ten
years from the date of grant, subject to earlier termination due to
termination of service. Except under certain circumstances where termination
of service is due to retirement or death, in which event options may be
exercised for an additional period of time following such termination of
service, the option may be exercised only while the optionee remains in the
employ of the Company or one of its subsidiaries.
UNITED FINANCIAL MORTGAGE CORP. 401(K) PLAN
The Company has adopted a 401(K) plan ("401(K) Plan") which became effective
on May 1, 1995. The 401(K) Plan provides for employee pre-tax contributions
from one percent (1%) to fifteen percent (15%) of salary. The Plan provides
for discretionary employee matching and employee discretionary contributions
to be determined by the employee each plan year. Company contributions, if
any, to the 401K Plan are made in the exercise of the Company's sole
discretion. The Plan covers all employees who satisfy eligibility
requirements.
COMPANY POLICY ON AFFILIATE TRANSACTIONS
All affiliate transactions are or will be on terms no less favorable to the
Company than those generally available from unaffiliated third parties and are
or will be ratified by a majority of independent outside disinterested members
of the Company's Board of Directors not having any interest in the
transactions. Mr. Khoshabe's Employment Agreement and the Company's Stock
Option Plan were entered into by the Company prior to the adoption of the
Company's Policy on Affiliate Transactions.
30
<PAGE>
HISTORY OF SECURITY PLACEMENTS
2 FOR 3 REVERSE STOCK SPLIT
On May 9, 1995, the Company implemented a reverse stock split on the basis
that each outstanding three (3) shares of common stock, no par value, were
converted to two (2) shares of common stock, no par value. The reverse stock
split reduced the Company's outstanding shares of Common Stock at that date to
3,002,000 shares from approximately 4,530,000 shares. All share information
has been restated for the reverse stock split.
HISTORICAL STOCK ISSUANCES
All of Mr. Khoshabe's shares of common stock have been reregistered in the
name of the J. K. Trust. Prior to transfer to the J. K. Trust, Mr. Khoshabe
paid $130,070 for his shares of Common Stock, or $.051 per share. See
"Principal Stockholder."
1993 PRIVATE PLACEMENT
During the period from September 8, 1993 to December 14, 1993 ("1993 Private
Placement"), the Company engaged in an offering of 268,000 shares of its
Common Stock to certain accredited investors for $400,000. The Company
received $400,000 from the sale of 268,000 shares sold to the accredited
investors.
PRIOR REGISTRATION STATEMENT
The Prior Registration Statement which was declared effective on June 14,
1994 registered 900,000 Units of the Company. Each Unit consisted of one (1)
share of Common Stock; and one (1) Class A Redeemable Stock Purchase Warrant.
The Prior Registration Statement also registered 90,000 Underwriter's
Warrants, the securities included in such Warrants and 128,460 shares of
Common Stock held by the Non-Affiliated Shareholders. The public offering
contemplated in the Prior Registration Statement failed to close on a "best
efforts" basis because, in part, of changes in the capital markets, and, at
that time, the Company's inability to attract a securities underwriting
firm(s) to conclude a firm commitment underwriting. No securities were sold by
the Company pursuant to the prior Registration Statement. The SEC consented to
the withdrawal of the Prior Registration Statement effective as of October 25,
1994.
1994 PRIVATE PLACEMENT
Under the terms of the November 15, 1994 private placement ("1994 Private
Placement"), the Company sold 220,000 shares of Common Stock exclusively to
certain accredited investors for $1.50 per Share. Gross proceeds from the 1994
Private Placement were $330,000. The net proceeds of that offering were
applied to (i) repurchase shares of Common Stock from certain shareholders in
the 1993 Private Placement who elected to sell their shares to the Company;
(ii) expand loan origination and servicing activities and (iii) provide
working capital to the Company.
Pursuant to the terms of the 1994 Private Placement, the Company offered
shareholders in the 1993 Private Placement the opportunity to either: (i)
retain some or all of their Shares and, with respect to the retained Shares,
granted to such shareholders registration rights entitling them to sell all of
such shares pursuant to a registration statement filed by the Company within
six (6) months of the effective date of the then proposed registration
statement, subject to state securities law regulations or underwriting
constraints; or (ii) sell some or all of their Shares back to the Company at
the original subscription price for the Shares, plus annual compounded
interest at ten percent (10%) of the subscription price for the Shares for the
period that the subscription proceeds were held by the Company. The Company
purchased 73,461 shares from such holders for $123,456.
1995 BRIDGE FINANCING
Pursuant to the terms of the May 15, 1995 private placement regarding a
certain bridge financing ("1995 Bridge Financing"), the Company offered and
sold exclusively to accredited investors two and one-half (2 1/2)
31
<PAGE>
units ("Units") each consisting of one (1) $100,000, ten percent (10%)
convertible debenture ("Debenture") and 22,000 shares of no par value common
stock ("1995 Unit Shares"). Gross proceeds from the 1995 Bridge Financing were
$250,000.
The Debenture component of the Units provided for a maturity of twelve (12)
months commencing from the expiration date of the 1995 Bridge Financing
("Redemption Date"). The Debentures also provided for the payment of accrued
interest at an annual rate of ten percent (10%), commencing from the
expiration date of the offering through the Redemption Date. The Debentures
also provided for redemption and payment by the Company, in full, including
both principal and accrued interest, upon the completion of the then proposed
registration statement contemplated by the Company. The Debentures were not
redeemed on the Redemption Date, and pursuant to their terms, were
automatically converted into 55,555 Shares ("1995 Conversion Shares"). The
1995 Unit Shares and the 1995 Conversion Shares are not subject to redemption.
The Unit Shares and the Conversion Shares previously had been accorded
certain registration rights which provided that the Company within six (6)
months of the effective date of the then proposed registration statement,
would file another registration statement, at its expense, to register such
shares.
EXPIRATION OF REGISTRATION RIGHTS RELATING TO THE 1993, 1994 AND 1995 PRIVATE
PLACEMENTS
The registration rights granted by the Company in connection with the 1993
Private Placement, the 1994 Private Placement and the 1995 Bridge Financing
have expired by their terms. Therefore, with respect to the common stock
issued by the Company in connection with these offerings, the Company is under
no contractual obligation to file a registration statement for such shares or
include them in any registration statement otherwise filed by the Company.
1996 FINANCING
Pursuant to the terms of the November 1, 1996 private placement ("1996
Financing"), the Company offered and sold seventeen (17) units ("Units") each
consisting of one (1) $25,000, ten percent (10%) convertible debenture ("1996
Debenture") and 2,500 shares of no par value common stock ("1996 Unit
Shares"). As of the date hereof, $425,000 of Debentures and 42,500 shares of
Common Stock have been sold pursuant to the 1996 Financing.
The 1996 Debenture component of the Units provides for a term of up to
twelve (12) months commencing from the expiration date of the 1996 Financing
("Redemption Date"). The 1996 Debenture also provides for the payment of
accrued interest at an annual rate of ten percent (10%), commencing from the
date of subscription through the Redemption Date. The 1996 Debenture provides
for mandatory redemption and payment by the Company, in full, including both
principal and accrued interest, upon the completion of this offering. If the
1996 Debentures are not redeemed, then the 1996 Debentures automatically
convert to an additional 85,000 shares of Common Stock (5,000 shares for each
$25,000 1996 Debenture) ("1996 Conversion Shares"). The 1996 Conversion Shares
and the 1996 Unit Shares are not subject to mandatory redemption.
The 1996 Unit Shares and the 1996 Conversion Shares have been accorded
certain registration rights which provide that the Company, within six (6)
months of the effective date of the registration statement relating to this
Prospectus will file another registration statement, at its sole expense, to
register such shares.
Prospective investors in this offering should understand that the sale of
Shares by holders in the 1993 Private Placement, the 1994 Private Placement,
the 1995 Bridge Financing, the 1996 Financing and the shares relating to the
Warrants, as described herein, could have an adverse affect on the market
price of the Company's common stock at the time such sales are made.
32
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 20,000,000 shares of Common stock, no par
value, and 5,000,000 shares of serial preferred stock. As of the date hereof,
and before consummation of this offering, 3,100,029 shares of Common Stock
were issued and outstanding. The outstanding Common Stock is fully paid and
non-assessable. The Company has one series of preferred stock, the Series A
Preferred Stock, of which 213 shares were purchased for a cash subscription
price of $1,065,000. All shares of Series A Preferred Stock are registered in
the name of the J.K. Trust.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share. No
cumulative voting is required or permitted. Therefore, the holders of a
majority of shares voting for the election of directors can elect all
directors, and the remaining holders will not be able to elect any directors.
Holders of Common Stock are entitled to receive such dividends, if any, as
the Board of Directors may from time to time declare out of funds the Company
has legally available for the payment of dividends. Holders of the Common
Stock are entitled to share pro rata in any dividends declared. It is not
anticipated that dividends will be paid in the near future. Future dividend
policy will depend upon conditions existing at that time, including the
Company's earnings and financial condition.
Upon liquidation, dissolution or winding-up of the Company, Common Stock
stockholders are entitled to receive pro rata all of the assets of the Company
available for distribution to stockholders. Stockholders of the Company do not
have preemptive rights or other rights to subscribe for or purchase any stock,
options, warrants or other securities offered by the Company.
PREFERRED STOCK
The Articles of Incorporation of the Company authorizes its Board of
Directors to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the designations, preferences, powers and relative
participating, optional and other rights, qualifications, limitations and
restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption rights and liquidation preference, and to fix the number of
shares to be included in any such series. The Preferred Stock may rank
superior to the Common Stock with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding-up, or both. In addition, any
such shares of Preferred Stock may have class or series voting rights.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company
may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of the Company's Common Stock.
SERIES A PREFERRED STOCK
In 1988, 1992 and 1996 the Company's Board of Directors authorized the
issuance of an aggregate of 213 shares of Series A Non-Voting Preferred Stock
("Preferred Stock"), all of which shares were purchased by Mr. Joseph
Khoshabe, the Company's president. As described elsewhere herein, all such
shares of Preferred Stock are registered in the name of the J. K. Trust. The
shares of Preferred Stock were purchased for a total consideration of
$1,065,000, or $5,000 per share. The holders of Preferred Stock are entitled
to receive variable dividends as determined by the Board of Directors from
time to time; and do not have voting rights. The amount
33
<PAGE>
of the variable dividend is determined solely at the discretion of the
Company's Board of Directors. Such variable dividends were declared for the
years ended April 30, 1994, April 30, 1995 and April 30, 1996 in the amounts
of $19,000, $25,515 and $-0-, respectively.
The terms of the Preferred Stock additionally provide that upon any
liquidation, dissolution or winding-up of the affairs of the Company, whether
voluntarily or involuntarily, after payment or provision for payment of debts
and other liabilities of the Company, the holder(s) of shares of Preferred
Stock shall be entitled to receive from the Company $5,000 per share, from the
remaining net assets of the Corporation before any distribution is made with
respect to the Common Stock. The liquidation value for the Preferred Stock is
$5,000 per share.
WARRANTS
1994 Warrant
In connection with the 1994 Private Placement, the Company issued 22,000
warrants ("the 1994 Warrants") to Mills Financial Services, Inc., the
placement agent, on the basis of one (1) warrant for each ten (10) shares of
common stock sold in the 1994 Private Placement. The 1994 warrants were issued
for consideration of $100.00 and are exercisable for a period of five (5)
years from the date of issuance. Each 1994 Warrant is exercisable to purchase
one (1) share of common stock at $1.65 per share. The 1994 Warrants provide
for a single demand right of registration for the shares underlying the
warrants exercisable by a majority of the holders thereof, which right of
demand may not be exercised until six months after the effective date of the
registration statement for this Prospectus. In addition, the 1994 Warrants
provide for additional rights to "piggy-back" the underlying shares on other
registration statements filed by the Company.
1995 Bridge Finance Warrants
In connection with the 1995 Bridge Financing, the Company has issued 25,000
warrants ("the 1995 Bridge Finance Warrants") to the placement agents or
associates of the placement agents on the basis of 10,000 warrants for each
Unit ($100,000) sold in the offering. The 1995 Bridge Finance Warrants were
issued for nominal consideration and are exercisable for a period of five (5)
years from the date of issuance. Each 1995 Bridge Finance Warrant is
exercisable to purchase one (1) share of common stock at $4.505 per share.
Each of the 1995 Bridge Finance Warrants provide for a single demand right of
registration for the shares underlying the warrants. In addition, the 1995
Bridge Finance Warrants provide for additional rights to "piggy-back" the
underlying shares on registration statements filed by the Company, including
the registration statement of which this Prospectus is a part. Mills Financial
Services, Inc. was issued 5,000 of the 1995 Bridge Finance Warrants for its
participation in the 1995 Bridge Financing. Mills Financial Services, Inc. has
agreed to a waiver of its "piggy-back" registration rights with respect to the
registration statement relating to this Prospectus.
Advisor Warrants
Effective as of November 15, 1995, the Company issued for $100, a warrant to
purchase 195,000 shares of common stock of the Company to an advisor to the
Company who provided, from time to time since 1994, advice and consulting
services to the Company. The warrants are exercisable at $0.50 per share
through April 30, 1999. The warrants contain customary "piggyback"
registration rights, one demand registration right at the Company's expense
and one registration right paid for by the holder(s) of such warrant with
respect to both the warrant and the underlying shares of common stock. The
demand registration right and the "piggy-back" registration rights are not
available to the holders of the Advisor Warrant(s) until six (6) months after
the effective date of the registration statement relating to this Prospectus.
34
<PAGE>
Underwriter's Warrants
The Company has agreed to issue for $100.00 Underwriter's Warrants entitling
the Underwriter to purchase Shares of the Company's common stock in an amount
equal to ten percent (10%) of the Shares sold in this offering (including any
Shares sold pursuant to the over-allotment options), at an exercise price of
one hundred twenty percent (120%) of the Public Offering price exercisable any
time, in whole or in part, between the first and fifth anniversary dates of
the effective date of this offering. At any time during the exercise term, the
holders of a majority of these securities shall have the right to require the
Company to prepare and file one (1) post-effective amendment to the
registration statement relating to this offering, or a separate registration
statement, if then required under applicable law, covering all or any portion
of the securities. In addition, for a period of seven (7) years after the
effective date of the registration statement relating to this offering, the
holders of these securities shall have unlimited "piggyback" registration
rights.
TRANSFER AGENT AND WARRANT AGENT
Corporate Stock Transfer, Inc. has been appointed registrar and transfer
agent for the Common Stock and the warrant agent for the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the offering, the Company will have 3,900,029 shares of
Common Stock outstanding (4,020,029 if the over-allotment option is exercised
in full). Of these shares, 800,000 (920,000 if the over-allotment option is
exercised in full) will be freely tradeable without restriction or
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless held by affiliates of the Company. All of the remaining
3,100,029 shares will be "restricted securities" as that term is defined in
Rule 144 promulgated under the Securities Act and may only be sold in the
public market if such shares are registered under the Securities Act or sold
in accordance with Rule 144 promulgated thereunder.
In general, under Rule 144 a person (or persons whose shares are aggregated)
including an affiliate, who has beneficially owned his shares for one year,
may sell in the open market within any three-month period a number of shares
that does not exceed the greater of (i) 1% of the outstanding shares of the
Company's Common Stock (approximately 39,000 shares or approximately 41,200
shares if the over-allotment option is exercised in full), or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
limitations on the manner of sale, notice requirements and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is deemed not to be an "affiliate" or a recent
"affiliate" of the Company and who has beneficially owned his shares for at
least three years, may sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, notice
requirements or availability of current information provisions referred to
above. Restricted shares properly sold in reliance upon Rule 144 are
thereafter freely tradeable without restrictions or registration under the
Act, unless thereafter held by an "affiliate" of the Company.
Of the 3,100,029 restricted shares currently outstanding, a total of
2,531,842 shares are held by J.K. Trust, an affiliate of the Company. J.K.
Trust has entered into an agreement not to sell any shares for a period of 6
months following the date of this Prospectus and thereafter for an additional
period of 6 months to limit sales, if any, to not more than 100,000 shares. As
an affiliate of the Company, J.K. Trust will be further subject to the volume
limitations of Rule 144(e)(1) with respect to any such sales. A total of
414,439 of the restricted shares were acquired from the Company by non-
affiliates more than three (3) years prior to the date of this Prospectus and
are therefore eligible for sale under Rule 144k without volume limitation
commencing 90 days after the completion of this offering. The Company has
obtained agreements from shareholders owning of the 414,439 shares not
to sell any shares for a period of 6 months following the date of this
Prospectus. A total of
35
<PAGE>
55,555 of the restricted shares were acquired from the Company by non-
affiliates more than 1 year ago and are therefore eligible for sale under Rule
144(e)(2) subject to certain volume restrictions commencing 90 days from the
completion of this offering. An additional 55,555 of the restricted shares were
acquired from the Company less than 1 year prior to the date of this
Prospectus. With respect to these 111,110 shares, the Company has obtained
agreements from shareholders holding of the 111,110 shares not to sell
any shares for a period of 6 months following the date of this Prospectus. The
balance of 42,500 of the restricted shares will not be eligible for sale under
Rule 144 until one (1) year from the date of their issuance. Additionally,
500,000 shares of the Company's common stock are reserved for issuance under
the Company's Stock Option Plan.
Future sales of substantial amounts of Common Stock in the public market, or
the availability of such shares for future sale, could impair the Company's
ability to raise capital through an offering of securities and may adversely
affect the then-prevailing market prices for the Company's stock.
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement (the form of
which has been filed as an exhibit to the Registration Statement), to purchase
from the Company the following respective number of shares of Common Stock at
the public offering price less the underwriting discounts and additional
compensation set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
------------ -------
<S> <C>
Mills Financial Services, Inc....................................
-------
Total........................................................ 800,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent. The nature of the Underwriters'
obligation is that they are committed to purchase all the Shares offered if any
of such Shares are purchased.
The Company has been advised by Mills Financial Services, Inc., the
Representative of the Underwriters, that the Underwriters propose to offer the
Shares directly to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at this price less a
concession not in excess of $ per Share. The Underwriters may allow and
such dealers may reallow a concession not in excess of $ per share to
certain other dealers. After commencement of the public offering, the offering
price and other selling terms may be changed by the Representative.
The Company has granted to the Underwriters a 45-day option to purchase up to
120,000 additional shares of Common Stock at the public offering price, less
the underwriting discounts and other compensation, set forth on the cover page
of this Prospectus. The Underwriters may exercise such option only to cover
over-allotments, if any, made in connection with the sale of the Shares of
Common Stock offered hereby. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of additional shares of Common Stock
proportionate to such Underwriter's initial commitment. The Company will be
obligated, pursuant to such option, to sell such shares to the Underwriters to
the extent such option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof. It is
the opinion of the Securities and Exchange Commission that such indemnification
is contrary to public policy and unenforceable.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the aggregate offering price of the Common Stock offered
hereby (including any shares of Common Stock purchased
36
<PAGE>
pursuant to the Underwriters' overallotment option). No portion of the non-
accountable expense allowance has been paid to the Representative to date.
The Company has also agreed to sell to the Representative or its designees,
the Underwriter's Warrants to purchase 80,000 (up to 92,000 if the over-
allotment option is exercised) at a price of $.001 per warrant. The
Underwriter's Warrants will be exercisable for a period of five years,
commencing upon the date of the Prospectus, at an initial per share exercise
price equal to 120% of the initial public offering price. The Underwriter's
Warrants are not redeemable by the Company under any circumstances. Neither
the Underwriter's Warrants nor the shares of Common Stock issuable upon
exercise thereof may be transferred, assigned or hypothecated until one year
from the date of issuance of the Underwriter's Warrants, except they may be
assigned, in whole or in part, to any successor or officer of the
Representative or to members of the underwriting group. Underwriter's Warrants
will contain anti-dilution provisions for appropriate adjustment of the
exercise price and number of shares which may be purchased upon exercise upon
the occurrence of certain events.
The holders of a majority of the Underwriter's Warrants and/or underlying
securities shall have the right, during the four-year period commencing one
year from the date of this Prospectus, on one occasion (which shall be at the
Company's sole expense) to require the Company to register the Common Stock
underlying the Underwriter's Warrants (the "Registrable Securities") by means
of a registration statement pursuant to the Securities Act, or a post-
effective amendment thereto, as appropriate, so as to enable such holders to
publicly offer the Registrable Securities. Moreover, if during the six-year
period commencing one year following the date of this Prospectus the Company
shall register any of its securities for sale pursuant to a post-effective
amendment or new registration statement (with the exception of Form S-8 or
other inappropriate form), upon request by any of the holders of the
outstanding Registrable Securities, the Company shall be required to include
such securities as a part of the registration statement.
The holders of the Underwriter's Warrants shall have no voting, dividend or
other rights as shareholders of the Company unless and until the exercise of
such Warrants. The number of securities deliverable upon any exercise of the
Underwriter's Warrants and the exercise price of such Warrants are subject to
adjustment to protect against any dilution upon the occurrence of certain
events including sales of shares at less than the market price (or, if no
market price exists, at less than fair market value), issuance of stock
dividends, stock splits, subdivision or combination of outstanding stock and
reclassification of stock.
During the exercise period, the Representative and any transferee is given,
at nominal cost, the opportunity to profit from a rise in the market price for
the Company's Common Stock, if any, at the expense of the Company's then
shareholders. For the life of the Underwriter's, the Company may be deprived
of favorable opportunities to procure additional equity capital, if it should
be needed for the business of the Company, and the holders of the
Underwriter's Warrants may be expected to exercise such Warrants at a time
when the Company would, in all likelihood, be able to obtain equity capital,
if then needed, by the sale of additional shares on terms more favorable than
those provided by the Underwriter's Warrants.
The Company has also agreed that the Representative shall have the right of
first refusal for three years to manage, underwrite or purchase for its own
account any sale by the Company of debt or equity securities of the Company,
any subsidiary or successor of the Company or, subject to certain exceptions,
by any shareholder of the Company owning in excess of ten percent of the
outstanding Common Stock.
The Company (with certain exceptions) and J.K. Trust, the sole shareholder
owning in excess of 10% of the Common Stock of the Company have agreed
pursuant to Lock-up Agreements not to sell or grant any option for sale or
otherwise dispose of, directly or indirectly, any shares of the Common Stock
of the Company for a period of six-months after the date of consummation of
this Offering, without the prior written consent of the Representative other
than, in the case of the Company, the shares of Common Stock to be sold to the
Underwriters in this Offering and the grant of Options to purchase shares of
Common Stock pursuant to the Company's Stock Plan and the issuance of shares
under such Options. In addition, J.K. Trust has agreed that after the
expiration of the six-month lock-up period, it will not sell more than 100,000
shares of the Company's Common Stock for a period of six-months thereafter.
37
<PAGE>
The Company has also agreed, for the three-year period commencing upon
consummation of this Offering, at the request of the Representative, to
nominate and use its best efforts (including solicitation of proxies) to elect
a designee of the Representative to the Board of Directors of the Company or,
alternatively, to permit a designee of the Representative to receive notice of
and attend all special and regular meetings of the board of directors of the
Company. No designee has been chosen as of the date hereof.
The foregoing does not purport to be a complete statements of the terms and
conditions of the Underwriting Agreement and related documents, copies of
which are on file at the offices of the Representative, the Company and the
Securities and Exchange Commission, forms of which have been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the offering price has been determined through
negotiation between the Company and the Representative. Such price was based
on a number of factors, including, but not limited to the following: estimates
of the business potential and earnings prospects of the Company, the present
state of the Company's development, an assessment of the Company's management,
the consideration of these factors in relation to market valuations of
companies engaged in the same or similar business, and the current condition
of the mortgage industry and the economy as a whole.
The Representative has not previously participated as an underwriter in an
underwriting on a firm-commitment basis and has not previously been an
underwriter of an initial public offering. In 1994, the Representative
attempted an initial public offering for the Company on a best efforts--
minimum of none basis. The Representative was not successful in completing the
minimum sales amount and the offering was withdrawn by the Company.
Prospective purchasers of the Common Stock offered hereby should consider this
limited experience in evaluating the securities offered hereby. See "Risk
Factors--Lack of Underwriting History."
In connection with the 1993 Private Placement, the Representative received
$40,000 in commissions, and no other expense reimbursement or compensation. In
connection with the 1994 Private Placement, the Representative received (i)
$23,000 in commissions, (ii) no reimbursement of expenses and (iii) a warrant
to purchase 22,000 shares of the Common Stock of the Company at an exercise
price of $1.65 per share. In connection with the 1995 Bridge Financing, the
Representative received (i) $5,000 in commissions, (ii) no reimbursement of
expenses and (iii) a warrant to purchase 5,000 shares of Common Stock of the
Company at an exercise price of $4.505 per share. In connection with the 1996
Bridge Financing, the Representative received (i) $16,250 in commissions, (ii)
no reimbursement of expenses and no warrants. In addition, in connection with
a 1993 Consulting Agreement, the Representative received $30,000 as
compensation for the provision of investment banking services to the Company.
The Company on an unsecured basis has loaned an aggregate of $70,000 to Mr.
Joseph E. Kurczodyna, the President of Mills Financial Services, Inc. Of the
$70,000 loan which remains outstanding, a total of $60,000 was loaned in 1994
and the balance of $10,000 was loaned in 1997.
38
<PAGE>
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its bylaws, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company by Robert S. Luce, Esq. Mr. Luce is the Assistant Secretary of the
Company. Mr. Luce has no ownership interest in the Company. Certain legal
matters will be passed upon for the Underwriter by Peter B. Shaeffer, Esq.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Craig Shaffer and Associates, Ltd., independent accountants,
to the extent and for the periods indicated in their report appearing
elsewhere herein, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 with the
Washington Office of the Commission in accordance with the provisions of the
Securities Act with respect to the securities offered hereby. The Prospectus
does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the securities offered hereby, reference is made to the
Registration Statement and the exhibits filed as a part thereof. Statements
herein contained concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. The Registration Statement
and the exhibits may be inspected, without charge at, or copies thereof
obtained at prescribed rates from, the Public Reference Section of the
Commission at Room 1024 at its principal office, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549; or the Public Reference Section of the
Midwest Regional Office at Room 1400, 500 West Madison Avenue, Chicago,
Illinois 60661-2511.
No dealer, salesman or any other person has been authorized to give any
information which is not contained in this Prospectus or to make any
representation in connection with this offering other than those which are
contained in the Prospectus, and if given or made, such information or
representation must be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities which are offered hereby to any person in
any jurisdiction where such offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implications that there has been no change in the
affairs of the Company or the facts which are herein set forth since the date
hereof.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The historical financial statements of United Financial Mortgage Corp. are
included herein as listed below:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Certified Public Accountants................. F-3
Balance Sheet at April 30, 1995 and 1996 and at January 31, 1996
and January 31, 1997 (unaudited) ................................. F-4 & F-5
Statement of Income for the Years Ended April 30, 1995 and 1996 and
for the nine (9) months ended January 31, 1996 and January 31,
1997 (unaudited).................................................. F-6
Statement of Stockholders' Equity for the Years Ended April 30,
1995 and 1996 and for the nine (9) months ended January 31, 1996
and January 31, 1997 (unaudited).................................. F-7
Statement of Cash Flow for the Years Ended April 30, 1995 and 1996
and for the nine (9) months ended January 31, 1996 and January 31,
1997 (unaudited).................................................. F-8
Notes to Financial Statements...................................... F-9 to F-14
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
United Financial Mortgage Corp.
Financial Statements as of April 30, 1995 and 1996 together with Independent
Auditors' Report
To the Board of Directors and Stockholders of
United Financial Mortgage Corporation
We have audited the accompanying balance sheets of United Financial Mortgage
Corp. as of April 30, 1995 and 1996, and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Financial Mortgage
Corp. as of April 30, 1995 and 1996 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Craig Shaffer and Associates, Ltd.,
C.P.A.
Des Plaines, Illinois
July 24, 1996
F-3
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, JANUARY 31, JANUARY 31,
ASSETS 1995 1996 1996 1997
------ ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash..................... $1,573,507 $ 1,960,759 $ 1,734,072 $ 1,880,210
Mortgage Receivable (See
Notes).................. 5,596,621 17,232,541 16,665,348 8,593,190
Accounts Receivable...... 191,335 87,017 379,953 407,609
Prepaid Expenses......... 53,581 0 8,281 0
U.S. Savings Bonds....... 2,000 2,000 2,000 2,000
---------- ----------- ----------- -----------
Total current assets... 7,417,044 19,282,317 18,789,654 10,883,009
Furniture, Fixtures &
Equipment (See Notes)
Cost..................... 225,101 279,152 260,560 286,814
Accumulated Depreciation. (96,213) (116,634) (121,626) (146,057)
---------- ----------- ----------- -----------
128,888 162,518 138,934 140,757
Other assets:
Escrow Deposits.......... 29,261 71,353 71,404 22,298
Deferred Organization
Costs................... 0 0 45,300 52,500
Security Deposits........ 4,114 6,143 4,114 6,143
---------- ----------- ----------- -----------
Total other assets..... 33,375 77,496 120,818 80,941
---------- ----------- ----------- -----------
$7,579,307 $19,522,331 $19,049,406 $11,104,707
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
LIABILITIES AND APRIL 30, APRIL 30, JANUARY 31, JANUARY 31,
STOCKHOLDERS' EQUITY 1995 1996 1996 1997
-------------------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable.............. $ 125,805 $ 214,967 $ 143,218 $ 46,326
Deferred Income............... 6,000 6,000 6,000 6,000
Accrued Expenses.............. 79,215 97,929 6,383 94,793
Taxes Payable................. 55,580 26,495 104,204 43,668
Deferred Income Taxes......... 8,661 8,011 8,011 8,011
Escrow Payable................ 29,261 71,353 50,982 22,298
Notes Payable--Current (See
Notes)....................... 5,470,947 17,150,171 16,550,076 8,483,790
---------- ----------- ----------- -----------
Total current liabilities... 5,775,469 17,574,926 16,868,874 8,704,886
Non-Current Notes Payable (See
Notes)......................... 10,377 272,386 258,548 375,000
---------- ----------- ----------- -----------
Total liabilities........... 5,785,846 17,847,312 17,127,422 9,079,886
Commitments (See Notes)
Preferred Shares, 5,000,000
authorized, No Par Value, 100
at April 30, 1996, 213 at
January 31, 1997; Liquidation
value $500,000 at April 30,
1996, $1,065,000 at January 31,
1997........................... 500,000 500,000 500,000 1,065,000
---------- ----------- ----------- -----------
Stockholders' equity (See Notes)
Common Shares, 20,000,000
Authorized, No Par Value,
Shares Issued and
Outstanding;
3,001,974 at April 30, 1996,
3,095,029 at January 31,
1997......................... 821,768 695,397 821,768 945,397
Retained Earnings............. 471,693 479,622 600,216 14,424
---------- ----------- ----------- -----------
Total stockholders' equity.. 1,293,461 1,175,019 1,421,984 959,821
---------- ----------- ----------- -----------
$7,579,307 $19,522,331 $19,049,406 $11,104,707
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
APRIL 30, APRIL 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues: (See Notes)
Commissions and Fees........... $2,833,872 $5,810,360 $4,410,121 $4,195,183
Interest Income................ 32,602 632,068 381,426 363,255
---------- ---------- ---------- ----------
2,866,474 6,442,428 4,791,547 4,558,438
Expenses:
Salaries & Commissions......... 1,431,830 4,228,955 3,096,700 3,058,293
Selling & Administrative....... 1,041,436 1,745,754 1,168,656 1,078,986
Depreciation................... 27,849 32,658 25,413 29,423
Costs and Expenses of
Litigation.................... 675,000
Interest Expense............... 271,297 427,132 314,729 181,934
Loss on Equipment Sale......... 17,349
---------- ---------- ---------- ----------
2,789,761 6,434,499 4,605,498 5,023,636
Income (loss) Before Income
Taxes........................... 76,713 7,929 186,049 (465,198)
Income Tax Provision............. 17,630 0 57,527 0
---------- ---------- ---------- ----------
Net Income (loss)................ $ 59,083 $ 7,929 $ 128,522 $ (465,198)
Less Dividends Paid on Preferred
Stock........................... 25,515 0 0 0
Net Income (loss) Applicable to
Common Shareholders............. 33,568 7,929 128,522 (465,198)
Earnings (loss) Per Common Share
(See Notes)..................... $ 0.007 $ 0.003 $ 0.043 $ (0.150)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
--------- ---------
<S> <C> <C>
Balance as of May 1, 1994................................ $ 530,070 438,125
Common Stock Issued...................................... 291,698
Net Income for the Year.................................. 59,083
Dividends Paid--Series A Preferred Stock................. (25,515)
--------- ---------
Balance as of April 30, 1995............................. 821,768 471,693
Stock Repurchased........................................ (126,371)
Net Income for the Year.................................. 7,929
--------- ---------
Balance as of April 30, 1996............................. 695,397 479,622
--------- ---------
Net Income for the Nine Months Ended January 31, 1997
(Unaudited)............................................. (465,198)
Common Stock Issued (Unaudited) on conversion of
debentures.............................................. 250,000
--------- ---------
Balance as of January 31, 1997 (Unaudited)............... $ 945,397 $ 14,424
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
(Note A)
Net Income................... $ 59,083 $ 7,929 $ 128,522 $ (465,198)
Adjustments to Reconcile Net
Income to Net
Cash Provided by Operating
Activities
Depreciation................. 27,849 32,658 25,413 29,423
Changes In
Prepaid Expenses & Other
Current Assets.......... (189,951) 157,899 (143,317) (320,592)
Accrued Expenses & Other
Current Liabilities..... 32,640 (10,073) (3,137) (35,018)
Account Payable.......... (14,078) 89,162 17,413 (168,641)
Deposits................. 727 (2,029) (42,143) 49,055
---------- ----------- ----------- ----------
Net Cash Provided by
Operating Activities........ (83,730) 275,546 (17,249) (910,971)
Cash Flows from Financing
Activities
Purchase of Fixed Assets... (1,627) (66,288) (35,459) (7,662)
Mortgage Loans Made........ (4,477,353) (11,635,920) (11,068,727) 8,639,351
Change in Bank Line of
Credit.................... 4,411,910 11,678,599 11,079,129 (8,666,381)
Change in Long Term Debt... (4,326) 12,009 248,171 (272,386)
Changes in Short Term Debt. 375 625 0 0
Dividends Paid............. (25,515) 0 0 0
Officers Loans............. (2,458) (948) 0 0
Proceeds from Common Stock
Sales..................... 291,698 0 0 250,000
Proceeds from Debenture
Sales..................... 0 250,000 0 375,000
Proceeds from Preferred
Stock Sales............... 0 0 0 565,000
Deferred Offering Expenses. 0 0 (45,300) (52,500)
Common Stock Repurchase.... 0 (126,371) 0 0
---------- ----------- ----------- ----------
Cash Provided (Used) by
Financing Activities........ 192,704 111,706 177,814 830,422
---------- ----------- ----------- ----------
Increase (Decrease) in Cash.. 108,974 387,252 160,565 (80,549)
Cash at Beginning of Period.. 1,464,533 1,573,507 1,573,507 1,960,759
---------- ----------- ----------- ----------
Cash at End of Period........ $1,573,507 $ 1,960,759 $ 1,734,072 $1,880,210
========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement
F-8
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS
ORGANIZATION AND BUSINESS OF THE COMPANY
United Financial Mortgage Corporation, is an Illinois Corporation organized
on April 30, 1986 to engage in the residential mortgage banking business. The
Company is a licensed mortgage banker in the states of Illinois, Wisconsin,
Missouri, Arkansas, California, Colorado, Connecticut, Delaware, Florida,
Kentucky, Maryland, Nevada, North Carolina, Oregon, South Carolina, Texas,
Utah, Virginia, Washington and Indiana. The Company is an approved mortgagee
by the Department of Housing and Urban Development and is qualified to
originate mortgage loans insured by the Federal Housing Administration as well
as service for Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation.
REVERSE SHARE SPLIT
In 1995, the Company's shareholders approved a reverse split of the
Company's common shares pursuant to which each three outstanding common shares
became two common shares. The reverse split was effective May 9, 1995. The
accompanying financial statements reflect this reverse split as of May 1,
1994.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Commission and fee income from mortgage loan origination is recognized as
received from mortgage closings. Interest income from mortgages held by the
Company and from short term cash investments is recognized as earned.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
original maturity of three months or less.
Accounts Receivable
Accounts receivable consist of advances made in connection with loan
origination activities as well as advances made to branch offices.
Concentration of Credit Risk
Credit risk with respect to mortgage loan receivables and accounts
receivable is generally diversified due to the large number of customers and
the timely sale of the loans to investors, usually within one (1) month. The
Company performs extensive credit investigation and verification procedures on
loan applicants before loans are approved and fund disbursed. In addition,
each loan is secured by the underlying real estate property. As a result, the
Company has not deemed it necessary to provide reserves for the ultimate
realization of the mortgage loan receivable.
Fixed Assets
Fixed assets consist of furniture, fixtures, equipment and leasehold
improvements and are recorded at cost and are depreciated using the straight
line method over their estimated useful lives. Furniture, fixtures and
equipment are depreciated over 5-7 years and leasehold improvements over the
shorter of the lease term or the
F-9
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
estimated useful life of the asset. Upon asset retirement or other
disposition, cost and the related allowance for depreciation are removed from
the accounts, and gain or loss is included in the statement of income. Amounts
expended as repairs and maintenance are charged to operations.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents, mortgage receivables, accounts receivables, accounts
payable and notes payable, as reported in the accompanying balance sheet,
approximates fair value.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." The liability
method provides that deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Earnings (Loss) per Common Share
Earnings (loss) per common share is calculated on net income (loss) after
deduction for dividends paid on the Series A Preferred Shares. The number of
common shares used in the computation is based upon the number of shares
outstanding at the end of the period.
NOTES PAYABLE
The Company has mortgage warehouse credit facilities aggregating $22.5
million with several commercial banks and other financial institutions. These
credit facilities are used to fund approved mortgage loans and are
collateralized by mortgage loans. The Company is not required to maintain
compensating balances.
Amounts outstanding under the various credit facilities consist of the
following:
<TABLE>
<CAPTION>
APRIL 30, 1996
--------------
<S> <C>
$10 million mortgage warehouse credit facility at a
commercial bank; interest at prime; expires 10/28/96..... $ 3,813,930
$1 million mortgage warehouse credit facility at a
commercial bank; interest at prime; expires 2/14/97...... 850,888
$10 million mortgage warehouse credit facility at a
commercial bank; interest at the Federal Funds rate plus
2.25%; expires 11/28/96.................................. 7,170,134
$8 million mortgage warehouse credit facility at a
financial institution; interest at the Libor rate plus
2.25%-2.75%; expires 5/1/96.............................. 5,310,268
-----------
Total................................................... $17,145,220
===========
</TABLE>
CONVERTIBLE DEBENTURES
In connection with the 1995 Bridge Financing, in May, 1995 the Company
issued $250,000 of convertible debentures with an interest rate of 10% and a
maturity of one year and convertible into 55,555 shares of Common Stock if not
repaid. The debentures were not repaid and thereby converted to Common Stock
in May, 1996.
LEASE COMMITMENTS
The Company conducts its operations from leased premises and with equipment
under several operating leases. Total rent expense under these leases was
approximately $127,026 and $177,612 for the years ended April 30, 1995 and
1996.
F-10
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
Future minimum rental payments for the next five years at April 30, 1996 are
as follows:
<TABLE>
<CAPTION>
Year Ending April 30, Operating Leases
<S> <C>
1997.................. $ 43,168
1998.................. 45,059
1999.................. 47,308
2000.................. 49,692
2001.................. 52,160
--------
$237,387
========
</TABLE>
INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
---------------
1995 1996
------- -------
<S> <C> <C>
Current:
Federal................................................ $ 5,264 $ 3,683
State.................................................. 2,463 1,054
------- -------
7,727 4,737
------- -------
Deferred:
Federal................................................ 6,746 (2,605)
State.................................................. 3,157 (2,132)
------- -------
------- -------
Total.................................................... $17,630 $ 0
======= =======
</TABLE>
RECENT FINANCING
1994 Private Placement
In November, 1994 the Company sold 220,000 shares of Common Stock for an
aggregate price of $1.50 per share. Net proceeds to the Company were $291,698.
Under the terms of the sale, purchasers were given the option of selling back
some or all of their shares to the Company at the original subscription price
plus annual compounded interest of 10% for the period held. The Company
repurchased 73,461 shares for an aggregate price of $126,371 in year ending
April 30, 1996.
In connection with the placement, the placement agent was issued, for
nominal consideration, warrants to purchase 22,000 shares of the Company's
Common Stock at an exercise price of $1.65 per share. The warrants were
exercisable for a period of five years, subject to customary anti-dilution
provisions and contain certain registration rights.
1995 Bridge Financing
In May, 1995, the Company sold two and one-half (2 1/2) units of a bridge
financing with aggregate proceeds to the Company of $250,000. Each unit
consisted of a convertible debenture with face value of $100,000 and 22,000
shares of Common Stock. The debentures carried an interest rate of 10% and
matured in 12 months and were to be paid upon the effectiveness of a
registration statement. If not paid by maturity, the debentures were
convertible, in the aggregate, into 55,555 shares of Common Stock. The
conversion shares were granted certain registration rights.
The debentures were not paid at maturity and converted in their entirety to
Common Stock in May, 1996.
In connection with the bridge financing, the placement agent was issued, for
nominal consideration, warrants to purchase 25,000 shares of the Company's
Common Stock at an exercise price of $4.505 per share. The warrants are
exercisable for a period of five years and contain certain registration
rights.
F-11
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
SERIES A PREFERRED STOCK
The Series A Preferred Stock is non-voting, nonparticipating and has a
liquidation preference upon dissolution of the Company of $5,000 per share.
The holders of the Preferred Stock are entitled to a variable dividend only at
the discretion of and determination by the Board of Directors. Dividends were
declared in the amount of $25,515 for the year ended April 30, 1995. No
dividends were declared for the year ended April 30, 1996.
STOCKHOLDERS' EQUITY
Common Stock
In the period ended April 30, 1996 pursuant to the terms of the sale of
Common Stock in the 1994 Private Placement, the Company repurchased 73,461
shares of Common Stock for an aggregate price of $123,456. The Company has
retired these shares.
Warrants
At April 30, 1996, the Company had total warrants outstanding to purchase
242,000 shares of the Company's Common Stock. The exercise price of the
warrants range between $0.50 and $4.505 per share. Warrants for 47,000 shares
expire on the fifth anniversary of their issuance. Warrants for 195,000 shares
expire on April 30, 1999. In certain circumstances, the warrants have certain
"piggy back" or other registration rights. At April 30, 1996, all warrants
outstanding were exercisable.
As of November 15, 1995 an advisor to the Company was issued warrants to
purchase 195,000 shares of the Company's Common Stock at an exercise price of
$0.50 per share. The warrants are exercisable until April 30, 1999 and contain
certain registration rights.
The Company has reserved 242,000 common shares for issuance upon exercise of
all options.
Stock Option Plan
In December, 1993 the Company adopted the Non-Qualified and Incentive Stock
Option Plan and established the number of common shares issuable under the
plan at 500,000 shares. The exercise price for shares under the plan is the
fair market value of the Common Stock on the date on which the option is
granted. The option price is payable either in cash, by the surrender of
common shares in the Company, or a combination of both. The aggregate number
of options granted in any one year cannot exceed 10% of the total shares
reserved for issuance under the plan. Options will be exercisable immediately,
after a period of time or in installments, and expire on the tenth anniversary
of the grant. The loan will terminate in December, 2003.
At April 30, 1996, the Company had not granted any options under the Plan.
At April 30, 1996, the Company has reserved 500,000 common shares for
issuance upon exercise of all options.
CONTINGENCIES
The Company is defendant in a series of complaints related to the operation
of a branch office in Nevada. The aggregate claims are for amounts in excess
of $182,000. The Company has filed counter-claims in certain of the instances.
The Company is also defendant in another action alleging wrongful termination
where the plaintiff is seeking damages in excess of $50,000. The Company
denies any liability in the matters, intends to vigorously defend against the
allegations and has filed counter claims in certain of these suits.
F-12
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONTINUED
In October, 1996 the United States District Court entered a judgment in
favor of Lawyers Title Insurance Company against the Company in the amount of
$583,049 relating to a dispute over certain cash transfers made in the year
ending April 30, 1994. The Company has appealed the judgment order to the
United States Court of Appeals. While the Company believes that it will
prevail upon appeal, there can be no assurance the judgment will be reversed.
EMPLOYEE BENEFIT PLANS
Effective May 1, 1995, the employees of the Company who meet certain
eligibility requirements can participate in the Company's 401(k) plan. Under
the plan, the Company may, at its discretion, contribute to the plan. The
Company has made no contributions to the plan.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTES PAYABLE
The Company has mortgage warehouse credit facilities aggregating $22.5
million with several commercial banks and other financial institutions. These
credit facilities are used to fund approved mortgage loans and are
collateralized by mortgage loans. The Company is not required to maintain
compensating balances.
Amounts outstanding under the various credit facilities consist of the
following:
<TABLE>
<CAPTION>
JANUARY 31, 1997
(UNAUDITED)
----------------
<S> <C>
$10 million mortgage warehouse credit facility at a
commercial bank; interest at prime, expires 10/28/97... $5,845,856
$1.5 million mortgage warehouse credit facility at a
commercial bank; interest at prime; expires 2/14/98.... 525,843
$1.0 million mortgage warehouse credit facility at a
commercial bank; with interest at Borrower's election
of prime or the Libor rate plus 250 basic points....... 0
$10 million mortgage warehouse credit facility at a
financial institution, interest at the Libor rate plus
2.25%-2.75%; expires 5/1/97............................ 2,112,091
----------
Total................................................. $8,483,790
==========
</TABLE>
CONVERTIBLE DEBENTURES
In connection with the 1996 Bridge financing during the period November,
1996 to March, 1997 the Company issued $425,000 of convertible debentures with
an interest rate of 10% and a maturity of one year. The debentures are to be
paid upon the completion of an initial public offering before maturity. If not
repaid by maturity, the debentures convert into 85,000 shares of Common Stock.
RELATED PARTY TRANSACTIONS
In June, 1996, the J.K. Trust purchased 113 shares of Series A Preferred
Stock for a cash payment of $565,000. The President, Chief Executive and
Chairman of the Board of the Company is the trustee of the J.K. Trust. The
trust is the majority shareholder of the Company.
PENDING PUBLIC OFFERING OF COMMON STOCK
In April, 1997, the Company intends to file a registration statement with
the Securities and Exchange Commission for an underwritten initial public
offering of the Company's Common Stock. Upon the effectiveness of the
registration statement, and receipt of funds from the offering, the Company is
obligated to retire all convertible debentures outstanding and accrued
interest thereon from the 1996 Bridge Financing and to redeem 150 shares of
the Series A Preferred Stock (aggregating $750,000).
F-13
<PAGE>
UNITED FINANCIAL MORTGAGE CORPORATION
NOTES TO AUDITED AND UNAUDITED FINANCIAL STATEMENTS--CONCLUDED
In addition, upon the effectiveness of the above offering, the Company will
enter into a five year employment agreement with the President and Chief
Executive Officer. The agreement provides for a base salary of $250,000 per
year, certain health, disability and allowance benefits and an annual
incentive compensation payment equal to 10% of the increase in the Company's
pre-tax income from the prior year.
INCOME TAXES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Current:
Federal............................................... $ 44,378 $ 0
State................................................. 13,149 0
-------- --------
-------- --------
Deferred:
Federal............................................... 0 0
State................................................. 0 0
-------- --------
57,527 0
-------- --------
Total................................................... $ 57,527 $ 0
======== ========
</TABLE>
1996 Financing
Beginning in November, 1996 the Company offered for sale twenty-two (22)
units of another financing. Each unit consists of a convertible debenture with
face value of $25,000 and 2,500 shares of Common Stock. The debentures carry
an interest rate of 10% and mature in 12 months, or paid in full upon the
effectiveness of a registration statement. If not paid by maturity, the
debentures convert to an additional aggregate 110,000 shares of Common Stock.
The conversion shares would be granted certain registration rights.
The Company has reserved 110,000 shares of Common Stock for the conversion
of the debentures.
As of January 31, 1997, fifteen (15) units had been sold for aggregate gross
proceeds of $375,00. Debentures totaling $375,000 and 37,500 shares of Common
Stock were issued in conjunction with the sales.
As of March 31, 1997 an additional two (2) units had been sold for aggregate
gross proceeds of $50,000. Debentures totaling $50,000 and 5,000 shares of
Common Stock were issued in conjunction with the additional sales.
CONTINGENCIES
The Company is defendant in a series of complaints related to the operation
of a branch office in Nevada. The aggregate claims are for amounts in excess
of $182,000. The Company has filed counter-claims in certain of the instances.
The Company is also defendant in another action alleging wrongful termination
where the plaintiff is seeking damages in excess of $50,000. The Company
denies any liability in the matters, intends to vigorously defend against the
allegations and has filed counter claims in certain of these suits.
In October, 1996 the United States District Court entered into a judgment in
favor of Lawyers Title Insurance Company against the Company in the amount of
$583,049 relating to a dispute over certain cash transfers made in the year
ending April 30, 1994. The Company has appealed the judgment order to the
United States Court of Appeals. While the Company believes that it will
prevail upon appeal, there can be no assurance that the judgment will be
reversed. The Company has recorded expenses of approximately $675,000,
including the judgment and related attorney's fees, as of January 31, 1997.
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN GIVEN OR MADE
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL, OR THE SOLICITATION OF ANY OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON TO WHOM, OR IN ANY JURISDICTION IN WHICH SUCH OF-
FER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 13
Determination of the Offering Price....................................... 13
Dilution.................................................................. 13
Capitalization............................................................ 14
Management Discussion and Analysis of Results of Operations and Financial
Condition................................................................ 15
Certain Relationships and Related Transactions............................ 18
Principal Stockholder..................................................... 19
The Company and its Business.............................................. 20
Legal Proceedings......................................................... 26
Management................................................................ 28
Historical Security Placements............................................ 31
Description of Securities................................................. 33
Shares Eligible for Future Sale........................................... 35
Underwriting.............................................................. 36
Commission Position on Indemnification for Securities Act Liabilities..... 39
Legal Matters............................................................. 39
Experts................................................................... 39
Additional Information.................................................... 39
Index to Financial Statements ............................................ F-1
</TABLE>
----------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGIS-
TERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
800,000 SHARES
OF
COMMON STOCK
LOGO
UNITED FINANCIAL
MORTGAGE CORP.
----------------
PROSPECTUS
----------------
MILLS FINANCIAL SERVICES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws ("Bylaws") and the Illinois Business Corporation Act
(the "Corporation Act") provides, in general, that the Company shall indemnify
an individual made a party to a proceeding because he is or was an officer or
director, against liability incurred in the proceeding (other than a
proceeding by or in the right of the corporation in which the officer or
director was adjudged liable to the corporation or in connection with any
other proceeding charging improper personal benefit to him whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him) if such
officer or director conducted himself in good faith and he believed, in the
case of conduct in his official capacity with the corporation, that his
conduct was in its best interest of the Corporation, and, in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful.
The Company believes that the indemnification provided to officers and
directors of the Company may increase the likelihood of liability claims being
asserted against such persons.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee...... $ 1,500.00
NASD filing fee........... 2,000.00*
NASDAQ listing fees....... 15,000.00*
Chicago Stock Exchange
Filing Fees.............. 15,000.00*
Accounting fees and
expenses................. 30,000.00*
Legal fees and expenses... 125,000.00*
Blue sky fees and
expenses................. 40,000.00*
Cost of printing and
engraving................ 60,000.00*
Transfer Agent Fees....... 2,000.00*
Miscellaneous............. 58,000.00*
-----------
Total................. $348,500.00(1)
===========
</TABLE>
- --------
*Estimated
(1) Excludes a Non-Accountable Expense Allowance of $132,000 that may be paid
to the Underwriter from the proceeds of the offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On April 16, 1986, the Company sold 100 shares of its Common Stock to Mr.
Joseph Khoshabe, the Company's president and sole shareholder, for an
aggregate purchase price of $25,000. In 1990, the Company sold an additional
100 shares of its Common Stock to Mr. Khoshabe for additional consideration of
$105,070. These transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act of 1933, as amended (the "Act"), pursuant to Section 4(2) thereof. After
December 16, 1993, the Company issued and Mr. Khoshabe received 2,531,642,
thus bringing the total shares issued to him to 2,531,842.
In 1988, 1992 and 1996, the Company effected private placements of 213
shares of its Series A Non-Voting Preferred Stock, no par value, to Joseph
Khoshabe and the Joseph Khoshabe Trust for an aggregate consideration of
$1,065,000. These transactions were private transactions not involving a
public offering and were exempt from the registration provisions of the Act,
pursuant to Section 4(2) thereof. All shares of common and preferred stock
previously held by Mr. Joseph Khoshabe have been registered in the name of the
J.K. Trust.
II-1
<PAGE>
1993 Private Placement
During the period from September 8, 1993 to December 14, 1993, the Company
engaged in an offering of its Common Stock to certain accredited investors. As
a result of the offering to accredited investors, the Company offered for sale
a total of 268,000 shares of Common Stock for $400,000. The net proceeds of
the private offering were applied to pay the costs and expenses of that
offering and the Prior Registration Statement, provide up to $45,000 to the
Company to open one or more branch offices, with the remainder to the
Company's working capital. This transaction was a private transaction not
involving a public offering and was exempt from the registration provisions of
the Act, pursuant to Section 4(2) thereof. Mills Financial Services, Inc. of
Des Plaines, Illinois ("Placement Agent") acted as the placement agent for the
private placement of these shares. The Placement Agent was paid a commission
of ten percent (10%) of the securities sold.
1994 Private Placement
Pursuant to the 1994 Private Placement, the Company sold 220,000 Shares for
$1.50 per Share to certain accredited investors. The net proceeds of the
offering were applied to offer shareholders in the 1993 Private Placement the
opportunity to sell their Shares to the Company for an amount equal to the
original subscription price, plus annual compounded interest at ten percent
(10%). This transaction was a private transaction not involving a public
offering, and was exempt from the registration provisions of the Act, pursuant
to Section 4(2) thereof. Mills Financial Services, Inc. and
Neidiger/Tucker/Bruner, Inc. acted as the placement agents for the private
placement of these Shares. The placement agents were paid a commission of ten
percent (10%) of the securities sold, and were issued warrants to purchase
22,000 Shares ("1994 Warrants"). The 1994 Warrants are exercisable for a
period of five (5) years from the date of issuance and are exercisable to
purchase one (1) share of common stock at $1.65 per share.
1995 Bridge Financing
Pursuant to the terms of the May 15, 1995 Private Placement regarding a
certain 1995 Bridge Financing, the Company offered and sold two and one-half
(2 1/2) units ("Units"), each consisting of one (1) $100,000 ten percent (10%)
convertible debenture ("Debenture") and 22,222 shares of no par value common
stock. The net proceeds of that offering were applied to provide capital for
expansion of the Company's loan origination and servicing activities and for
general working capital purposes.
This offering was a private transaction not involving a public offering and
was exempt from the registration provisions of the Act pursuant to Section
4(2) thereof. Neidiger/Tucker/Bruner, Inc. and Mills Financial Services, Inc.
acted as the placement agents for the private placement of the Units. The
placement agents were paid a commission of ten percent (10%) of the securities
sold, and were issued warrants to purchase 25,000 Shares ("1995 Warrants").
The 1995 Warrants are exercisable for a period of five (5) years from the date
of issuance and are exercisable to purchase one (1) Share at $4.505 per Share.
1996 Bridge Financing
Pursuant to the terms of the November 1, 1996 Private Placement, regarding a
certain 1996 Bridge Financing, the Company offered and sold seventeen (17)
units ("Units"), each consisting of one (1) $25,000 ten percent (10%)
convertible debenture ("1996 Debenture") and 2,500 shares of no par value
common stock. The net proceeds of the offering will be applied to finance the
cost of this offering and for general working capital purposes.
This offering was a private transaction not involving a public offering and
was exempt from the registration provisions of the Act pursuant to Section
4(2) thereof. Mills Financial Services, Inc. acted as the placement agent of
the Units. The placement agent was paid a commission of ten percent (10%) of
the securities sold.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
and
(2) That for the purposes of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
The undersigned Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(b) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF OAK BROOK, STATE OF ILLINOIS ON THIS
TH DAY OF , 1997.
United Financial Mortgage Corp.
/s/ Joseph Khoshabe
By: _________________________________
Joseph Khoshabe, President
/s/ Steve Khoshabe
By: _________________________________
Steve Khoshabe, Executive Vice
President
Mr. Steve Khoshabe has executed this signature page on behalf of the
Registrant in his capacity as the principal financial officer of the
Registrant.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSON IN THE
CAPACITIES AND ON THE DATE STATED ABOVE:
<TABLE>
<CAPTION>
SIGNATURE
---------
<S> <C>
/s/ Joseph Khoshabe
- -------------------------------------------
Joseph Khoshabe
</TABLE>
Mr. Joseph Khoshabe has executed this signature page on behalf of the
Registrant in his separate capacities as the principal executive officer of
the Registrant and in his capacity as the sole director of the Board of
Directors of the Registrant.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1. Form of Underwriting Agreement
2. Not Applicable
3(i) Articles of Incorporation
3(ii) By-laws of the Registrant
4. Not Applicable
5. Opinion regarding Legality
6. Not Applicable
7. Form of Transfer Agent and Registrar Agreement
8. Not Applicable
9. Not Applicable
10(i) Form of Employment Agreement between the Registrant and Joseph
Khoshabe
11. Not Applicable
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
17. Not Applicable
18. Not Applicable
19. Not Applicable
20. Not Applicable
21. Not Applicable
22. Not Applicable
23. Consent of Experts and Counsel
24. Power of Attorney
25. Not Applicable
25/A. Not Applicable
26. Not Applicable
27. Not Applicable
28. Not Applicable
99. Non-qualified and Incentive Stock Option Plan
</TABLE>
<PAGE>
________________Shares
UNITED FINANCIAL MORTGAGE CORP.
Common Stock
Dear Sirs:
Section 1. Introductory.
UNITED FINANCIAL MORTGAGE CORP., an Illinois corporation (the "Company"),
proposes to issue and sell _____________ shares of its authorized but unissued
Common Stock, no par value (the "Firm Common Stock") to you, or if there be any
so named, to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as representative. In addition, the
Company proposes to grant to you or to the Underwriters, as the case may be, an
option to purchase up to an aggregate of ________ additional shares of Common
Stock (the "Optional Common Shares"), as provided in Section 5 hereof. The Firm
Common Shares and, to the extent such option is exercised, the Optional Common
Shares are hereinafter collectively referred to as the "Common Shares."
In addition, the Company proposes to sell to Mills Financial Services, Inc.
warrants ("Underwriter's Warrants") to purchase _________ (up-to __________ if
the over-allotment option is exercised) pursuant to an Underwriter's Warrant
Purchase Agreement between the Company and Mills Financial Services, Inc.
You have advised the Company that you or the Underwriters, as the case may
be, propose to make a public offering of their respective portions of the
Common Shares on the effective date of the registration statement hereinafter
referred to, or as soon thereafter as in your judgment is advisable.
The Company hereby confirms its agreements with respect to the purchase of
the Common Shares by you or the Underwriters, as the case may be, as follows.
Section 2. Representations and Warranties of the Company.
The Company represents and warrants to the several Underwriters that:
<PAGE>
(a) A registration statement on Form SB-2 (File No. 33- ) with respect
to the Common Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. If the Company prepares and files prior to the effective date of
such registration statement an amendment or amendments to such registration
statement, such amendment or amendments will have been similarly prepared. There
have been delivered to you two signed copies of such registration statement and
all amendments, if any, together with two copies of each exhibit filed
therewith. Conformed copies of such registration statement and amendments, if
any, (but without exhibits) and of any related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for you and
for each of the Underwriters, as the case may be. The Company will next file
with the Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of final
prospectus, or (ii) a final prospectus in accordance with Rules 430A and 424(b)
of the Rules and Regulations. As filed, such amendment and form of final
prospectus, or such final prospectus, shall include all Rule 430A Information
and, except to the extent that you shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior to the
date and time that this Agreement was executed and delivered by the parties
hereto, or, to the extent not completed at such date and time, shall contain
only such specific substantive changes (beyond that contained in the latest
Preliminary Prospectus) as the Company shall have previously advised you in
writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall also
mean such registration statement as so amended; provided, however, that such
term shall also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to in
the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule 430A
Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Common Shares in the form in which it is first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no filing pursuant to Rule 424(b) of the
2
<PAGE>
Rules and Regulations is required, shall mean the form of final prospectus
included in the Registration Statement at the time such registration statement
becomes effective. The term "Rule 430(A) Information" means information with
respect to the Common Shares and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to Rule
430(A) of the Rules and Regulations. Any reference herein to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Form SB-2 under the Act,
as of the date of such Preliminary Prospectus or Prospectus, as the case may be.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and at the time the Registration Statement
becomes effective, and at all times subsequent thereto up to and including each
Closing Date hereinafter mentioned, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, will contain all material
statements and information required to be included therein by the Act and the
Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this subsection 2(b) shall be applicable to information contained
in or omitted from the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by you or by or on behalf of any
Underwriter, directly or through the Representative, specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly or indirectly,
any corporation, association or other entity. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full power and authority
(corporate and other) to own and lease its properties and conduct its business
as described in the Prospectus; the Company is in possession of and operating in
compliance with all authorizations, licenses, permits, consents, certificates
and orders material to the conduct of its business, all of which are valid and
in full force and effect; the Company is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction in which the
ownership or leasing of properties or the conduct of its business requires such
qualification except for jurisdictions in which the Company has no place of
business and in which the failure to so qualify would not have a material
adverse effect upon the Company; and no proceeding has been instituted in any
3
<PAGE>
such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus and has outstanding
____________ shares of Common Stock and ______ shares of Class ______ Preferred
stock; the issued and outstanding shares of Common Stock and Preferred Stock
have been duly authorized and validly issued, are fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, were
not issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and conform to the description thereof
contained in the Prospectus. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or any
such options, rights, convertible securities or obligations. The description of
the Company's stock option, stock purchase and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth under the heading ________ in Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this
4
<PAGE>
Agreement by the Company and the consummation of the transactions herein
contemplated will not violate any provisions of the Company's Articles of
Incorporation or Bylaws and will not conflict with, result in the breach or
violation of, or constitute, either by itself or upon notice or the passage of
time or both, a default under any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
is a party or by which the Company or any of its properties may be bound or
affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its properties. No
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Act, the Blue Sky
laws applicable to the public offering of the Common Shares by you or the
several Underwriters, as the case may be, the rules and regulations of the
Chicago Stock Exchange, Inc. and the clearance of such offering with the
National Association of Securities Dealers, Inc. (the "NASD").
(g) The financial statements and schedules of the Company, and the related
notes thereto, included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the respective dates of such
financial statements and schedules, and the results of operations and changes in
financial position of the Company for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis as
certified by Craig Shaffer and Associates, Ltd., C.P.A.
(h) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company is or may be a party or of which property owned or leased by the
Company is or may be the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings might, individually or in the
aggregate, prevent or adversely affect the transactions contemplated by this
Agreement or result in a material adverse change in the condition (financial or
otherwise), properties, business, results of operations or prospects of the
Company; and no labor disturbance by the employees of the Company exists or is
imminent which might be expected to affect adversely such condition,
properties, business, results of operations or prospects. The Company is not a
party or subject to the provisions of any material injunction, judgment, decree
or order of any court, regulatory body, administrative agency or other
governmental body.
5
<PAGE>
(i) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (1) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material agreement or other transaction which is not in the
ordinary course of business; (2) the Company has not sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance; (3)
the Company has not paid or declared any dividends or other distributions with
respect to its capital stock and the Company is not in default in the payment
of principal or interest on any outstanding debt obligations; (4) there has not
been any change in the capital stock (other than upon the sale of the Common
Shares hereunder and upon the exercise of options or pursuant to other employee
benefit plans described in the Registration Statement) or indebtedness material
to the Company (other than in the ordinary course of business); and (5) there
has not been any material adverse change in the condition (financial or
otherwise), business, properties, results of operations or prospects of the
Company.
(j) The Company has filed all necessary federal, state and foreign income
and franchise tax returns and has paid all taxes shown as due thereon; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company which could materially and adversely
affect the business, operations or properties of the Company.
Section 4. Representations and Warranties of the Underwriters.
Mills Financial Services, Inc., for itself or as the Representative, on
behalf of the several Underwriters, as the case may be, represents and warrants
to the Company that the information set forth (i) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of offering and (ii) under "Underwriting" in the Prospectus was the only
information furnished to the Company by it or on behalf of the Underwriters, as
the case may be, for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects. If
applicable, the Representative represents and warrants that it has been
authorized by each of the other Underwriters as the Representative to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
6
<PAGE>
Section 5. Purchase, Sale and Delivery of Underwritten Shares and
Underwriter's Warrants
(a) Firm Common Shares. On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to you or to the Underwriters, as
the case may be, the Firm Common Shares which are in the amount of _________
shares. You or, if applicable, you on behalf of the Underwriters agree,
severally and not jointly, as the case may be, to purchase from the Company the
number of Firm Common Shares described below which are in the aggregate equal to
__________ shares. The purchase price per share to be paid by you or the several
Underwriters, as the case may be, to the Company shall be $________ per share.
The obligation of you or, if applicable, each Underwriter to the Company
shall be to purchase from the Company that number of Firm Common Shares which is
equal to the number of shares set forth opposite the name of you or such
Underwriter, as the case may be, in Schedule A hereto.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Mills
Financial Services, Inc., 20 N. Clark Street, Suite 2411, Chicago, Illinois (or
such other place as may be agreed upon by the Company and you) at such time and
date, not later than the fifth full business day following the effective date of
the Registration Statement, as you shall designate by at least 48 hours prior
notice to the Company (or at such other time and date, not later than one week
after such fifth full business day as may be agreed upon by the Company and you)
(the "First Closing Date").
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company to you, for your account or for the respective accounts of
the Underwriters, as the case may be, with respect to the Firm Common Shares to
be sold by the Company against payment by you, for your account or for the
accounts of the several Underwriters, as the case may be, of the purchase price
therefor by certified or official bank checks payable in Chicago Clearing House
(next day) funds to the order of the Company. The certificates for the Firm
Common Shares shall be registered in such names and denominations as you shall
have requested at least two full business days prior to the First Closing Date,
and shall be made available for checking and packaging on the business day
preceding the First Closing Date at a location in Chicago, Illinois as may be
designated by you. Time shall be of the essence, and delivery at the time and
place specified in this Agreement is a further condition to your obligations or
the obligations of the Underwriters, as the case may be.
7
<PAGE>
(b) Optional Common Shares. In addition, on the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
you or to the several Underwriters, as the case may be, to purchase, in the case
of the several Underwriters severally and not jointly, up to __________ Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for your
account or for the account of the Underwriters, as the case may be, in the sale
and distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 45 days after the first
date that any of the Common Shares are released by you for sale to the public,
upon notice by you to the Company setting forth the aggregate number of Optional
Common Shares as to which you or the Underwriters, as the case may be, are
exercising the option, the names and denominations in which the certificates for
such shares are to be registered and the time and place at which such
certificates are to be delivered. Such time of delivery (which may not be
earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If applicable, the
number of Optional Common Shares to be purchased by each Underwriter shall be
the same percentage of the total number of Optional Common Shares to be sold by
the Company as such Underwriter is purchasing of the Firm Common Shares (subject
to such adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in Chicago, Illinois as may be designated by you. The
manner of payment for and delivery of the Optional Common Shares shall be the
same as for the Firm Common Shares purchased from the Company. At any time
before lapse of the option, you may cancel such option by giving written notice
of such cancellation to the Company. If the option is canceled or expires
unexercised in whole or in part, the Company will deregister under the Act the
number of Optional Common Shares as to which the option has not been exercised.
(c) Acceptance of Delivery and Payment. If applicable, you have advised
the Company that each Underwriter has authorized you to accept delivery of its
Common Shares, to make payment and to receipt therefor. If applicable, you,
individually and not as the Representative of the Underwriters, may (but shall
not be obligated to) make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not
8
<PAGE>
relieve such Underwriter from any of its obligations under this Agreement.
(d) Public Offering. Subject to the terms and conditions hereof, you or
the Underwriters, as the case may be, propose to make a public offering of your
or their respective portions of the Common Shares as soon after the effective
date of the Registration Statement as in your judgment is advisable and at the
public offering price set forth on the cover page of and on the terms set forth
in the Prospectus.
(e) Underwriter's Warrants. On the basis of the representations,
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to Mills Financial
Services, Inc., and Mills Financial Services, Inc. agrees to purchase, the
Underwriter's Warrants at a purchase price of $.01 per Underwriter's Warrant.
The Underwriter's Warrant shall be substantially in the form contained in the
Underwriter's Warrant Purchase Agreement filed as Exhibit ___ to the
Registration Statement, with such changes therein, if any, as may be agreed upon
by the Company and Mills Financial Services, Inc., shall be dated the Closing
Date, and shall evidence the right of Mills Financial Services, Inc. to purchase
from the Company up to _________ shares of Common Stock (subject to adjustment
as provided in the Underwriter's Warrants) at the price per share and upon the
terms and conditions provided in the Underwriter's Warrants and the
Underwriter's Warrant Purchase Agreement.
Section 5. Covenants of the Company.
The Company covenants and agrees that:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement to become effective and will advise you immediately, and
confirm the advice in writing, (i) of the receipt of any comments of the
Commission, (ii) of any request of the Commission for amendment of or supplement
to the Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information, (iii)
when the Registration Statement shall have become effective and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose. If the Commission shall enter any such stop order at any time, the
Company will use its reasonable best efforts to obtain the lifting of such order
at the earliest possible moment. The Company will not file any amendment or
supplement to the Registration Statement (either before or after it becomes
effective), any Preliminary Prospectus or the Prospectus of which you have not
been furnished with a copy a reasonable time prior to such filing or to which
you reasonably object or
9
<PAGE>
which is not in compliance in all material respects with the Act and the Rules
and Regulations.
(b) If at any time within nine months of the effectiveness of the
Registration Statement when a prospectus relating to the Common Shares is
required to be delivered under the Act any event occurs, as a result of which
the Prospectus, including any amendments or supplements, would include an untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Act or the Rules and Regulations, the Company
will promptly advise you thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will correct
such statement or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become effective
as soon as possible; and, in case you or any Underwriter, as the case may be, is
required to deliver a prospectus nine months or more after the effective date of
the Registration Statement, the Company upon request, but at your expense or the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(c) Prior to the Second Closing Date, the Company will not repurchase or
otherwise acquire any of the Company's Common Stock or declare or pay any
dividend or make any other distribution upon its Common Stock.
(d) As soon as practicable, but not later than 45 days after the end of the
first quarter ending after one year following the effective date of the
Registration Statement, the Company will make generally available to its
security holders an earnings statement (which need not be audited) covering a
period of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last paragraph
of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be delivered
in connection with sales by an Underwriter or dealer, the Company, at its
expense, but only for the first nine months after the effective date of the
Registration Statement, will furnish to you or mail to your order copies of the
Registration Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon as
available and in such quantities as you may request, for the purposes
contemplated by the Act.
10
<PAGE>
(f) The Company shall cooperate with you and your counsel in order to list
the Common Shares for trading on the Chicago Stock Exchange and qualify or
register the Common Shares for sale under (or obtain exemptions from the
application of) the Blue Sky laws of such jurisdictions as you designate, will
use its best efforts to comply with such laws and use its best efforts to
continue such listing, qualifications, registrations and exemptions in effect
so long as reasonably required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise you promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Common
Shares for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company, with your cooperation, will use its reasonable best efforts to obtain
the withdrawal thereof.
(g) During the period of five years hereafter, the Company will furnish to
you or upon your request as Representative of the Underwriters, to each of the
other Underwriters, as the case may be: (i) as soon as practicable after the
end of each fiscal year, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and changes in financial position
for the year then ended and the opinion thereon of the Company's independent
public accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-KSB, Quarterly Report
on Form 10-QSB, Report on Form 8-K or other report filed by the Company with
the Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
(h) During the period of 180 days after the date hereof, without your prior
written consent, individually or as Representative of the Underwriters, the
Company will not other than pursuant to outstanding stock options and the terms
of other employee benefit plans disclosed in the Prospectus issue, offer, sell,
grant options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable for its
Common Stock or other equity security under circumstances where such securities
may be sold into the public market during such period.
You, individually or on behalf of the Underwriters, as the case may be,
may, in your sole discretion, waive in
11
<PAGE>
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
Section 6. Non-Accountable Allowance; Payment of Expenses.
(a) Non-Accountable Allowance. Upon the consummation of the transactions
contemplated hereunder and, in any event, not later than the date of the First
Closing and, if applicable, again on the date of the Second Closing, the
Company shall reimburse Mills Financial Services, Inc. for its expenses on a
non-accountable basis in the amount of $ , which amount shall not
exceed three percent (3%) of the gross proceeds to the Company from the
transactions contemplated herein.
(b) Other Expenses. Whether or not the transactions contemplated hereunder
are consummated or this Agreement becomes effective or is terminated, the
Company agrees to pay all costs, fees and expenses (excluding any legal fees,
costs or expenses of counsel to the Underwriters) incurred in connection with
the performance of its obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) the cost of preparation, printing and filing of the
Registration and exhibits and all amendments and supplements thereto with the
Securities and Exchange Commission, (ii) the cost of printing and delivering to
the Underwriters all copies of the preliminary prospectus and final prospectus
reasonably requested by the Underwriters, (iii) all filing fees and costs
(other than legal fees of counsel to the Underwriters) connected with the
Securities and Exchange Commission, National Association of Securities Dealers,
Inc., the Chicago Stock Exchange and the "blue sky" commissions of those states
in which the offering is to be made, and (iv) the costs and expenses of
tombstone advertisements and those associated with a series of presentations in
various financial centers.
Section 7. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for the
Firm Common Shares on the First Closing Date and the Optional Common Shares on
the Second Closing Date shall be subject to the accuracy of the representations
and warranties on the part of the Company herein set forth as of the date
hereof and as of the First Closing Date or the Second Closing Date, as the case
may be, to the accuracy of the statements of Company officers made pursuant to
the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
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(a) The Registration Statement shall have become effective not later than
5:00 P.M., Washington, D.C. Time, on the date of this Agreement, or at such
later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or,
to the knowledge of the Company shall be contemplated by the Commission; and
any request of the Commission for inclusion of additional information in the
Registration Statement, or otherwise, shall have been complied with to your
satisfaction.
(b) The legality and sufficiency of the authorization, issuance and sale of
the Common Shares being sold by the Company, the validity and form of the
certificates representing the Common Shares, the execution and delivery of this
Agreement and all corporate proceedings and other legal matters incident
thereto, and the form of the Registration Statement and the Prospectus (except
financial statements and numerical data) shall have been approved by counsel
for you or the Underwriters, as the case may be.
(c) You shall not have advised the Company that the Registration Statement
or Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact, which, in the opinion of counsel for you or the
Underwriters, as the case may be, is or may be material or omits to state a
fact which, in the opinion of such counsel, is or may be material and is or may
be required to be stated therein or necessary to make the statements therein
not misleading.
(d) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock other than pursuant to the
exercise of outstanding options and other employee benefit plans disclosed in
the Prospectus of the Company or any material change in the indebtedness (other
than in the ordinary course of business) of the Company or any of its
subsidiaries, (ii) except as set forth or contemplated by the Registration
Statement or the Prospectus, no material agreement or other transaction shall
have been entered into by the Company which is not in the ordinary course of
business, (iii) no loss or damage (whether or not insured) to the property of
the Company shall have been sustained which materially and adversely affects
the condition (financial or otherwise), business, results of operations or
prospects of the Company, (iv) no legal or governmental action, suit or
proceeding affecting the Company which is material to the
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<PAGE>
Company or which affects or may affect the transactions contemplated by this
Agreement shall have been instituted or threatened and (v) there shall not have
been any material adverse change in the condition (financial or otherwise),
business, management, results of operations or prospects of the Company which
makes it impractical or inadvisable in your reasonable judgment to proceed with
the public offering or purchase the Common Shares as contemplated hereby.
(e) There shall have been furnished to you, individually or as
Representative of the Underwriters, as the case may be, on each Closing Date, in
form and substance satisfactory to you, except as otherwise expressly provided
below:
(i) An opinion of Robert S. Luce, Esq., counsel for the Company addressed
to you or to you as Representative of the several Underwriters, as the
case may be, and dated the First Closing Date or the Second Closing
Date as the case may be, to the effect that:
(1) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction
of incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions
where the ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company, and has full corporate
power and authority to own its properties and conduct its
business as described in the Registration Statement;
(2) The authorized capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus and has
outstanding ___________shares of Common Stock and ____shares of
Class ___Preferred Stock; all necessary and proper corporate
proceedings have been taken in order to authorize validly such
authorized Common Stock; all outstanding shares of Common Stock
(including the Firm Common Shares and any Optional Common Shares)
and all outstanding shares of Class ___ Preferred Stock have been
duly and validly issued, are fully paid and nonassessable, not
issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase any securities and
conform to the description thereof contained in the Prospectus;
without limiting the foregoing, there are no preemptive or other
rights to subscribe for or purchase
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<PAGE>
any of the Common Shares to be sold by the Company hereunder;
(3) Except as disclosed in or specifically contemplated by the
Prospectus, to the best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling for the
issuance of, and no commitments, plans or arrangements to issue,
any shares of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the
Company;
(4) (a) The Registration Statement has become effective under the
Act, and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending
or contemplated by the Commission;
(b) The Registration Statement, the Prospectus and each amendment
or supplement thereto (except for the financial statements and
schedules included therein as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations, and
nothing has come to such counsel's attention that would lead such
counsel to believe that either at the effective date of the
Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any such amendment
or supplement, contains any untrue statement of a material fact
or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading;
(c) To the best of such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents required
to be disclosed in the Registration Statement or Prospectus or to
be filed as exhibits to the Registration Statement which are not
disclosed or filed, as required;
(d) The descriptions in the Registration Statement and the
Prospectus of franchises, leases, contracts, agreements and other
documents are accurate in all material respects
15
<PAGE>
and such descriptions fairly present in all material respects the
information required to be shown;
(e) The description of the Company's stock option, stock purchase
and other stock plans and arrangements, and the options or other
rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information
required to be shown with respect to said plans, arrangements,
options and rights;
(f) To the best of such counsel's knowledge, there are no legal
or governmental actions, suits or proceedings pending or
threatened against the Company which are required to be described
in the Prospectus which are not described as required; and
(g) The documents incorporated by reference in the Prospectus
(except for any financial statements and schedules included in
such documents as to which such counsel need express no opinion),
when they were filed with the Commission, complied as to form in
all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder; and
such counsel has no reason to believe that any of such documents
(except for any financial statements and schedules included in
such documents as to which such counsel need express no opinion),
when they were so filed, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such documents were
so filed, not misleading.
(5) The Company has full right and authority to enter into this
Agreement and to sell and deliver the Common Shares to be sold by
it to you or the several Underwriters, as the case may be; this
Agreement has been duly and validly authorized by all necessary
corporate action by the Company, has been duly and validly
executed and delivered by and on behalf of the Company, and is a
valid and binding agreement of the Company in accordance with its
terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other
16
<PAGE>
laws affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution for liabilities
arising under the Act as to which no opinion need be expressed;
and no approval, authorization, order, consent, registration,
filing, qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is required
for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under
applicable Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriter or the
several Underwriters, as the case may be, and the clearance of
such offering with the NASD;
(6) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such
counsel to which the Company is a party or by which the Company
or any of its property may be bound or affected which is material
to the Company, or violate any of the provisions of the Articles
of Incorporation or Bylaws of the Company or, so far as is known
to such counsel, violate any statute, judgment, decree, order,
rule or regulation of any court or governmental body having
jurisdiction over the Company or any of its property;
(7) The Company is not in violation of its Articles of Incorporation
or Bylaws, or, to the best of such counsel's knowledge (such
counsel having made reasonable investigation with respect
thereto) in material breach of or default with respect to any
provision of any material agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument
known to such counsel to which the Company is a party or by which
it or any of its properties may be bound or affected, except
where such default would not materially adversely affect the
Company; and, to the best of such counsel's knowledge, the
Company is in compliance with all laws, rules, regulations,
17
<PAGE>
judgments, decrees, orders and statutes of any court or
jurisdiction to which it is subject, except where noncompliance
would not materially adversely affect the Company;
(8) To the best of such counsel's knowledge, no holders of securities
of the Company have rights which have not been waived to the
registration of shares of Common Stock or other securities,
because of the filing of the Registration Statement by the
Company or the offering contemplated hereby.
In rendering such opinion, such counsel may rely as to matters of local law,
on opinions of local counsel, as to matters of fact, on certificates of the
officers of the Company and of governmental officials, and as to matters set
forth in Section 3(f) and in the last phrase of paragraph (7) of this Section
7, such counsel may rely in part on opinions of other counsel retained by the
Company, in which case their opinion is to state that they are so doing and
that the Underwriter or the several Underwriters, as the case may be, are
justified in relying on such opinions or certificates and copies of said
opinions or certificates are to be attached to the opinion.
(ii) Such opinion or opinions of Peter B. Shaeffer, Attorney-at-law,
counsel for you or the Underwriters, as the case may be, dated the First
Closing Date or the Second Closing Date, as the case may be, with respect to
the incorporation of the Company, the sufficiency of all corporate proceedings
and other legal matters relating to this Agreement, the validity of the Common
Shares, the Registration Statement and the Prospectus and other related matters
as you may reasonably require, and the Company shall have furnished to such
counsel such documents and shall have exhibited to him such papers and records
as he may reasonably request for the purpose of enabling him to pass upon such
matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and governmental
officials.
(iii) A certificate of the Company executed by the President and such other
officer or key employees of the Company as may reasonably be designated by you,
dated the First Closing Date or the Second Closing Date, as the case may be, to
the effect that, and you shall be reasonably satisfied that:
(1) The representations and warranties of the Company set forth in
Section 2 of this Agreement are true and correct as of the date of this
Agreement and as of the First Closing Date or the Second Closing Date, as
the case may be, and the Company has complied with all
18
<PAGE>
the agreements and satisfied all the conditions on its part to be performed
or satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order preventing or suspending
the use of the Prospectus or any Preliminary Prospectus filed as a part of
the Registration Statement or any amendment thereto; no stop order
suspending the effectiveness of the Registration Statement has been issued,
and to the best of the knowledge of the respective signers, no proceedings
for that purpose have been instituted or are pending or contemplated under
the Act;
(3) Each of the respective signers of the certificate has carefully
examined the Registration Statement and the Prospectus; in his opinion and
to the best of his knowledge, the Registration Statement and the Prospectus
and any amendments or supplements thereto contain all statements required
to be stated therein regarding the Company; and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the Registration Statement was
filed, no agreement, written or oral, transaction or event has occurred
which should have been set forth in an amendment to the Registration
Statement or in a supplement to or amendment of any prospectus which has
not been disclosed in such a supplement or amendment;
(5) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, there has not been any material adverse
change or a development involving a material adverse change in the
condition (financial or otherwise), business, properties, results of
operations, management or prospects of the Company; and no legal or
governmental action, suit or proceeding is pending or threatened against
the Company which is material to the Company, whether or not arising from
transactions in the ordinary course of business, or which may adversely
affect the transactions contemplated by this Agreement; since such dates
and except as so disclosed, the Company has not entered into any agreement
or other transaction which is not in the ordinary course of business or
incurred any material liability or obligation, direct, contingent or
indirect, made any change in its capital stock, made any material change in
its short-term debt or
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<PAGE>
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the First Closing Date or Second
Closing Date; and
(6) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company has not sustained a material
loss or damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(iv) On the day before the date of the Registration Statement and also on
the First Closing Date and the Second Closing Date a letter addressed to you or
to you as Representative of the Underwriters, as the case may be, from Craig
Shaffer and Associates, Ltd., C.P.A., independent accountants, the first one to
be dated the day before the date of this Agreement, the second one to be dated
the First Closing Date and the third one (in the event of a Second Closing) to
be dated the Second Closing Date, in form and substance satisfactory to you.
(v) Such assurances as you may require that on the First Closing Date and
the Second Closing Date the Common Shares are qualified for public offering and
sale by registered dealers or exempt from the necessity of qualifications or
registrations for such public offering and sale in such jurisdictions as you
have theretofore specified; that the Registration Statement has been declared
effective under the Act; and that there is no stop order or similar proceeding
in effect, pending or contemplated with respect to any such qualification,
exemption, effectiveness or approval.
(vi) On or before the First Closing Date, such letters from the
shareholders of the Company as the Company, with our assistance, shall have
obtained after using the Company's best efforts, in form and substance
satisfactory to you, confirming that for a period of 180 days after the date of
the Prospectus such person will not directly or indirectly sell or offer to sell
or otherwise dispose of any shares of Common Stock or any right to acquire such
shares without your prior, written consent.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Peter B. Shaeffer, counsel for you or the Underwriters, as the case may be.
The Company shall furnish you with such manually signed or conformed copies of
such opinions, certificates, letters and documents as you request. Any
certificate signed by any officer or key employee
20
<PAGE>
of the Company and delivered to you or to counsel for you or the Underwriters,
as the case may be, shall be deemed to be a representation and warranty by the
Company to you or the Underwriters, as the case may be, as to the statements
made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you to the
Company without liability on the part of any Underwriter or the Company except
for the expenses to be paid or reimbursed by the Company pursuant to Sections
6(b) and 8 hereof and except to the extent provided in Section 10 hereof.
Section 8. No Reimbursement of Costs or Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 7 or by you or the Company pursuant to
Section 14, or if the sale to you or the Underwriters, as the case may be, of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provisions hereof, neither you or the
Underwriter, as the case may be, nor the Company shall be required to reimburse
the other or others, as the case may be, for any costs or expenses incurred by
you or them or incurred by the Company. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 6(b) and Section 10 shall at all times be effective and shall
apply.
Section 9. Effectiveness of Registration Statement.
The Company will use its best efforts to cause the Registration Statement
to become effective, to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
Section 10. Indemnification.
(a) The Company agrees to indemnify and hold harmless you or each
Underwriter and each person, if any, who controls you or any such Underwriter,
as the case may be, within the meaning of the Act against any losses, claims,
damages, liabilities or expenses, joint or several, to which you or such
Underwriter, as the case may be, or such controlling person may become subject,
under the Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written
21
<PAGE>
consent of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state in any of them a material fact required to be stated therein or necessary
to make the statements in any of them not misleading; and will reimburse you or
each Underwriter, as the case may be, and each such controlling person for any
legal and other expenses reasonably incurred by you or such Underwriter or such
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by you or by or on behalf of any
Underwriter through the Representative, as the case may be, specifically for use
therein; and provided further, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any Preliminary
Prospectus, the indemnity agreement contained in this paragraph shall not inure
to the benefit of you or any Underwriter, as the case may be, from whom the
person asserting any such losses, claims, damages, liabilities or expenses
purchased the Common Shares concerned (or to the benefit of any person
controlling you or such Underwriter, as the case may be) to the extent that any
such loss, claim, damage, liability or expense of you or such Underwriter, as
the case may be, or controlling person results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of sale of such Common Shares to such person as required by the
Act, and if the untrue statement or omission has been corrected in the
Prospectus unless such failure to deliver the Prospectus was a result of
noncompliance by the Company with its obligations under Section 5(e) hereof; and
provided further, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in the Registration Statement, the
Prospectus, or any amendment or supplement thereto.
(b) You or each Underwriter severally, as the case may be, will indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director, officer or
controlling person may become subject, under the Act, the Exchange Act, or
other federal or
22
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state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
Section 4 of this Agreement or any other written information furnished to the
Company by you or such Underwriter through the Representative, as the case may
be, specifically for use in the preparation thereof; and will reimburse the
Company, or any such director, officer or controlling person for any legal and
other expense reasonably incurred by the Company, or any such director, officer
or controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. This indemnity agreement will be in addition to any liability which you
or such Underwriter, as the case may be, may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and counsel for the indemnified
party shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the
23
<PAGE>
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence or (ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of commencement of
the action, in each of which cases the fees and expenses of counsel shall be at
the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 10 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then such applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and you or the Underwriters, as the case may be, from the offering of
the Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and you or the Underwriters, as the case may be, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by the
Company and you or the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or you or the Underwriters, as the case may
be, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject to the
limitations set forth in subparagraph (c) of this Section 10, any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or
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<PAGE>
claim. The provisions set forth in subparagraph (c) of this Section 10 with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this subparagraph (d); provided, however, that
no additional notice shall be required with respect to any action for which
notice has been given under subparagraph (c) for purposes of indemnification.
The Company and you or the Underwriters, as the case may be, agree that it would
not be just and equitable if contribution pursuant to this Section 10 were
determined solely by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section
10, neither you nor any Underwriter, as the case may be, shall be required to
contribute any amount in excess of the amount by which the total underwriting
discount received by you or such Underwriter, as the case may be, in connection
with the Common Shares underwritten by it and distributed to the public exceeds
the amount of any damages which you or such Underwriter has otherwise been
required to pay by reason of such untrue alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. If applicable,
the Underwriters' obligations to contribute pursuant to this Section 10 are
several in proportion to their respective underwriting commitments and not
joint.
(e) In addition to and without in any way limiting the other obligations of
the parties under this Section 10, the Company hereby further agrees to
reimburse you or each Underwriter, as the case may be, and each person who
controls you or any such Underwriter within the meaning of Section 15 of the Act
on a quarterly basis for one-half of all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
paragraph (a) of this Section 10, notwithstanding the possibility that such
payments might later be held to be improper, but only under circumstances where
you or such Underwriter has selected separate counsel or elected to participate
in the defense of the action as permitted by the proviso of the second sentence
of Section 10(c) hereof. To the extent that any payment is ultimately held to be
improper, you or each Underwriter, as the case may be, shall promptly refund
such payment.
Section 11. Default of the Underwriters.
It shall be a condition to this Agreement and the obligation of the Company
to sell and deliver the Common Shares hereunder, and a condition of your
obligation, or the
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obligation of each Underwriter, as the case may be, to purchase the Common
Shares in the manner as described herein, that, except as hereinafter in this
paragraph provided, you or each of the Underwriters, as the case may be, shall
purchase and pay for all the Common Shares agreed to be purchased by you or such
Underwriter hereunder upon tender to you individually or as the Representative
of the several Underwriters, as the case may be, of all such shares in
accordance with the terms hereof. If applicable, if any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder on
either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of Common
Shares with respect to which such default occurs is more than the above
percentage and arrangements satisfactory to you and the Company for the purchase
of such Common Shares by other persons are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any non-
defaulting Underwriter or the Company except for the expenses to be paid by the
Company pursuant to Section 6(b) hereof and except to the extent provided in
Section 10 hereof.
If applicable, in the event that Common Shares to which a default relates
are to be purchased by the non-defaulting Underwriters or by another party or
parties, the Representative or the Company shall have the right to postpone the
First or Second Closing Date as the case may be, for not more than five business
days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
Section 12. Effective Date.
This Agreement shall become effective immediately as to Sections 6(b), 8,
10, 14 and 15 and, as to all other provisions, (i) if at the time of execution
of this Agreement the Registration Statement has not become effective, at 4:00
P.M., Chicago time, on the first full business day following the effectiveness
of the Registration Statement, or (ii) if at the time of execution of this
Agreement the Registration Statement has been declared effective, at 4:00 P.M.,
Chicago time, on the first full business day following the date of
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execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Common Shares for sale to the public. For the purposes of this
Section 12, the Common Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Common
Shares or upon the release by you of telegrams (i) advising Underwriters that
the Common Shares are released for public offering, or (ii) offering the Common
Shares for sale to securities dealers, whichever may occur first.
Section 13. Right of First Refusal
For a period of three (3) years from the date of this Agreement, the
Company will not enter into an agreement for a public or private cash (other
than to employees) of any securities of the Company or any affiliate of the
Company or any securities offered by the Company or any affiliate, including any
shareholder owning ten percent (10%) or more of the Company's issued and
outstanding Common Stock, for cash to or through any person, firm or corporation
other than Mills Financial Services, Inc. unless and until the Company shall
have first negotiated for the sale of such securities with or through or offered
to sell such securities to Mills Financial Securities, Inc. The Company shall
notify Mills Financial Services, Inc. in writing of the Company's intention to
offer such securities in an offering covered by this right of first refusal and
the terms (including the price or other method of determining the underwriting
or placement discount or fee) and the conditions of the proposed offering. Mills
Financial Services, Inc. shall then have 10 days from the date of receipt of
such written notice to decide whether to participate in such proposed offering.
If Mills Financial Services, Inc. determines that it does not wish to
participate in the proposed offering, then it shall so notify the Company of its
intention in writing not later than 30 days from the receipt of notice from the
Company of such proposed offering. If Mills Financial Services, Inc. determines
not to participate in such offering, then the Company may, within a period of 90
days from the date of receipt of notice from Mills Financial Services, Inc. of
its intention not to participate, enter into a letter of intent for the public
sale or, as appropriate, a contract for the private sale, of any of such
securities through any other person, firm or corporation on the same general
terms and conditions as those which were tendered by the Company to Mills
Financial Services, Inc. Provided, however, as to a public offering, it a
definitive underwriting agreement with a firm commitment is not executed by the
Company with such third party within 180 days thereafter, all the rights of
Mills Financial Services, Inc. hereunder with respect to such offering shall be
reinstated. Nothing in this Agreement shall be construed as granting the
continuation of such preferential right on the part of Mills Financial
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Services, Inc. beyond such three-year period.
Section 14. Termination.
Without limiting the right to terminate this Agreement pursuant to any
other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
or by you by notice to the Company at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company to you or
any Underwriter, as the case may be (except for the expenses to be paid or
reimbursed by the Company pursuant to Sections 6 and 8 hereof and except to
the extent provided in Section 10 hereof) or of any Underwriter to the
Company(except to the extent provided in Section 10 hereof).
(b) This Agreement may also be terminated by you, individually or as
Representative of the several Underwriters, as the case may be, prior to
the First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange, the American Stock Exchange, the Chicago Stock Exchange or in the
over the counter market by the NASD, or trading in securities generally
shall have been suspended on any such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been
established by federal, New York or Illinois authorities or (ii) if an
outbreak of major hostilities or other national or international calamity
or any substantial change in political, financial or economic conditions
shall have occurred or shall have accelerated to such an extent, as, in
your judgment, to affect adversely the marketability of the Common Shares.
Any termination pursuant to this subsection (b) shall be without liability
on your part or on the part of any Underwriter, as the case may be, to the
Company or on the part of the Company to you or any Underwriter, as the
case may be (except to the extent provided in Section 10 hereof).
Section 15. Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers or key employees and of you or
the Underwriters, as the case may be, set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of
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any investigation made by you individually or on behalf of any Underwriter, as
the case may be, or the Company or any of its or their partners, officers or
directors or any controlling person, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
Section 16. Notices.
All communications hereunder shall be in writing and, if sent to you
individually or on behalf of the several Underwriters, shall be mailed,
delivered, telefaxed or telegraphed and confirmed to you at 20 N. Clark Street,
Suite 2411, Chicago, Illinois 60602, Attention: Joseph Kurczodyna; and if sent
to the Company shall be mailed, delivered, telefaxed or telegraphed and
confirmed to the Company at 600 Enterprise Drive, Suite 206, Oak Brook, Illinois
60521, Attention: Joseph Khoshabe. The Company, or you may change the address
for receipt of communications hereunder by giving notice to the other.
Section 17. Successors.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 12
hereof, and to the benefit of the officers and directors and controlling persons
referred to in Section 10, and in each case their respective successors,
personal representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder. The term "successors" shall not include any purchaser of
the Common Shares as such from you or any of the Underwriters merely by reason
of such purchase.
Section 18. Representative of Underwriters.
If applicable, you will act as Representative for the several Underwriters
in connection with all dealings hereunder, and any action under or in respect of
this Agreement taken by the Underwriters jointly or by Mills Financial Services,
Inc., as Representative, will be binding upon all the Underwriters.
Section 19. Partial Unenforceability.
The invalidity or unenforceability of any Section, paragraph or provision
of this Agreement shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof. If any Section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
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Section 20. Applicable Law.
This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws pertaining to conflicts of laws) of the State
of Illinois.
Section 21. Underwriter's Board Representative or Designee
For a period of three-years from the date of this Agreement, the Company,
at the request of Mills Financial Services, Inc., shall nominate and use its
best efforts (including solicitation of proxies) to elect a designee of Mills
Financial Services, Inc. to the Board of Directors of the Company or,
alternatively, to permit a designee of Mills Financial Services, Inc. to receive
notice of and attend all special and regular meetings of the Board of Directors
of the Company. Any designation by Mills Financial Services, Inc. shall be made
in writing.
Section 22. General.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and you, individually or on behalf of
the several Underwriters, as the case may be.
(Balance of Page Left Blank, Intentionally)
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon
it will become a binding agreement among the Company and Mills Financial
Services, Inc. or the several Underwriters including you, as the case may be,
all in accordance with its terms.
Very truly yours,
UNITED FINANCIAL MORTGAGE CORP.
By:____________________________
Joseph Khoshabe, President
The foregoing Underwriting Agreement is hereby confirmed and accepted by us
in Chicago, Illinois as of the date first above written.
MILLS FINANCIAL SERVICES, INC.
If applicable, acting as Representative of the several Underwriters named in
the attached Schedule A.
By MILLS FINANCIAL SERVICES, INC.
By: ______________________________
Joseph Kurczodyna, President
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SCHEDULE A
Number of Firm Common
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
Mill Financial Services, Inc.
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO ANY EFFECTIVE REGISTRATION STATEMENT
MADE UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT
Underwriter's Warrant to Purchase ______
Shares of Common Stock
UNDERWRITER'S WARRANT
UNITED FINANCIAL MORTGAGE CORP.
THIS IS TO CERTIFY THAT for $______ consideration paid and received, MILLS
FINANCIAL SERVICES, INC., 20 North Clark Street, Ste. 2411, Chicago, Illinois
60602 or registered assigns (hereinafter the "Holder" or "Mills") is entitled to
purchase from UNITED FINANCIAL MORTGAGE CORP., an Illinois corporation
(hereinafter the "Company"), ______________ Shares of the Company's at a price
of $______ per Share of Common Stock. Except as otherwise provide herein, this
Underwriter's Warrant is exercisable at any time on or after _________, 1998,
and not later than 3:30 P.M., Chicago Time, on ___________, 2002.
The Shares of Common Stock issuable upon exercise of the Underwriter's
Warrant have been registered under a registration statement filed by the Company
on Form SB-2 (File No.________) and declared effective by the Securities and
Exchange Commission on _____________________, 199 (the "Registration
Statement"). This Underwriter's Warrant is issued pursuant to an underwriting
agreement dated __________, 199 between the Company and Mills Financial
Services, Inc. (the "Underwriter").
The Common Stock which is issuable upon exercise of the Underwriter's
Warrant shall bear the same terms and conditions as described under the section
captioned "Description of Capital Stock" in the Registration Statement,
provided, however, that the holders of such Common Stock shall have registration
rights under the Securities Act of 1933 as more fully described in Paragraph 6
of this Underwriter's Warrant.
1. Exercise of Underwriter's Warrant.
(a) The Underwriter's Warrant will not be exercisable and may not be
sold from ___________, 1997 until 3:30 P.M., Chicago Time, on _____________,
1998, provided, however, that if the Company merges or reorganizes during such
period in such a way as to terminate the Underwriter's Warrant or any component
thereof, it will be exercisable immediately prior to such action.
<PAGE>
(b) The Underwriter's Warrant will be exercisable in whole or in part
at any time or from time to time from and after 3:30 P.M., Chicago Time, on
_________, 1998 until 3:30 P.M., Chicago Time, on _____________, 2002.
(c) After 3:30 P.M., Chicago Time, on ______________, 2002, the
Holder shall have no right to exercise the Underwriter's Warrant.
(d) The exercise price of the Underwriter's Warrant shall be $______
per Share of Common Stock, which exercise price shall be subject to adjustment
as provided in Section 8 herein.
2. Procedures for Exercise of Underwriter's Warrant. The rights
represented by this Underwriter's Warrant may be exercised in whole or in part
by (i) presentation and surrender hereof to the Company (or such other office or
agency of the Company as it may designate by notice in writing to the Holder at
the address of the Holder appearing on the books of the Company) with the
purchase form annexed hereto duly executed; (ii) payment to the Company of the
exercise price then in effect for the number of Shares of Common Stock specified
in the purchase form together with any applicable stock transfer taxes; and
(iii) delivery to the Company of a duly executed agreement signed by the
person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Section 6 and Section 7 of this
Underwriter's Warrant. This Underwriter's Warrant shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the date this Underwriter's Warrant is surrendered and
payment is made in accordance with the foregoing provisions of this Section 2,
and the person or persons in whose name or names the certificates for shares of
Common Stock shall be issuable upon such exercise shall become the holder or
holders of record of such Common Stock at that time and date. The certificates
for the Common Stock and Unit Warrants so purchased shall be delivered to the
holder within a reasonable time, not exceeding ten (10) days after the rights
represented by this Underwriter's Warrant shall have been so exercised. If this
Underwriter's Warrant should be exercised in part only, the Company shall, upon
surrender of this Underwriter's Warrant for cancellation, execute and deliver a
new Underwriter's Warrant evidencing the right of the holder to purchase the
balance of the Shares of Common Stock purchasable hereunder.
3. Assignment, Transfer, Exchange or Loss of Underwriter's Warrant. The
Underwriter's Warrants may not be transferred, assigned or hypothecated, except
that they may be assigned, in whole or in part, to any successor of the
Underwriter, or to a bona fide officer of the Underwriter who is also a
shareholder of the Underwriter, or to members of any underwriting or selling
group who are members of the National
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Association of Securities Dealers, Inc. or to a bona fide partner of such member
or a bona fide officer of such member who is also a shareholder of such member,
or pursuant to the laws of inheritance or intestacy, provided, however, that
such assigns, if any, are permitted by applicable rules of the NASD and the
applicable state blue sky laws. Any such assignment shall be made by surrender
of this Underwriter's Warrant to the Company with the assignment form annexed
hereto duly executed with funds sufficient to pay any transfer tax; whereupon
the Company shall, without charge, execute and deliver a new Underwriter's
Warrant in the name of the assignee named in such instrument of assignment and
this Underwriter's Warrant shall be promptly canceled. This Underwriter's
Warrant may be divided or combined with other Underwriter's Warrants which carry
the same rights upon presentation thereof at the office of the Company together
with a written notice signed by the Holder specifying the names and
denominations in which new Underwriter's Warrants are to be issued. Upon receipt
by the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Underwriter's Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Underwriter's Warrant, if mutilated, the Company will
execute and deliver a new Underwriter's Warrant of like tenor and date. Any such
new Underwriter's Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not this
Underwriter's Warrant so lost, stolen, destroyed or mutilated shall be at any
time enforceable by anyone.
4. Reservation of Shares; Fractional Shares; The Company covenants and
agrees that all shares of Common Stock which may be issued upon exercise of the
Underwriter's Warrant will, upon issuance, be duly and validly issued, fully
paid and nonassessable, and no personal liability will attach to the holder
thereof. The Company further covenants and agrees that during the periods within
which this Underwriter's Warrant may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of its Common Stock
for issuance upon exercise of the Underwriter's Warrant.
5. Rights of Holder. The Holder of this Underwriter's Warrant shall not,
by virtue hereof, be entitled to any rights of a shareholder in the Company,
either at law or equity, and the rights of the Holder are limited to those
expressed in the Underwriter's Warrant and are not enforceable against the
Company except to the extent set forth herein.
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6. Registration Under the Securities Act of 1933
(a) Registration Rights - Piggy-Back.
(i) Right. In the event that the Company files a registration
statement (defined here to include a Notification under Regulation A under the
Act and the Offering Circular included therein) under the Securities Act of
1933, as amended, ("Act") which relates to a current offering of securities of
the Company (except in connection with an offering to employees), such
registration statement and the prospectus included therein shall, at the written
request to the Company by the holder of an Underwriter's Warrant or the Common
Stock purchased upon exercise of the Underwriter's Warrant (such securities
collectively referred to as the "Registrable Securities"), include and relate
to, and meet the requirements of the Act with respect to, the public offering of
such Registrable Securities so as to permit the public sale thereof in
compliance with the Act. In addition, the Company shall use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as are reasonably designated by the holders of the Registrable Securities.
(ii) Notice Requirement. The Company shall give written notice
to the holders of the Registrable Securities of the Company's intention to file
a registration statement under the Act relating to a current offering of
securities of the Company, sixty (60) or more days prior to the filing of such
registration statement, and the written request provided for in subsection
6(a)(i) herein shall be made by the holders of the Registrable Securities forty-
five (45) or more days prior to the date specified in the notice as the date on
which the Company intends to file such registration statement. The persons
giving notice hereunder shall be referred to hereinafter as "Distributing
Holders".
(iii) Duration of Piggy-Back Right. The registration rights
and notification requirements provided for in subsections 6(a)(i) and 6(a)(ii)
herein shall be in force during the period from ______________, 1998 to 3:30
P.M., Chicago Time on ___________, 2004.
(iv) Information and Indemnification. The Distributing Holders
shall furnish the Company with such information as the Company may reasonably
request in connection with the registration of the Registrable Securities. The
Distributing Holders and the Company shall provide and receive indemnification
as provided for in Section 7 hereof, except that the maximum amount which may be
recovered by a Distributing Holder from the Company shall be limited to the
amount of proceeds received by the Distributing Holder pursuant to the sale of
securities pursuant to the registration statement.
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(v) Expenses. The Company shall bear all the costs of the
registration and qualification provided for in this Section 6(a), but the
Company shall not be responsible for the cost of separate counsel for the
Distributing Holders to review the registration statement. Nor will the Company
be responsible for any underwriting compensation applicable to the securities
sold pursuant to the registration right provided for herein.
(b) Registration Rights - Demand.
(i) Right. If any Fifty-Percent Holder ("50% Holder"), as
defined in paragraph 6(d) below, shall give written notice to the Company to the
effect that such 50% Holder desires to transfer any or all of the Registrable
Securities owned by the 50% Holder under such circumstances that a public
distribution (within the meaning of the Act) of any such Registrable Securities
may be involved, then the Company will promptly, but no later than sixty (60)
days after receipt of such notice, file, not more than once, a registration
statement or, if available, a Notification on Form 1-A (collectively,
"registration statement"), and all necessary amendments thereto, under the
Securities Act, registering or qualifying, as the case may be, the Registrable
Securities requested to be registered or qualified. The Company will use its
best efforts to cause such registration statement to become and remain effective
(including the taking of such steps as are necessary to obtain the removal of
any stop order) and shall use its best efforts to register and qualify any of
the Registrable Securities for sale in such states as are reasonably designated
by the 50% Holder. The Company will maintain such registration statement current
under the Act for a period of at least six (6) months (and for up to an
additional three (3) months if requested by the 50% Holder) from the effective
date thereof.
(ii) Limitation - One-Time Right. The registration right
provided for in subsection 6(b)(i) shall be exercised only once.
(iii) Notification to Other Holders. Within ten (10) days after
receipt of the written notice provided for in subsection 6(b)(i), the Company
shall give notice to the other holders of Registrable Securities advising that
the Company is proceeding with such registration statement and offering to
include therein the Registrable Securities of such other holders. The election
by such other holders to participate shall be made in writing to the Company not
later than ten (10) days after receipt of the notice provided for herein. The
50% Holder and the other holders electing to participate shall be hereinafter
referred to as the "Distributing Holders".
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(iv) Duration of Demand Right. The registration right and
notification requirements provided for in subsections 6(b)(i) and 6(b)(iii)
herein shall be in force during the period from ______________, 1998 to 3:30
P.M., Chicago Time on ___________, 2002.
(v) Information and Indemnification. The Distributing Holders
shall furnish the Company with such information as the Company may reasonably
request in connection with the registration of the Registrable Securities. The
Distributing Holders and the Company shall provide and receive indemnification
as provided for in Section 7 hereof, except that the maximum amount which may be
recovered by a Distributing Holder from the Company shall be limited to the
amount of proceeds received by the Distributing Holder pursuant to the sale of
securities pursuant to the registration statement.
(vi) Expenses. The Company shall bear all the costs of the
registration and qualification provided for in this Section 6(b), but the
Company shall not be responsible for the cost of separate counsel for the
Distributing Holders to review the registration statement. Nor will the Company
be responsible for any underwriting compensation applicable to the securities
sold pursuant to the registration right provided for herein.
(c) Registration - Non-Demand. In addition to the rights above
provided in subsections 6(a) and 6(b) herein, the Company will cooperate with
the then holder(s) of the Underwriter's Warrants in preparing and signing any
Registration Statement or Notification, in addition to the Registration
Statements or Notifications discussed above, required in order to sell or
transfer the shares issued upon the exercise of the Underwriter's Warrant, and
will supply all information required therefor, but such additional Registration
Statement or Notification shall be at the then holder(s) cost and expense.
(d) Fifty-Percent (50%) Holder. The term "50% Holder" as used in
this Paragraph 6 shall mean, assuming exercise of all Underwriter's Warrants,
the holder of at least fifty-percent (50%) of the Common Stock issued or
issuable upon such exercise and shall include any owner or combination of owners
of such securities.
(e) Registration on Form S-3. In the event the Company receives from
the 50% Holder a request that the Company effect a registration on Form S-3 with
respect to Registrable Securities and if Form S-3 is available for such offering
by the 50% Holder, the Company shall, as soon as practicable, effect such
registration as would permit or facilitate the sale and distribution of the
Registrable Securities as are specified in the request. All expenses incurred in
connection with the registration pursuant to this Section 6(e) shall be borne by
the Company. Registrations pursuant to this Section 6(e) shall not
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be counted as a demand for registration pursuant to Section 6(b) hereof. Holders
of other securities of the Company having registration rights shall have the
ability to be included in the registration on Form S-3.
7. Indemnification
(a) Whenever pursuant to Paragraph 6 a registration statement
relating to the Underwriter's Warrant or any Shares of Common Stock issued or
issuable upon the exercise of any Underwriter's Warrants, is filed under the
Act, amended or supplemented, the Company will indemnify and hold harmless each
holder of the securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any legal or other
expenses reasonably incurred by the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action; provided; however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed said registration
statement and such amendments and supplements thereto, each person, if any, who
controls the Company (within the meaning of the Act) against any losses, claims,
damages or liabilities to which the Company or any such director, officer or
controlling person may become
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subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or supplement,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder for use in the preparation thereof; and will reimburse the Company or any
such director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this Paragraph 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Paragraph 7.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
under such circumstances, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. Anti-Dilution Provisions. The exercise price of the Underwriter's
Warrant and the number of Shares of Common Stock purchasable upon the exercise
of the Underwriter's Warrants shall be subject to adjustment from time to time
upon the happening of certain events as follows:
(a) Adjustments of Exercise Prices.
(1) No Consideration or Consideration Less than Exercise Price
of Underwriter's Warrant. In case the Company should at any time or from time to
time during the life of the Underwriter's Warrants issue or sell any shares of
Common
8
<PAGE>
Stock (other than the Common Stock which may be purchased pursuant to options,
warrants and/or conversion rights outstanding as of the date of this
Underwriter's Warrant) without consideration or for a consideration per share
less than the exercise price of the Underwriter's Warrant in effect immediately
prior to the time of the issue or sale, then forthwith upon such issue or sale,
the exercise price of the Underwriter's Warrant shall be adjusted to a price
(computed to the nearest cent) determined by dividing (i) the sum of (x) the
number of shares of the Company's Common Stock outstanding immediately prior to
such issue or sale multiplied by the exercise price in effect immediately prior
to such issue or sale and (y) the consideration, if any, received by the Company
upon such issuance or sale by (ii) the total number of shares of the Company's
Common Stock outstanding immediately after such issue or sale.
(2) Options. For purposes of the computations provided for in
subsection 8(a)(1) above, this subsection 8(a)(2) shall be applicable. In case
the Company at any time hereafter shall in any manner grant any right to
subscribe for or to purchase, or grant any option for the purchase of Common
Stock or for the purchase of securities convertible into or exchangeable for
Common Stock, and the minimum price per share (determined in accordance with
subsection 8(a)(2)(i) below) for which Common Stock is issuable upon exercise or
conversion shall be less than the exercise price of the Underwriter's Warrant,
then, for purposes of the calculations provided for in subsection 8(a)(1) above,
the maximum amount of Common Stock issuable upon exercise of the purchase rights
or conversion rights described herein shall be deemed to have been issued for
the minimum price per share, provided, that no further adjustment of the
exercise price of the Underwriter's Warrant shall be made upon the actual issue
of Common Stock so deemed to have been issued; and further provided, that upon
the expiration of such rights, options or conversion rights, the exercise price
of the Underwriter's Warrant shall be adjusted to the price that would have
prevailed had all prior adjustments been made on the basis of the issuance only
of the Common Stock actually issued upon the exercise of the purchase rights and
conversion rights described herein.
(i) The "minimum price per share" referred to in subsection
8(a)(2) shall be determined by dividing the total amount to be received by
the Company in consideration both for the right to purchase the Common
Stock and the actual purchase of the Common Stock, by the maximum number of
shares of Common Stock issuable pursuant to the purchase rights, options or
conversion rights.
9
<PAGE>
(3) Convertible Securities. For purposes of the computation
provided for in subsection 8(a)(1) above, this subsection 8(a)(3) shall be
applicable. In case the Company at any time hereafter shall in any manner issue
or sell any securities which are convertible into Common Stock ("Convertible
Securities") and the minimum price per share (determined in accordance with
subsection 8(a)(3)(i) below) for which Common Stock is issuable upon conversion
shall be less than the exercise price of the Underwriter's Warrant, then, for
purposes of the calculation provided for in subsection 8(a)(1) above, the
maximum amount of Common Stock issuable upon conversion of the Convertible
Securities shall be deemed to have been issued for the minimum price per share,
provided, that no further adjustment of the exercise price of the Underwriter's
Warrant shall be made upon the actual issue of Common Stock so deemed to have
been issued; and further provided, that if any such issue or sale of Convertible
Securities is made upon exercise of any right to subscribe of or to purchase or
any option to purchase any such Convertible Securities for which an adjustment
of the exercise price of the Underwriter's Warrant has been or is to be made
pursuant to Section 8(a)(2), no further adjustment of the exercise prices shall
be made by reason of such issue or sale; and further provided, that upon
termination of the right to convert or to exchange such Convertible Securities
for Common Stock, the exercise price of the Underwriter's Warrant shall be
adjusted to the price that would have prevailed had all prior adjustments been
made on the basis of the issuance only of the Common Stock actually issued upon
the conversion or exchange of the Convertible Securities described herein.
(i) The "minimum price per share" referred to in subsection
8(a)(3) shall be determined by dividing the total amount to be received by
the Company in consideration both for the both for the issuance of the
Convertible Security and for actual exchange or conversion of the
Convertible Security into shares of Common Stock, by the maximum number of
shares of Common Stock issuable pursuant to the exchange or conversion of
the Convertible Securities.
(4) Determination of Issue Price. For purposes of the
computations provided for in this Section 8, this subsection 8(a)(4) shall be
applicable. In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such stock or securities shall be issued for
cash the consideration received therefor, after deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance thereof, shall be
deemed to be the amount received by the Company therefor. In case any shares of
Common Stock or Convertible Securities or any rights or options to purchase any
such stock or securities shall be issued for consideration part or all of which
shall be other than cash,
10
<PAGE>
then, for the purposes of this Section 8, the Board of Directors of the Company
shall make a good faith determination of the fair value of such consideration,
irrespective of accounting treatment, and such Common Stock, Convertible
Securities, rights or options shall be deemed to have been issued for an amount
of cash equal to the value so determined by the Board of Directors. The
reclassification of securities other than Common Stock into securities including
Common Stock shall be deemed to involve the issuance of Common Stock for a
consideration other than cash and the issuance of such securities shall be
deemed to have occurred immediately prior to the close of business on the date
fixed for the determination of the identity of the security holders entitled to
receive such Common Stock. In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such stock or other
securities shall be issued together with other stock or securities or other
assets of the Company for a consideration which includes both, the Board of
Directors of the Company shall determine what part of the consideration so
received is to be deemed to be consideration for the issuance of such shares of
Common Stock, Convertible Securities, rights or options.
(5) Determination of Date of Issue. In case the Company shall
take a record of the holders of any Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in Common Stock or
in Convertible Securities, or (ii) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(6) Treasury Shares. For the purpose of this Section 8, shares
of Common Stock at any relevant time owned or held by, or for the account of,
the Company shall not be deemed outstanding.
(b) Adjustment of Exercise Prices - Stock Dividend, Distribution,
Subdivision or Reclassification. Anything in this Section 8 to the contrary
notwithstanding, in case the Company shall at any time (i) issue Common Stock or
Convertible Securities by way of dividend or other distribution on any stock of
the Company or (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the exercise
price of the Underwriter's Warrant in effect at the time of the record date for
such dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall each be adjusted so that each shall equal
a price determined by multiplying the exercise price by a fraction, the
denominator of
11
<PAGE>
which shall be the number of shares of Common Stock outstanding after giving
effect to such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Notwithstanding
anything to the contrary contained in this Underwriter's Warrant, in the event
an adjustment to the exercise price of the Underwriter's Warrant is effected
pursuant to this subsection 8(b) a corresponding adjustment to the number of
Shares of Common Stock issuable upon exercise of the Underwriter's Warrant shall
be made pursuant to Section 8(c) below. Adjustment of the exercise price shall
be made successively whenever any event described herein shall occur.
(c) Adjustment of Number of Shares of Common stock Issuable upon
Exercise of Underwriter's Warrants. Whenever the exercise price of the
Underwriter's Warrant is adjusted pursuant to subsection 8(a) above, the number
of Shares of Common Stock issuable upon exercise of this Underwriter's Warrant
shall simultaneously be adjusted by multiplying the number of Shares of Common
Stock initially issuable upon exercise of this Underwriter's Warrant by the
exercise price in effect immediately prior to the referenced adjustment and
dividing the product so obtained by the exercise price as adjusted. Adjustment
of the number of Shares of Common Stock issuable upon exercise of the
Underwriter's Warrants shall be made successively whenever any event described
herein shall occur.
(d) No Adjustment For Small Amounts. Anything in this Section 8 to
the contrary notwithstanding, the Company shall not be required to give effect
to any adjustment in an exercise price unless and until the net effect of one or
more adjustments, determined as above provided, shall have required an
adjustment by at least five cents ($.05), but when the cumulative net effect of
more than one adjustment so determined shall be to change the actual exercise
price by at least five cents ($.05), such change in the exercise price shall
thereupon be given effect.
(e) Computations and Notifications. Whenever any exercise price is
adjusted as provided for herein, the Company shall promptly but no later than
ten (10) days after any written request for such adjustment by Holder, cause a
notice setting forth the adjusted exercise price and adjusted number of
securities to be issued upon exercise and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to Holder, at the
addresses set forth herein, and shall cause a certified copy thereof to be
mailed to the warrant agent of the Company. The Company may retain a firm of
independent certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any computation
required by this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
12
<PAGE>
(f) Notices to Holders of Underwriter's Warrant. So long as this
Underwriter's Warrant shall be outstanding and unexercised (i) if the Company
shall pay any dividend or make any distribution upon the Common Stock or (ii) if
the Company shall offer to the holders of Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights or (iii)
if any capital reorganization of the Company, reclassification of the capital
stock of the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered to the
Holder, at least ten days prior to the date specified in (x) or (y) below, as
the case may be, a notice containing a brief description of the proposed action
and stating the date on which (x) a record is to be taken for the purpose of
such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be fixed,
as of which the place and date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(g) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Underwriter's Warrant) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the Company shall cause effective provision to be made so that the
holder shall have the right thereafter, by exercising this Underwriter's
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization or
other change, consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Underwriter's
Warrant. The foregoing provisions of this
13
<PAGE>
Section (i) shall similarly apply to successive reclassification, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event that in any such
capital reorganization or reclassification, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for or of a security
of the Company other than Common Stock, any such issue shall be treated as an
issue of Common Stock covered by the provisions of subsection(f)(i) hereof with
the amount of the consideration received upon the issue thereof being determined
by the Board of Directors of the Company, such determination to be final and
binding on the holder.
(h) Spin-Offs. In the event the Company spins-off a subsidiary by
distributing to the shareholders of the Company as a dividend or otherwise the
stock of the subsidiary, the Company shall reserve for the life of the
Underwriter's Warrants, shares of the subsidiary to be delivered to the holders
of the Underwriter's Warrants upon exercise to the same extent as if they were
owners of record of the Shares of Common Stock issuable upon exercise of the
Underwriter's Warrant on the record date for payment of the shares of the
subsidiary.
9. Governing Law. This Warrant shall be governed by and in accordance
with the laws of the State of Illinois.
IN WITNESS WHEREOF, United Financial Mortgage Corp. has caused this Warrant
to be signed by its duly authorized officer under its corporate seal on
this ____ day of ____________, 1997.
UNITED FINANCIAL MORTGAGE CORP.
By:
---------------------------------
Joseph Khoshabe, President
and Chief Executive Officer
[Seal]
Attest:
- ------------------------------
Secretary
14
<PAGE>
PURCHASE FORM
-------------
(To be completed only upon exercise of Underwriter's Warrant)
Dated: ________________, 199__
The undersigned, the Holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such
Underwriter's Warrant to the extent of purchasing ________ Shares of Common
Stock and hereby makes payment of $____________ in payment of the actual
exercise price thereof.
---------------------------------
(Signature)
---------------------------------
(Please print or type name)
---------------------------------
INSTRUCTIONS FOR REGISTRATION OF COMMON STOCK
Name:
---------------------------------
(Please print or type name)
Address:
---------------------------------
---------------------------------
---------------------------------
15
<PAGE>
ASSIGNMENT FORM
---------------
(To be completed only upon assignment of Underwriter's Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto
Name:
----------------------------------------------
(Please type or print name)
Address:
----------------------------------------------
----------------------------------------------
----------------------------------------------
the right to purchase Shares of Common Stock represented by the foregoing
Underwriter's Warrant to the extent of ___________ Shares of Common Stock, and
does hereby irrevocably constitute and appoint ______________________________
___________________________ attorney, to transfer the Underwriter's Warrant on
the books of the Company with full power of substitution in the premises.
Dated: ,
--------------- ----
---------------------------------
(Signature)
---------------------------------
(Please print or type name)
16
<PAGE>
File Number 5423-356-6
[LOGO STATE OF ILLINOIS]
Whereas, ARTICLES OF INCORPORATION OF UNITED FINANCIAL MORTGAGE, CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, Jim Edgar, Secretary of State of the State of Illinois, by
virtue of the powers vested in me by law, do hereby issue this certificate and
attach hereto a copy of the Application of the aforesaid corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 30th day
of April A.D. 1986 and of the Independence of the United States the two hundred
and 10th.
[SEAL OF STATE OF ILLINOIS]
/s/ Jim Edgar
-----------------------
SECRETARY OF STATE
<PAGE>
JIM EDGAR
Secretary of State
State of Illinois
ARTICLES OF INCORPORATION
Pursuant to the provisions of "The Business Corporation Act of 1983", the
undersigned incorporator(s) hereby adopt the following Articles of
Incorporation.
ARTICLE ONE The name of the corporation is United Financial Mortgage, Corp.
---------------------------------------------------------------
(shall contain the word "corporation", "company", "incorporated",
---------------------------------------------------------------
"limited", or an abbreviation thereof)
ARTICLE TWO The name and address of the initial registered agent and its
registerd office are:
Registered Agent
Richard Barry Michaels
------------------------------------------------------
First Name Middle Name Last Name
Registered Office
179 West Washington Street - Suite 500
------------------------------------------------------
Number Street Suite # (A.P.O. Box
alone is not acceptable)
Chicago 60602 Cook
------------------------------------------------------
City Zip Code County
ARTICLE THREE The purpose or purposes for which the corporation is organized
are:
If not sufficient space to cover this point, add one or more sheets of this
size.
to buy sell trade or otherwise deal in the real estate market incluidng the
writing or mortgages as a direct mortgage company or as an agent on behalf of
others, to trade in mortgages and commercial paper and any other lawful business
purpose as allowable under the Illinois Business Corporation Act.
ARTICLE FOUR Paragraph 1: The authorized shares shall be:
Class *Par Value per share Number of shares authorized
--------------------------------------------------------------------
NONE NPV 100
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
Paragraph 2: The preferences, qualifications, limitations,
restrictions and the special or relative rights in respect of the
shares of each class are:
If not sufficient space to cover this point, add one or more sheets
of this size.
ARTICLE FIVE The number of shares to be issued initially, and the
consideration to be received by the corporation therefor, are:
*Par value Number of shares Consideration to be
Class per share proposed to be issued received therefor
--------------------------------------------------------------------
NONE NPV 100 $ 1,000.00
--------------------------------------------------------------------
$
--------------------------------------------------------------------
$
--------------------------------------------------------------------
$
--------------------------------------------------------------------
TOTAL $ 1,000.00
----------------------
* A declaration as to a "par value" is optional. This space may be marked "n/a"
when no reference to a par value is desired
<PAGE>
ARTICLE SIX OPTIONAL
The number of directors constituting the initial board of
directors of the corporation is ______________________, and the
names and addresses of the persons who are to serve as directors
until the first annual meeting of shareholders or until their
successors be elected and qualify are:
Name Residential Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ARTICLE SEVEN OPTIONAL
<C> <S> <C>
(a) It is estimated that the value of all property to $___________________
be owned by the corporation for the following year
wherever located will be:
(b) It is estimated that the value of the property to be $___________________
located within the State of Illinois during the
following year will be:
(c) It is estimated that the gross amount of business $___________________
which will be transacted by the corporation during
the following year will be:
(d) It is estimated that the gross amount of business $___________________
which will be transacted from places of business
in the State of Illinois during the following year
will be:
</TABLE>
ARTICLE EIGHT OTHER PROVISIONS
Attach a separate sheet of this size for any other provision to
be included in the Articles of Incorporation, e.g., authorizing
pre-emptive rights; denying cumulative voting; regulating
internal affairs; voting majority requirements; fixing a
duration other than perpetual; etc.
NAMES & ADDRESSES OF INCORPORATORS
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation are
true.
Date 4-28 , 1996
--------------------
Signatures and Names Post Office Address
1. /s/ Joseph Khoshabe 1. 111 Bruyham
------------------------------ ----------------------------
Signature Street
Joseph Khoshabe Schaumburg, ILL 60199
------------------------------ ----------------------------
Name (please print) City/Town State Zip
2. 2.
------------------------------ ----------------------------
Signature Street
------------------------------ ----------------------------
Name (please print) City/Town State Zip
3. 3.
------------------------------ ----------------------------
Signature Street
------------------------------ ----------------------------
Name (please print) City/Town State Zip
(Signatures must be in ink on original document. Carbon copy, xerox or rubber
stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and the
state of incorporation shall be shown and the executive shall be by its
President or Vice-President and verified by him, and attested by its Secretary
or an Assistant Secretary.
Form BCA-2.10
File No.________________________________________________________________________
================================================================================
ARTICLES OF INCORPORATION
[SEAL]
FEE SCHEDULE
The following fees are required to be paid at the time of issuing the
Certificate of Incorporation: FILING FEE $75.00; INITIAL LICENSE FEE of 1/20th
of 1% of the consideration to be received for initial issued shares (See Art.
5). MINIMUM $.50; INITIAL FRANCHISE TAX of 1/10 of 1% of the consideration to be
received for initial issued shares (see Art. 5), MINIMUM $25.00.
<TABLE>
<CAPTION>
EXAMPLES OF TOTAL DUE
Consideration to TOTAL
Received Due*
================================================================================
<S> <C>
up to $1,000 $100.50
- --------------------------------------------------------------------------------
$ 5,000 $100.50
- --------------------------------------------------------------------------------
$ 10,000 $105.00
- --------------------------------------------------------------------------------
$ 25,000 $112.50
- --------------------------------------------------------------------------------
$ 50,000 $150.00
- --------------------------------------------------------------------------------
$100,000 $225.00
- --------------------------------------------------------------------------------
Includes Filing Fee + License Fee + Franchise Tax
</TABLE>
RETURN TO:
Corporation Department
Secretary of State
Springfield, Illinois 62756
Telephone: (217) 782-6981
================================================================================
<PAGE>
File Number 5423-356-6
[LOGO STATE OF ILLINOIS]
Whereas, ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF UNITED
FINANCIAL MORTGAGE, CORP. INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
HAVE BEEN FILED IN THE OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE
BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 16th day
of December A.D. 1993 and of the Independence of the United States the two
hundred and 18th.
[SEAL OF STATE OF ILLINOIS]
/s/ George H. Ryan
----------------------------
SECRETARY OF STATE
<PAGE>
Form BCA - 10.30 ARTICLES OF AMENDMENT
(Rev. Jan 1991) File # 5423-356-6
- --------------------------------------------------------------------------------
George H. Ryan
Secretary of State SUBMIT IN DUPLICATE
Department of Business Services FILED
Springfield IL 62756 ---------------------------
Telephone (217) 782-1832 DEC 16 1993 This space for use by
Secretary of State
- --------------------------------
Date 12-16-93
Franchise Tax $
Remit payment in check or money Filing Fee* $ 25.00
order, payable to "Secretary of State." Penalty $
Approved: /s/ MR
- --------------------------------------------------------------------------------
1. CORPORATE NAME: United Financial Mortgage, Corp.
-------------------------------------------------------------
(Note 1)
2. MANNER OF ADOPTION AND TEXT OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on
December 3, 1993 in the manner indicated below. ("X" one box only)
[_] By a majority of the incorporators, provided no directors were named in
the articles of incorporation and no directors have been elected; or by a
majority of the board of directors, in accordance with Section 10.10, the
corporation having issued no shares as of the time of adoption of this
amendment;
(Note 2)
[_] By a majority of the board of directors, in accordance with Section
10.15, shares having been issued but shareholder action not being
required for the adoption of the amendment;
(Note 3)
[_] By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of incorporation
were voted in favor of the amendment;
(Note 4)
[_] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
shareholders having not less than the minimum number of votes required by
statute and by the articles of incorporation. Shareholders who have not
consented in writing have been given notice in accordance with Section
7.10;
(Note 4)
[X] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
all the shareholders entitled to vote on this amendment.
(Note 4)
When amendment effects a name change, insert the new corporate name below. Use
Page 2 for all other amendments.
Article 1: The name of the corporation is:
United Financial Mortgage Corp.
- --------------------------------------------------------------------------------
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
Text of Amendment
(Any article being amended is required to be set forth in its entirety)
RESOLVED, that the Articles of Incorportation be further amended to read as
follows:
That the authorized shares of the Corporation, no par value,
Common Stock shall be increased from One Hundred (100) Common
Shares to Twenty Million (20,000,000) common shares; and Five
Million (5,000,000) shares of preferred stock. Such preferred
stock to be issued by the Corporation with such rights, preferences,
designations and other terms and conditions as the Board of Directors
of the Corporation shall determine from time to time.
<PAGE>
3. The manner in which any exchange, reclassification or cancellation of
issued shares, or a reduction of the number of authorized shares of any
class below the number of issued shares of that class, provided for or
effected by this amendment, is as follows: (If not applicable, insert "No
change")
No Change
4. (a) The manner in which said amendment effects a change in the amount of
paid-in capital (Paid-in capital replaces the terms Stated Capital and
Paid-in Surplus and is equal to the total of these accounts) is as follows:
(If not applicable, insert "No change")
No Change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (If not applicable,
insert "No change")
No Change
Before Amendment After Amendment
Paid-in Capital ________________ _______________
(Complete either Item 5 or 6 below)
5. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
Dated December 3, 1993 United Financial Mortgage, Corp.
-------------------------------- ----------------------------------
attested by /s/ Joseph Khoshabe by /s/ Joseph Khoshabe
-------------------------- ------------------------------
(Signature of Secretary or (Signature of President or
Assistant Secretary) Vice President)
Joseph Khoshabe, Secretary Joseph Khoshabe, President
-------------------------- ---------------------------------
(Type or Print Name (Type or Print Name
and Title) and Title)
6. If amendment is authorized by the incorporators, the incorporators must
sign below.
OR
If amendment is authorized by the directors and there are no officers, then
a majority of the directors or such directors as may be designated by the
board, must sign below.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated___________________, 19 ____
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
__________________________________ __________________________________
<PAGE>
NOTES and INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of the
office of the Secretary of State, BEFORE any amendments herein
reported.
NOTE 2: Incorporators are permitted to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected.
((S) 10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only six
instances, as follows:
(a) to remove the names and addresses of directors named in the
articles of incorporation;
(b) to remove the name and address of the initial registered agent and
registered office, provided a statement pursuant to (S) 5.10 is
also filed;
(c) to split the issued whole shares and unissued authorized shares by
multiplying them by a whole number, so long as no class or series
is adversely affected thereby;
(d) to change the corporate name by substituting the word
"corporation", "incorporated", "company", "limited", or the
abbreviation "corp.", "inc.", "co.", or "ltd." for a similar word
or abbreviation in the name, or by adding a geographical
attribution to the name;
(e) to reduce the authorized shares of any class pursuant to a
cancellation statement filed in accordance with (S) 9.05,
(f) to restate the articles of incorporation as currently amended.
((S) 10.15)
NOTE 4: All amendments not adopted under (S) 10.10 or (S) 10.15 require (1)
that the board of directors adopt a resolution setting forth the
proposed amendment and (2) that the shareholders approve the amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies, then
also at least a 2/3 vote within each class is required).
The articles of incorporation may supercede the 2/3 vote requirement by
specifying any smaller or larger vote requirement not less than a
majority of the outstanding shares entitled to vote and not less than a
majority within each class when class voting applies. ((S) 10.20)
NOTE 5: When shareholder approval is by consent, all shareholders must be given
notice of the proposed amendment at least 5 days before the consent is
signed. If the amendment is adopted, shareholders who have not signed
the consent must be promptly notified of the passage of the amendment.
((SS) 7.10 & 10.20)
The filing fee for articles of amendment - $25.00
The filing fee for restated articles - $100.00.
<PAGE>
UNITED FINANCIAL MORTGAGE CORP.
BY-LAWS
ARTICLE I
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OFFICES
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Section 1. The registered office of the corporation shall be 600
Enterprise Drive, Suite 206, Oak Brook, Illinois 60521.
Section 2. The corporation may also have offices at such other places both
within and without the State of Illinois as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
----------
MEETINGS OF SHAREHOLDERS
-------------------------
Section 1. All meetings of the shareholders for the election of directors
shall be held in the City of Oak Brook, State of Illinois, at such place as may
be fixed from time to time by the board of directors, or at such other place
either within or without the State of Illinois as shall be designated from time
to time by the board of directors and stated in the notice of the meeting.
Meetings of shareholders for any other purpose may be held at such time and
place, within or without the State of Illinois, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of shareholders shall be held on the second
Tuesday of August if not a legal holiday, and if a legal holiday, then the next
secular day following, at 10:00 a.m., or at such other date and time as shall be
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date,
and hour of the meeting shall be given to each shareholder entitled to vote at
such meeting not less shareholders who have not consented in writing.
<PAGE>
than ten or more than sixty days before the date of the meeting, or, if the
purpose of such meeting shall include a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty nor more
than sixty days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder who is
present.
Section 5. Special meeting of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of shareholders owning not less than
one-fifth of the capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given to each shareholder entitled to vote at such meeting not less
than ten nor more than forty days before the date of the meeting, or, if the
purpose of such meeting shall be a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty nor more
than sixty days before the date of the meeting.
Section 7. Business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the articles of
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<PAGE>
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
articles of incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the articles of incorporation,
each shareholder shall at every meeting of the shareholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such shareholder, but no proxy shall be voted on after eleven
months from its date of execution, unless the proxy provides for a longer
period.
Section 11. Shares outstanding in the name of another corporation, domestic
or foreign, may be voted by such officer, agent or proxy as the by-laws of such
corporation may prescribe, or, in the absence of such provision, as the board of
directors of such corporation may determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person may be voted by his administrator, executor, court appointed
guardian or conservator, either in person or by proxy without a transfer of such
shares into the name of such administrator, executor, court appointed guardian
or conservator. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
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<PAGE>
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Any number of shareholders may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote or otherwise represent
their shares, for a period not to exceed ten years, by entering into a written
voting trust agreement specifying the terms and conditions of the voting trust,
and by transferring their shares to such trustee or trustees for the purpose of
the agreement. Any such trust agreement shall not become effective until a
counterpart of the agreement is deposited with the corporation at its registered
office. The counterpart of the voting trust agreement so deposited with the
corporation shall be subject to the same right of examination by a shareholder
of the corporation, in person or by agent or attorney, as are the books and
records of the corporation, and shall be subject to examination by any holder of
a beneficial interest in the voting trust, either in person or by agent or
attorney, at any reasonable time for any proper purpose. After the filing of a
copy of the counterpart of the agreement, certificates of stock shall be issued
to the voting trustee or trustees to represent any stock of an original issue so
deposited with him or them, and any certificates of stock so transferred to the
voting trustee or trustees shall be surrendered and cancelled and new
certificates therefor shall be issued to the voting trustee or trustees. In the
certificates so issued it shall be stated that they are issued pursuant to such
agreement, and that fact shall also be stated in the stock ledger of the
corporation.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
Section 12. Any action required to be taken at any annual or special
meeting of shareholders of the corporation, or any action which may be taken at
any annual or special meeting of such shareholders, may be taken without a
meeting, without a vote, if five days' prior notice of the proposed action is
given in writing to all shareholders entitled to vote with respect thereto, and
if a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those
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<PAGE>
shareholders who have not consented in writing.
Section 13. Voting on any question or in any election may be voice unless
the presiding officer shall order or any shareholder shall demand that voting
be by ballot.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. The number of directors which shall constitute the whole board
shall be up to five (5). The directors shall be elected at the annual meeting of
the shareholders, except as provided in Section 2 of this Article, and each
director elected shall hold office until his successor is elected and qualified.
Directors need not be shareholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by election at an
annual meeting or at a special meeting of shareholders called for that purpose.
A director elected to fill a vacancy shall serve until the next annual meeting
of shareholders.
Section 3. The business of the corporation shall be managed by or under
its board of directors which may exercise all such powers of the corporation and
do all such lawful acts and things as are not by statute or by the articles of
incorporation or by these by-laws directed or required to be exercised or done
by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Illinois.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
shareholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the shareholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided
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<PAGE>
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
At such first meeting of the board of directors, the directors shall elect
a Chairman of the Board of Directors, whose function it shall be to preside at
all meetings of the board of directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the president on
five days' notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of one of the directors.
Section 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the articles of incorporation. If a quorum shall not be present at
any meeting of the board of directors the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. Directors may participate in a regular
or special meeting of the board of directors by means of conference telephone or
similar communications equipment by means of which all other directors
participating in the meeting can hear each other, and participation in a meeting
pursuant to this method shall constitute presence in person at such meeting.
Section 9. Unless otherwise restricted by the articles of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Section 10. A director of the corporation who is present at a meeting of
the board of directors at which action on any corporate matter is taken shall be
conclusively presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the
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<PAGE>
corporation immediately after the adjournment of the meeting. Such rights to
dissent shall not apply to a director who voted in favor of such action.
COMMITTEES OF THE BOARD OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a majority
of the whole board designate an executive committee, such committee to consist
of two or more of the directors as alternate members of the committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. The executive committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but the executive committee shall
not have the power or authority in reference to amending the articles of
incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the shareholders a
dissolution of the corporation or a revocation of a dissolution, amending the
bylaws of the corporation or authorizing or performing any other act which by
statute, the articles of incorporation or these bylaws is reserved to the board
of directors, the shareholders or both.
Section 12. The executive committee shall keep regular meeting minutes of
its meetings and report the same to the board of directors when required.
Section 13. The board of directors may, by resolution passed by a majority
of the board, designate such other committees of the board of directors as the
board shall deem appropriate from time to time. Such committees may include a
compensation committee, finance committee, stock option plan committee and
employee benefits committee and such other committees as the board may designate
from time to time. The membership of those committees shall be in accordance
with the terms and conditions of a board of directors resolution establishing
said committee or as otherwise provided by law.
COMPENSATION OF DIRECTORS
Section 14. Unless otherwise restricted by the articles of incorporation,
the board of directors shall have the authority to fix the compensation of
directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the board of directors and may be paid a fixed sum from
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving
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<PAGE>
compensation therefor. Members of the executive committee may be allowed like
compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
articles of incorporation or of these by-laws, notice is required to be given to
any director or shareholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
shareholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the articles of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the articles of incorporation or
these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each annual
meeting of shareholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
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<PAGE>
Section 4. The salaries of all officers and agents of the corporation shall
be fixed by the board of directors and no officer or agent shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the board
of directors may be removed at any time, with or without cause, by affirmative
vote of a majority of the board of directors. Any vacancy occurring in any
office of the corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of shareholders, shall have general
and active management of the business of the corporation and shall see that all
orders and resolutions of the board of directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his inability
or refusal to act, the vice-president (or in the event there be more than one
vice-president, the vice-presidents in the order designated, or in the absence
of any designation, then in the order of their election) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The vice-presidents shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
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<PAGE>
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for committees of the board
when required. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporation seal of the corporation and he, or an assistant secretary, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribed.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
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Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
ARTICLE VI
----------
INDEMNIFICATION
---------------
Section 1. The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
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<PAGE>
Section 2. The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 4. Any indemnification under Sections 1 and 2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 1 and 2. Such determination shall be made (1)
by the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.
Section 5. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the board of directors in
the specific case upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount
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<PAGE>
unless it shall ultimately be determined that he is entitled to be indemnified
by the corporation as authorized in this Article.
Section 6. The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article VI.
Section 8. If the corporation has paid indemnity or has advanced expenses
to a director, officer, employee or agent pursuant to this Article VI, then, and
in such event, the corporation shall report such indemnification or advance in
writing to the shareholders of the corporation with or in advance of the notice
of the next succeeding shareholders' meeting.
Section 9. For purposes of this Article VI, references to the "corporation"
shall include, in addition to the surviving corporation, any merging corporation
(including any corporation having merged with a merging corporation) absorbed in
a merger which, if its separate existence had continued, would have had the
power and authority to indemnify its directors, officers, employees or agents,
so that any person who was a director, officer, employee or agent of such
merging corporation, or was serving at the request of such merging corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VI with respect to the surviving corporation as
such person would have with respect to such merging corporation if its separate
existence had continued.
Section 10. For purposes of this Article VI, references to "other
enterprises" shall include, without limitation, employee benefit plans;
references to "fines" shall
-13-
<PAGE>
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries. A person who acted in good faith and in a manner
he or she reasonably believed to be in the best interests of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article VI.
ARTICLE VII
-----------
CERTIFICATES OF STOCK
---------------------
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the board of directors or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
-----------------
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum
-14-
<PAGE>
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
TRANSFERS OF STOCK
------------------
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
------------------
Section 5. In order that the corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall be not less than ten nor more than sixty days before the date of
such meeting, or, if the purpose of such meeting shall be a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of assets,
not less than twenty nor more than sixty days before the date of the meeting,
nor more than sixty days prior to any other action. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
REGISTERED SHAREHOLDERS
-----------------------
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any othe r
-15-
<PAGE>
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Illinois.
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
CONTRACTS
---------
Section 1. In the absence of fraud, no contract or other transaction
between the corporation and any other corporation, and no act of the
corporation, shall in any way be invalidated or otherwise affected by the fact
that any one or more of the directors of the corporation are pecuniarily or
otherwise interested in, or are directors or officers of, such other
corporation. Any director of the corporation individually, or any firm or
association of which any director may be a member, may be a party to, or may be
pecuniarily or otherwise interested in, any contract or transaction of the
corporation, provided that the fact that he individually or such firm or
association is so interested shall be disclosed or shall have been known to the
board of directors of the corporation or a majority thereof; and any director
of the corporation who is also a director or officer of such other corporation
or who is so interested, may be counted in determining the existence of a quorum
at any meeting of the board of directors or of any committee of the corporation
which shall authorize any such contract or transaction and may vote thereat to
authorize any such contract or transaction, with like force and effect as if he
were not such director or officer of such other corporation or not so
interested. Any contract, transaction or act of the corporation or of the
directors or any committee which shall be ratified by a majority of a quorum of
the shareholders having voting powers at any annual meeting, or at any special
meeting called for such purpose, shall, so far as permitted by law and by the
certificate of incorporation, be as valid and as binding as though ratified by
every shareholder of the corporation.
DIVIDENDS
---------
Section 2. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
-16-
<PAGE>
Section 3. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
----------------
Section 4. The board of directors shall present at each annual meeting,
and at any special meeting of the shareholders when called for by vote of the
shareholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
------
Section 5. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
------------
Section 6. The fiscal year of the corporation shall begin on the 1st day
of May and shall end on the 30th day of April in each year.
SEAL
----
Section 7. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Illinois". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
-17-
<PAGE>
ARTICLE IX
----------
AMENDMENTS
----------
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the board of directors, unless such power is reserved
to the shareholders by the articles of incorporation, at any regular meeting of
the board of directors or at any special meeting of the board of directors, if
notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such special meeting.
-18-
<PAGE>
Robert S. Luce
Attorney at Law
855 Sterling Road
Suite 180
Palatine, Illinois 60067
(708) 776-9729 Fax (708) 776-9810
April 10, 1997
United Financial Mortgage Corp.
600 Enterprise Drive
Suite #206
Oak Brook, Illinois 60521
Ladies and Gentlemen:
The undersigned has acted as legal counsel for United Financial Mortgage
Corp. (the "Company"), a corporation organized under the laws of the State of
Illinois, with respect to a Form SB-2 Registration Statement, (the "Registration
Statement"), filed by the Company in connection with the registration under the
Securities Act of 1933, as amended (the "Act") of the following securities: (i)
up to 920,000 shares of Common Stock; (ii) an underwriter's warrant for up to
92,000 shares of Common Stock; (iii) Class A Warrants; and (iv) up to 92,000
shares of Common Stock as contained in the Underwriter's Warrant (the Common
Stock and the Warrant described above are collectively referred to herein as the
"Registered Securities").
As legal counsel for the Company, the undersigned examined, among other
things, such state laws and executed originals and/or photostatic copies,
certified or otherwise identified to my satisfaction as being true copies of
such documents, certificates and records as the undersigned deemed necessary and
appropriate for the purpose of preparing this opinion letter. As to various
questions of fact material to this opinion letter, where relevant facts were not
independently established, I have relied upon statements of officers of the
Company.
I have assumed the authenticity of all documents submitted to me as
originals, the conformity to original documents of all documents submitted to me
as certified or photostatic copies, and the authenticity of the originals of
such copies. The undersigned has assumed that all signatories were and are
legally competent to execute and deliver the documents executed by each of them.
<PAGE>
Based upon and subject to the foregoing, and in reliance thereon, and
subject to the qualifications hereinafter expressed, the undersigned is of the
opinion that the Registered Securities have been duly and validly authorized for
issuance and, when issued as described in the Registration Statement, will be
validly issued, fully paid, and nonassessable. I hereby consent to the inclusion
of this opinion letter as part of the Registration Statement.
My opinions are limited to the specific issues addressed and are limited
in all respects to laws and facts existing on the date herof. By rendering my
opinion letter, I do not undertake to advise you of any changes in such laws or
facts which may occur or come to my attention after the date hereof.
The foregoing opinions are furnished to you at your request. They are
solely for your benefit and may not be relied upon by any other party without
the prior written consent of the undersigned.
Very truly yours,
/s/ Robert S. Luce
-----------------------
Robert S. Luce
<PAGE>
EXHIBIT 7
Form of Transfer Agent and Registrar Agreement between the
Registrant and Corporate Stock Transfer, Inc.,
including a specimen form of Common Stock Certificate
<PAGE>
[LOGO OF Corporate Stock Transfer]
Resolution of Appointment
- --------------------------------------------------------------------------------
CERTIFIED COPY OF RESOLUTION
OF APPOINTMENT OF THE
BOARD OF DIRECTORS
OF
United Financial Mortgage Corp.
- --------------------------------------------------------------------------------
(Name of Company)
RESOLVED:
I. That Corporate Stock Transfer, Inc., (a Colorado corporation), ("CST")
be and hereby is appointed Transfer Agent and Registrar of the following shares
of the stock of United Financial Mortgage Corp., an Illinois corporation, the
"Corporation". Units consisting of one (1) share of Common Stock, no par value
and Class A Redeemable Common Stock Purchase Warrant
Class of Stock and Par Value Shares Covered by this Agreement
- --------------------------------------------------------------------------------
II. That CST be and hereby is authorized to issue, register, and
countersign certificates of said stock of this Corporation in such names and for
such numbers of shares up to the full amount of such stock which is authorized
but unissued and to deliver such certificates as may be directed by resolution
of the Board of Directors or by written order of the President or a Vice
President and Secretary or Assistant Secretary or Treasurer and an opinion of
counsel in form and substance satisfactory to it and such other documentation as
it may require.
III. That CST be and hereby is authorized to accept for transfer and
registration any outstanding certificates of said stock of this Corporation
properly endorsed and stamped as required by law, and to issue, register and
countersign new certificates for a like number of shares of the same class of
stock in place thereof and to deliver such new certificates.
IV. That CST may use its own judgment in matters affecting its duties
hereunder and shall be liable only for its own willful default or negligence,
and that this Corporation indemnify and hold harmless CST for each act done by
it in good faith in reliance upon any instrument or stock certificate believed
by it to be genuine and to be signed, countersigned or executed by any person or
persons authorized to sign, countersign or execute the same.
V. That any certificates of the said stock issued, registered and
countersigned by CST shall bear the actual or facsimile signature of the present
or any future President, or Vice President and the Secretary or Asst. Secretary
or __________ and the actual or facsimile seal of this Corporation. Should any
officer die, resign or be removed from office prior to the issuance of any
certificates of stock which bear his signature, CST may continue, until written
notice to the contrary is received, to issue and register such certificates as
and for the stock certificates of this Corporation notwithstanding such death,
resignation or removal, and such certificates when issued, and registered shall
continue to be and to constitute valid certificates of stock of this
Corporation.
VI. That CST shall issue and register a new certificate or certificates of
said stock in lieu of lost, destroyed or stolen certificate or certificates of
such stock upon the order of the Corporation, evidenced by a certified copy of a
resolution of the Board of Directors, or written direction of the President or a
Vice President or Secretary or Treasurer, and upon the giving of a bond
satisfactory to CST, protecting it from any loss.
VII. That CST is authorized and directed to open and maintain such ledgers
and other books and to keep such records as may be required or deemed advisable
in the performance of its agency.
VIII. That this appointment and the authorizations contained in these
resolutions shall cover and include any additional shares of said class of stock
which may hereafter be authorized by the Corporation.
IX. That when certificates of this Corporation's stock shall be presented
to it for transfer and registration, CST is hereby authorized to refuse to
transfer and register the same until it is satisfied that the requested transfer
is legally in order; and it shall incur no liability for the refusal, in good
faith, to make transfers which it, in its judgment, deems improper or
unauthorized. CST must rely upon the Uniform Commercial Code in effecting
transfers, or delaying or refusing to effect transfers.
<PAGE>
[LOGO OF Corporate Stock Transfer]
Indemnity Agreement
- --------------------------------------------------------------------------------
AGREEMENT TO INDEMNIFY TRANSFER AGENT
IN CONSIDERATION of Corporate Stock Transfer, a Colorado corporation
("CST"), to act as Transfer Agent and Registrar for United Financial Mortgage
Corp., an Illinois corporation ("Corporation"), Corporation assumes full
responsibility and agrees to indemnify and save harmless CST from and against
all liabilities, losses, damages, costs, charges, counsel fees and other
expenses of every kind, nature and character, which CST may incur as a result of
acting as Corporation's "Transfer Agent and Registrar."
The responsibility of the Corporation to indemnify, hold harmless and
contribute as herein provided is limited to acts which were conducted by CST in
good faith.
CST may request Corporation to post collateral which is sufficient in the
opinion of CST or its counsel to secure this indemnity agreement. CST shall not
be under any obligation to prosecute or to defend any action or suit in respect
to the Transfer Agent and Registrar relationship between CST and the Corporation
which, in the opinion of CST's counsel, may involve an expense or liability on
behalf of or against CST, unless the Corporation shall, when such occasion
arises, furnish CST with satisfactory security for such expense or liability.
Additionally, Corporation grants CST the following rights and remedies:
1. Right of contribution to CST by Corporation for amounts paid to
third parties, based on an act or acts of CST as Transfer Agent and
Registrar;
2. CST may request opinion of counsel when CST requires, relative to
any matter which may arise in the performance of CST's duties as
Corporation's Transfer Agent and Registrar, which opinion shall be
at the expense of the Corporation;
3. A security interest in any books and records of Corporation which
are in the possession of CST; and
4. Right to obtain for Corporation any books, records, or memoranda
which are required by CST in defense of any claim which may arise
in the performance of CST's duties as Transfer Agent and Registrar.
Dated this 3rd day of December, 1993.
ATTEST: United Financial Mortgage Corp.
------------------------------------
(Company Name)
/s/ Joseph Khoshabe By /s/ Joseph Khoshabe
------------------------------- ---------------------------------
Joseph Khoshabe Secretary Joseph Khoshabe President
Republic Plaza 370 17th Street/Suite 2350 Denver, CO 80202-4614
Telephone (303) 595-3300 Fax (303) 595-0821
<PAGE>
X. That when CST deems it expedient it may apply to this Corporation, or
the counsel for this Corporation, or to its own counsel for instructions and
advice; that this Corporation will promptly furnish or will cause its counsel to
furnish such instructions and advice, and, for any action taken in accordance
with such instructions or advice, or in case such instructions and advice shall
not be promptly furnished as required by this resolution, this Corporation will
indemnify and hold harmless CST from any and all liability, including attorney's
fees and court costs. CST may, at its discretion, but shall have no duty to
prosecute or defend any action or suit arising out of authorizations hereby
granted unless this Corporation shall, when requested, furnish it with funds or
the equivalent to defray the costs of such prosecution or defense.
XI. That CST may deliver from time to time at its discretion, to this
Corporation, for safekeeping or disposition by this Corporation in accordance
with law, such records accumulated in the performance of its duties as it may
deem expedient, and this Corporation assumes all responsibility for any failure
thereafter to produce any paper, record or document so returned if, and when,
required.
XII. That CST is authorized to forward certificates of Stock, Scrip and
Warrants of this Corporation issued on transfer or otherwise by first class mail
under a blanket bond of indemnity covering the non-receipt of such Stock, Scrip
and Warrants by any of the stockholders of this Corporation, in which bond this
Corporation and CST are directly or indirectly named as obligees:
That in the event of non-receipt by any stockholder of this Corporation of
certificates of Stock, Scrip and Warrants so mailed. CST is authorized to issue
and register new certificates of said Stock, Scrip and Warrants for a like
amount in place thereof, upon receipt from the stockholders of an affidavit and
proof of loss provided for under said blanket bond and the issuance by the
Surety Company of an assumption of the loss under said blanket bond, all without
further action or approval of the Board of Directors or the officers of this
Corporation.
XIII. That the proper officers of this Corporation be and they hereby are
authorized and directed to deliver to CST a sufficient supply of blank stock
certificates and to renew such supply from time to time upon request of CST and
to pay CST its prevailing fees and reimburse it for disbursements incurred by it
when and as the same are billed to this Corporation, which, to the extent such
fees and disbursements remain unpaid, hereby grants to CST a lien on the books,
records and other property of this Corporation in the custody or possession of
CST.
XIV. That CST is hereby authorized without any further action on the part
of this Corporation to appoint as successor Transfer Agent and Registrar any
corporation or company which may succeed to the business of CST by merger,
consolidation or otherwise (such corporation or company being hereinafter called
the "Successor"); the Successor to have the same authority and appointment
contained in this resolution as if this Corporation itself had appointed it
Transfer Agent and Registrar. The Successor shall, when appointed, be the Agent
of this Corporation and not an Agent of Corporate Stock Transfer, Inc.
XV. That the Secretary or Assistant Secretary be and hereby are instructed
to certify a copy of these resolutions under the seal of this Corporation and to
lodge the same with CST, together with such certified documents, opinions of
counsel, certificates, specimen signatures of officers and information as CST
may require in connection with its duties to give the Transfer Agent and
Registrar and immediately upon any change therein which might affect CST in its
duties to give the Transfer Agent and Registrar written notice thereof and to
furnish such additional certified documents, certificates, Specimen signatures
of officers and information as CST may require it, being understood and agreed
that CST shall be fully protected and held harmless for the failure of this
Corporation to give proper and sufficient Notice of any such change.
XVI. I have read and understand the Resolution of Appointment and the Fee
Documents. I agree to all terms as stated.
WITNESS my hand and the seal of the Corporation this 3rd day of December, 1993.
--- -------- --
CORPORATE SEAL /s/ Joseph Khoshabe
-----------------------------------------------------
Joseph Khoshabe Secretary
Subscribed and sworn to before me this 3rd day of December, 1993.
--- -------- --
SEAL /s/ Robert S. Luce
--------------------------------
Notary Public
<PAGE>
[LOGO Corporate Stock Transfer]
Certificate of Secretary
- --------------------------------------------------------------------------------
I, Joseph Khoshabe, Secretary of United Financial Mortgage Corp., a
corporation duly organized and existing under the laws of the State of Illinois.
DO HEREBY CERTIFY:
A. That the foregoing is a true copy of a certain Resolution appointing
Corporate Stock Transfer, Inc., a Colorado corporation, as the Corporation's
Transfer Agent and Registrar, duly adopted, in accordance with the By-Laws, by
the Board of Directors of the said Corporation, at, and recorded in the minutes
of a meeting of the said Board duly held on December 3, 1993, and of the whole
of the said Resolution, and that the said Resolution has not been rescinded or
modified.
B. That, accompanying this Certificate are:
(1) A copy of the Charter or Certificate of Incorporation of the said
Corporation, with all amendments to date, duly certified under
official seal by the Secretary of State of the State of
Incorporation or other appropriate official;
(2) A true and complete copy of the By-Laws of the said Corporation, as
at present in force;
(3) A signature card bearing the names and specimen signatures of all
the officers of the said Corporation;
(4) Specimens of certificates of each denomination and class of stock of
the said Corporation in the form adopted by the said Corporation;
and
(5) An opinion by counsel for the Corporation covering the validity of
the Corporation's organization and continuing existence, the
adoption of the forms of stock certificates by the Board of
Directors of the Corporation, the validity of the outstanding shares
referred to in the above-mentioned Resolution and their registration
or exemption from registration under the Securities Act of 1933, as
amended.
(6) A list of stop transfer orders in effect against outstanding
certificates showing the reasons such stop transfer orders were
placed and describing any certificates issued as replacements for
those reported lost, stolen or destroyed.
(7) A copy, certified by the President of the Corporation, of the
Agreement to Indemnify Transfer Agent.
(8) A copy of the Form of Resolution for use of Blanket Transfer Agent
Bond of Indemnity for lost, stolen, etc., stock.
C. That the total authorized stock of the said Corporation is 25,000,000
shares, divided into
20,000,000 Shares of Common Stock of No Par Value each;
5,000,000 Shares of Preferred Stock of No Par Value each;
__________ Shares of _________ Stock of ______ Par Value each;
That of the said authorized stock, there are now issued:
4,200,420 Shares of the said Common Stock
100 Shares of the said Preferred Stock
__________ Shares of the said _________ Stock
Republic Plaza 370 17th Street/Suite 2350 Denver, CO 80202-4614
Telephone (303) 595-3300 Fax (303) 595-0821
<PAGE>
That such issue has been duly authorized, and that all of the said shares are
fully paid.
D. That the CUSIP number of the Corporation is To be applied for (TBA)
---------------------------
E. That the Corporation's IRS Employer Identification Number is 36-3440533
----------
F. That the Corporation's 1933 Act SEC File Number is TBA
--------------------
G. That the Corporation's 1934 Act SEC File Number is TBA
--------------------
H. That the following persons are duly elected and qualified officers of
the Corporation, presently holding the offices indicated, and that their
signatures as shown below are genuine:
TITLE NAME AND ADDRESS SIGNATURE
Chairman of the Board Joseph Khoshabe /s/ Joseph Khoshabe
----------------------------------------------------------
President Joseph Khoshabe /s/ Joseph Khoshabe
----------------------------------------------------------------------
Vice President
-----------------------------------------------------------------
Vice President
-----------------------------------------------------------------
Secretary Joseph Khoshabe /s/ Joseph Khoshabe
----------------------------------------------------------------------
Asst. Secretary
----------------------------------------------------------------
Treasurer Joseph Khoshabe /s/ Joseph Khoshabe
----------------------------------------------------------------------
Asst. Treasurer
----------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Counsel Robert S. Luce, Esq.
------------------------------------------------------------------------
Address 1250 W. Northwest Highway, Suite #720, Palatine, Illinois 60067
---------------------------------------------------------------------
Telephone No. (708) 776-9729 Fax: (708) 776-9810
--- ---------------------------------------------
Address of the Corporation 600 Enterprise Drive, Suite #204, Oak Brook,
---------------------------------------------------
Illinois 60521
--------------
Telephone No. (708) 571-7222 Fax: (708) 571-7296
--- --------------------------------------------------------
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
said Corporation this 3rd day of December, 1993.
(CORPORATE SEAL) /s/ Joseph Khoshabe
-------------------------------------------------------------
Joseph Khoshabe Secretary
<PAGE>
[LOGO Corporate Stock Transfer]
Bond of Indemnity
- --------------------------------------------------------------------------------
RESOLUTION FOR BOND OF INDEMNITY
CERTIFICATE OF SECRETARY
I, Joseph Khoshabe, Secretary of United Financial Mortgage Corp., a
corporation duly organized and existing under the laws of the State of Illinois,
hereby certify that the following is a true and correct extract from the minutes
of a meeting of the Board of Directors duly called and held on the 3rd day of
December, 1993, at which a quorum was present and voting throughout:
"WHEREAS, Corporate Stock Transfer, Inc., a Transfer Agent (hereinafter
called the "Transfer Agent") for the following described stock of this
corporation:
PAR VALUE CLASS
NONE COMMON STOCK
NONE PREFERRED STOCK
NONE CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
may be called upon from time to time to issue replacements for certificates
of such stock which have been reported lost, destroyed, mutilated or
stolen, and the Transfer Agent may be called upon from time to time to
transfer such stock registered in the names of decedents whose estates are
not to be administered under the jurisdiction of a court; and
"WHEREAS, from time to time it may become necessary and appropriate for the
Transfer Agent to proceed with the replacement of lost, destroyed,
mutilated or stolen stock certificates outside of its arrangement with the
Surety Company, now therefore, be it
"RESOLVED, that in case application shall be made to the Transfer Agent for
the replacement of certificates of any of the above-described stock of this
corporation which have been reported lost, destroyed, mutilated or stolen,
or in case application be made to the Transfer Agent for the transfer of
such stock registered in the name of a decedent whose estate is not to be
administered under the jurisdiction of a court, the Transfer Agent is
authorized to proceed with such replacement and/or transfer, and the
Registrar for such stock, is authorized to register the newly issued
certificates, all without further authority from this Board, upon the
condition that a properly executed copy of the applicable Exhibit or
Exhibits called for by the Bond shall have been filed with this
corporation; and
"FURTHER RESOLVED, that the Transfer Agent is hereby authorized to issue,
and the Registrar to register stock certificates to replace those which may
be lost, destroyed, mutilated or stolen upon being furnished with a proof
of such loss, destruction, mutilation or theft and indemnity satisfactory
to them in a form other than that provided by the Surety Company, which
indemnity shall include this corporation as an obligee; and
"FURTHER RESOLVED, that these resolutions shall remain in full force and
effect until written notice of revocation thereof has been given by this
corporation to the Transfer Agent and to the Registrar."
IN WITNESS WHEREOF, I have hereunto affixed my signature and the seal of
the corporation this 3rd day of December, 1993.
/s/
--------------------------------------
Secretary of
CORPORATE SEAL --------------------------------------
<PAGE>
[CORPORATE STOCK TRANSFER LOGO]
Addendum to Fee Schedule
- --------------------------------------------------------------------------------
COMPANY NAME: UNITED FINANCIAL MORTGAGE CORP.
------------------------------------------------------------------
OFFICER: Joseph Khoshabe
------------------------------------------------------------------
ON BEHALF OF, United Financial Mortgage Corp. I would like for Corporate Stock
Transfer to put into effect their "fee option" of a $1.00 credit per transfer,
thus by doing so, help offset our company's monthly maintenance charges.
SIGNED: /s/ Joseph Khoshabe
------------------------------------------------------------------
DATED: December 3, 1993
------------------------------------------------------------------
Republic Plaza 370 17th Street/Suite 2350 Denver, CO 80202-4614 Telephone
(303)595-3300 Fax (303) 595-0821
<PAGE>
[CORPORATE STOCK TRANSFER LOGO]
Addendum to Fee Schedule
- --------------------------------------------------------------------------------
COMPANY NAME: UNITED FINANCIAL MORTGAGE CORP.
------------------------------------------------------------------
OFFICER: Joseph Khoshabe
------------------------------------------------------------------
ON BEHALF OF, United Financial Mortgage Corp. I would like for Corporate Stock
Transfer to put into effect their "fee option" of a $1.00 credit per transfer,
thus by doing so, help offset our company's monthly maintenance charges.
SIGNED: /s/ Joseph Khoshabe
------------------------------------------------------------------
DATED: December 3, 1993
------------------------------------------------------------------
Republic Plaza 370 17th Street/Suite 2350 Denver, CO 80202-4614 Telephone
(303)595-3300 Fax (303) 595-0821
<PAGE>
[CORPORATE STOCK TRANSFER LOGO]
Signatures
- --------------------------------------------------------------------------------
SIGNATURES FOR STOCK CERTIFICATES
(White Paper, and black ink)
/s/ Joseph Khoshabe
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PRESIDENT
/s/ Joseph Khoshabe
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SECRETARY
1675 Broadway/Suite 1480 Denver, CO 80202-4614 Telephone (303) 595-3300
Fax (303) 595-0821
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[LOGO OF UNITED FINANCIAL MORTGAGE CORP.]
NUMBER United Financial SHARES
MORTGAGE CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
SEE REVERSE FOR
CERTAIN DEFINITIONS
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CUSIP
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This Certifies that
is the owner of
Fully Paid and Non-Assessable Shares of the Common Stock,
No Par Value Per Share, of
UNITED FINANCIAL MORTGAGE CORP.
transferable on the books of the Corporation by the holder himself in person or
by duly authorized attorney upon the surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Articles of Incorporation, as
amended, to all of which the holder by acceptance hereof asserts. This
Certificate is not valid unless countersigned by a Transfer Agent and registered
by the Registrar.
Witness, the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[CORPORATE SEAL] /s/ Joseph Khoshabe
PRESIDENT/SECRETARY
Illinois United Financial Mortgage Corp.
COUNTERSIGNED:
CORPORATE STOCK TRANSFER, INC.
370 - 17th Street, Suite 2350, Denver, Colorado 80202
By:
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Transfer Agent and Registrar Authorized Officer
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UNITED FINANCIAL MORTGAGE CORP.
Corporate Stock Transfer, Inc.
Transfer Fee: $10.00 Per Certificate
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws of regulations:
TBN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ............... Custodian for ..............
(Cust.) (Minor)
under Uniform Gifts to Minors
Act of .......................................
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To be executed by the registered holder if he desires to assign Warrants
evidenced by the within Warrant Certificate)
FOR VALUE RECEIVED __________________________________________ hereby sells,
assigns and transfers unto _________________________________ Warrants, evidenced
by the within Warrant Certificate, and does hereby irrevocably constitute and
appoint _______________________________________________ Attorney to transfer the
said Warrants evidenced by the within Warrant Certificate on the books of the
Company, with full power of substitution.
Dated: _________________________ _________________________________________
Signature
NOTICE: The above signature must correspond with the name as written upon
the face of the within Warrant certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signature Guaranteed: _________________________________________
FORM OF ELECTION TO PURCHASE
(To be executed by the holder if he desires to exercise Warrants
evidenced by the within Warrant Certificate)
To Employee Solutions, Inc.:
The undersigned hereby irrevocably elects to exercise ___________ Warrants,
evidenced by the within Warrant Certificate for, and to purchase thereunder,
_____________________ full shares of Common Stock issuable upon exercise of said
Warrants and delivery of $________________ and any applicable taxes.
The undersigned requests that certificates for such shares be issued in the
name of:
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(Please print name and address)
PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER ________________
If said numbers of Warrants shall not be all the Warrants evidenced by the
within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be issued in the name of
and delivered to:
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- --------------------------------------------------------------------------------
(Please print name and address)
Dated: _________________________ _________________________________________
Signatures
NOTICE: The above signature must correspond with the name as written upon
the face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by any other
person, the Form of Assignment hereon must be duly executed and if the Warrant
Certificate representing Warrants not exercised is to be registered in a name
other than that in which the within Warrant certificate is registered, the
signature of the holder hereof must be guaranteed.
Signature Guaranteed: _________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
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EMPLOYMENT AGREEMENT
FOR
JOSEPH KHOSHABE
United Financial Mortgage Corp., an Illinois corporation, ("Company") and
Joseph Khoshabe ("Employee") in consideration of the mutual obligations and
undertakings contained herein agree as follows:
1. RECITALS.
1.1 The Company wishes to provide for the management of its business and
growth of its mortgage banking activities, and to that end wishes to employ
Employee as its President and Chief Executive Officer, and Employee wishes to
undertake such employment.
1.2 Employee has been president and chief executive officer of the Company
since May 21, 1986 and Employee was reelected President and Chief Executive
Officer by the Board of Directors effective for the fiscal year commencing as of
May 1, 1996.
2. EMPLOYMENT.
2.1 The Company employs Employee as its President and Chief Executive
Officer, and Employee accepts such employment by the Company upon the terms and
conditions set forth in this Agreement.
3. DUTIES.
3.1 Employee's duties shall be to serve as President and Chief Executive
Officer of the Company, to supervise, direct and be responsible for the overall
operation of the business of the Company and in general to perform such duties
and to have such responsibilities as are customary for chief executive officers
of similarly situated businesses. Employee, in performing his duties under this
Agreement, shall be subject to and observe the terms and provisions of the By-
laws of the Company and shall be subject to the direction and control of the
Board of Directors and/or the Shareholders of the Company. The specific scope
and nature of Employee's duties under this Agreement may from time to time be
further defined by the Board of Directors of the Company.
4. COMPENSATION AND BENEFITS.
4.1 Employee shall be paid an initial base salary for the period from March
1, 1997 to February 28, 1998 of Two Hundred and Fifty Thousand Dollars
($250,000.00) per year, payable in installments not less often than monthly
("Base Salary"). The initial base salary shall be increased by ten percent (10%)
per annum for each subsequent fiscal year for the remaining four (4) fiscal
years of this Agreement.
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4.2 Employee shall be reimbursed by the Company for all ordinary and
necessary expenses that Employee may incur in connection with the performance of
his duties under this Agreement, provided, however, that any such reimbursement
shall be conditioned upon Employee's delivery to the Company of all
documentation necessary in order to permit the Company to deduct such expenses
as business expenses in accordance with the provisions of Section 162 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder.
4.3 Employee shall have the right to participate in all group life
insurance, hospitalization insurance, major medical insurance, disability
insurance and retirement plans from time to time offered by the Company to its
employees, subject to the eligibility requirements and other terms and
conditions of such plans. Nothing contained in this Agreement shall, however, be
construed as imposing a duty on the Company to institute any such group plans or
to continue to offer any such group plan which is hereafter offered to its
employees. The Company shall pay all premiums and other charges which become due
in connection with Employee's participation during the term of this Agreement in
any group plan in which Employee is participating pursuant to this Section 4,
including premiums and other charges for participation by members of Employee's
family in such plans where family benefits are provided.
5. VACATION.
Employee shall be entitled to not less than five (5) weeks paid vacation
per year during the term of this Agreement. Employee shall take such vacation at
such time or times as he and the Company shall agree to, but if Employee and the
Company shall be unable to reach an agreement, then Employee shall take such
vacation at such time or times as the Company shall determine.
6. LIFE INSURANCE.
(a) The Company shall continue to maintain throughout the term of this
Agreement, insurance on the life of Employee in the amount of Seven Hundred
Thousand Dollars ($700,000.00). Such insurance is currently in effect with
Jackson National Life Insurance Company for Five Hundred Thousand Dollars
($500,000), and Transamerica Insurance Company for Two Hundred Thousand Dollars
($200,000). Each policy designates the Employee's spouse as the beneficiary.
(b) The Company also may elect to endeavor to acquire "key man" life
insurance on the life of the Employee in such amount as the Board of Directors
of the Company shall determine from time to time. Such "key man" life insurance
shall designate the Company as the beneficiary entitled to receive one hundred
percent (100%) of the life insurance benefits, in the event of Employee's death.
Employee agrees to reasonably cooperate with the Company in its efforts to
obtain and maintain such life insurance, which cooperation shall include
providing necessary information for any application for insurance and submitting
to any physical examinations
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required by a prospective insurer.
7. ADDITIONAL EXECUTIVE BENEFITS.
In addition to any other compensation or benefits payable to Employee
hereunder, Employee shall be entitled to the following Additional Executive
Benefits from the Company as set forth herein:
(a) Automobile Allowance. The Company shall pay Employee an automobile
allowance of Twenty-Five Thousand Dollars ($25,000) per annum, payable to
Employee in equal monthly installments on the first day of each month during the
term of this Agreement. Employee shall be entitled to expend such Automobile
Allowance to: purchase or lease one or more vehicles, pay for repairs, gas, oil
and maintenance, and insurance costs.
(b) Hospitalization/Major Medical and Long-Term Disability. The Company
shall pay the cost of major medical, hospitalization and long-term disability
insurance for the Employee and his eligible dependents during the term of this
Agreement from insurance companies and upon such terms as selected by Employee.
Long-term disability insurance coverage shall not be available to the dependents
of the Employee, unless such dependents are eligible for coverage under such
insurance program.
8. INCENTIVE COMPENSATION.
In addition to the compensation and benefits set forth herein, Employee
shall be paid incentive compensation for each fiscal year of the Company during
the term of this Agreement in an amount equal to ten percent (10%) of any
increase of the Company's net income before taxes as stated in the Company's
statement of income as set forth in the Company's fiscal year end audited
financial statements ("Net Income"). Net Income shall be determined by the
Company's auditors. Incentive compensation shall be paid to Employee on a lump
sum basis within thirty (30) days of the date of the completion of the Company's
audited financial statements for each fiscal year. For the purposes of
determining Employee's eligibility to receive incentive compensation, net
operating revenues for the fiscal year ended April 30, 1998, shall be compared
with the Company's net operating revenues for the Company's fiscal year ended
April 30, 1997, and the same comparison shall be made for each succeeding fiscal
year during the term of this Agreement.
9. TERM.
Subject to the provisions for termination contained herein, this
Agreement shall have a term of five (5) years commencing from the effective date
of a prospectus relating to a public offering of the Company's securities.
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10. TERMINATION OF EMPLOYMENT.
If, for any reason other than cause (as defined below in this Section
10 Employee's employment shall be terminated by the Company before the term of
employment has been completed, Employee shall be entitled to receive, and the
Company shall be obligated to pay, the base annual salary set forth in Section
4.1 above, for each year (or fraction thereof) of the remaining term of
employment. Employee also shall continue to participate in all plans and
programs of the Company referred to in Sections 4, 6 and 7 hereof, to the extent
that such continued participation is available under the general terms and
provisions of such plans and programs.
Termination by the Company for "cause" shall mean termination by
unanimous action of the Company's Board of Directors and/or Shareholders because
of misconduct by Employee in respect of his obligations under the Agreement.
11. PROPRIETARY INFORMATION AND NON-COMPETITION
11.1 Employee recognizes and acknowledges the value to the Company of his
proprietary information regarding the Company, including business secrets,
methods, processes, formulas, inventions, research, know-how, technical data,
product lists, marketing information, customer list, supplier lists, financial
information and all other proprietary information developed by the Company and
to be developed by the Company in the future conduct of its business (the
"Proprietary Information").
11.2 Employee agrees that the Proprietary Information shall be and remain
the exclusive property of the Company, and that he shall have no rights thereto
or interest therein. Employee agrees that such information is confidential and
shall be deemed proprietary and held confidential and secret by him and not
disclosed by him, whether during or after his employment by the Company, and
Employee agrees that he will not disclose the same to any other person, firm or
corporation whether or not such person, firm or corporation is a competitor of
the Company or otherwise.
11.3 Employee acknowledges and agrees that disclosure by him of any of the
Proprietary Information in violation of the provisions of Section 11.2 of this
Agreement will result in irreparable injury to the Company which will not be
adequately measurable in money damages; that the Company may have no adequate
remedy at law therefor; and that the Company shall be entitled to such
preliminary, temporary or permanent mandatory or restraining injunctions, order
or decrees as may be necessary to protect it against, or on account of, any
breach by Employee of the provisions of Section 11.2 of this Agreement.
11.4 Employee agrees that, upon any termination of his employment by the
Company, Employee shall deliver to the Company all documents, records, note
books and similar material, and any copies thereof, containing any of the
Proprietary Information which is at that time in his possession.
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11.5 These covenants of confidentiality shall survive Employee's
employment relationship with the Company and shall have application throughout
the world.
11.6 During the term of this Agreement and for a period of two (2) years
after any termination of Employee's employment under this Agreement, Employee
shall not:
(a) engage in any business which is directly competitive with the
business of the Company as such is conducted at any time during
the term of this Agreement;
(b) solicit any person, firm or corporation which was or is a
customer of the Company during the term of this Agreement for the
purpose of selling such person, firm or corporation any product
or service competitive with the products or services sold by the
Company during the term of this Agreement;
(c) directly or indirectly attempt to engage, on Employee's behalf or
on behalf of any competitor of the Company, any person who at
that time is an employee of the Company, for the purpose of
employing such person to create or offer products or services in
competition with the products or services offered for sale by the
Company.
11.7 Employee acknowledges and agrees that any violation by him of the
provisions of Section 11.6 above will result in irreparable injury to the
Company which will not be adequately measurable in money damages; that the
Company may have no adequate remedy at law therefor; and that the Company shall
be entitled to such preliminary, temporary or permanent mandatory or restraining
injunctions, orders or decrees as may be necessary to protect it against, or an
account of, any breach by Employee of the provisions of Section 11.6 of this
Agreement.
12. INDEMNIFICATION OF EMPLOYEE.
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The Company shall indemnify Employee to the full extent permitted by
Illinois law against all expenses (including reasonable attorney's fees)
actually and reasonably incurred by Employee in connection with any pending or
threatened action, suit or proceeding (whether civil, criminal, administrative
or investigative) in which Employee is made a party or threatened to be made a
party by reason of the fact that he is or was director, officer or employee of
the Company.
13. NOTICES
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Any notice, request or communication that is required or permitted to
be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given
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if delivered in person, transmitted by telegraph or deposited in the United
States mail, postage prepaid, for mailing first class, either certified or
registered mail, return receipt requested:
If to the Company, addressed to:
United Financial Mortgage Corp.
600 Enterprise Drive
Suite #206
Oak Brook, Illinois 60521
If to Employee, addressed to:
Mr. Joseph Khoshabe
22 Eastings Way
South Barrington, Illinois 60010
or to such other address or addresses as the parties may from time to time
designate to each other in writing. Any written notice given pursuant to this
Agreement shall be deemed to have been given on the date it was delivered,
transmitted or mailed as specified above. The parties shall acknowledge in
writing the receipt of any such notice given in person.
14. ABSENCE OF RESTRICTIONS.
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Employee represents and warrants to the Company that Employee is not
subject to any agreements, conditions or restrictions which would prohibit or
restrict Employee from entering into this Agreement and that by entering into
this Agreement and performing the services to be provided hereunder Employee
will not violate or be in violation of the provisions of any agreement, court
order, statute or law limiting or preventing such acts.
15. SUCCESSORS IN INTEREST.
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The rights of the Company and Employee under this Agreement shall
inure to the benefit of, and the obligations shall be binding upon, their legal
representatives, successors and assigns.
16. WAIVER.
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The waiver by a party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach.
17. AMENDMENT.
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This Agreement may be altered or amended only by a writing signed by
both of the parties.
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18. ARBITRATION.
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All disputes or controversies arising under this agreement shall be
resolved by arbitration with a panel of three arbitrators under the Commercial
Arbitration Rules of the American Arbitration Association to be conducted in the
City of Schaumburg, Illinois.
19. CONSTRUCTION.
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19.1 In this construction of this Agreement, where the context so
requires, each gender shall include all other genders and the singular include
the plural, and vice versa.
19.2 The headings of Sections of this Agreement are intended for
convenience only and shall not be construed to define, limit or amplify the
contents thereof.
19.3 This Agreement shall be governed by, and it and the rights of
the parties shall be construed and determined in accordance with, the laws of
the State of Illinois as in effect for contracts made and to be performed in the
State of Illinois.
19.4 The parties intend that the terms of this Agreement shall be
enforced to the greatest extent permitted by law. If for any reason whatsoever
any one or more provisions of this Agreement shall be finally determined to be
inoperative, unenforceable or invalid, by a court of competent jurisdiction, in
a particular case, such determination shall not render such provision
inoperative, unenforceable or invalid in any other case or render any the other
provisions of this Agreement inoperative, unenforceable or invalid, and to the
extent practicable, provisions determined to be unenforceable shall be
considered to be reformed to the extent necessary to make them enforceable.
20. ENTIRE AGREEMENT.
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This writing contains the final expression of the agreement between
the parties and also is intended as a complete and exclusive statement of the
terms upon which the parties have agreed.
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The parties have executed this Agreement this ____ day of ____________,
1997.
UNITED FINANCIAL MORTGAGE CORP.
By:
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Title:
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By:
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Joseph Khoshabe
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the heading "Experts" and to
the use of our report dated July 24, 1996 in the Registration Statement on Form
SB-2 (Registration No. _________), the related Prospectus of United Financial
Mortgage Corp., and all amendments thereto.
Craig Shaffer & Associates LTD
/s/ Craig Shaffer
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Craig Shaffer
Palatine, Illinois
April 10, 1997
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CONSENT OF COUNSEL
The undersigned hereby consents to the reference to his firm under the
caption "Experts" in the Registration Statement.
/S/ ROBERT S. LUCE
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Robert S. Luce
Palatine, Illinois
April 10, 1997
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1994
NON-QUALIFIED AND INCENTIVE
STOCK OPTION PLAN
OF
UNITED FINANCIAL MORTGAGE CORP.
1. Purpose of the Plan. This 1994 Non-Qualified and Incentive Stock
Option Plan of United Financial Mortgage Corp., an Illinois corporation (the
"Company") adopted on this 15th day of November, 1993, is intended to encourage
officers and key employees of the Company to acquire or increase their ownership
of common stock of the Company on reasonable terms. The opportunity so provided
is intended to foster in participants a strong incentive to put forth maximum
effort for the continued success and growth of the Company to aid in retaining
individuals who put forth such efforts and to assist in attracting the best
available individuals to the Company in the future.
2. Definitions. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Affiliate" means, with respect to any specified person or entity, a
person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person or entity specified.
2.2 "Award" means an Option.
2.3 "Award Agreement" means a written agreement in such form as may be,
from time to time, hereafter approved by the Committee, which shall be duly
executed by the Company and the Employee and which shall set forth the terms and
conditions of an Award under the Plan.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Code" means the Internal Revenue code of 1986, as in effect at the
time of reference, or any successor revenue code which may hereafter be adopted
in lieu thereof, and
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reference to any specific provisions of the Code shall refer to the
corresponding provisions of the Code as it may hereafter be amended or replaced.
2.6 "Committee" means the Stock Option Committee of the Board or any other
committee appointed by the Board whose members meet the requirements for
eligibility to serve, set forth in Section 4, which is invested by the Board
with responsibility for the administration of the Plan.
2.7 "Company" means United Financial Mortgage Corp.
2.8 "Employees" means officers (including officers who are members of the
Board) and other key employees of the Company.
2.9 "Fair Market Value" with respect to the Company's Shares means: (i)
for options granted on or before the effective day of any Registration Statement
the Company may file with the Securities and Exchange Commission an amount based
on an average of fair market value as of the date of grant set forth in the
opinion of such independent well-qualified experts as the Committee may from
time to time select; and (ii) for options granted thereafter, the closing price
of the Shares on the last business day prior to the date of grant on which
transactions in Shares occurred, as reported on such source of quotation for, or
reports of, trading activity in Shares as the Committee may from time to time
select.
2.10 "Incentive Stock Option" means an Option meeting the requirements and
containing the limitations and restrictions set forth in Section 422A of the
Code.
2.11 "Non-Qualified Stock Option" means an Option other than an Incentive
Stock Option.
2.12 "Option" means the right to purchase, at a price and for a term fixed
by the
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Committee in accordance with the Plan, and subject to such other limitations and
restrictions as the Plan and the Committee impose, the number of Shares
specified by the Committee.
2.13 "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, at the time of the granting of
the option, each of the corporations other than the Company owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
2.14 "Plan" means the Company's 1994 Non-Qualified and Incentive Stock
Option Plan.
2.15 "Shares" means shares of the Company's $.01 par value common stock, or
if by reason of the adjustment provisions hereof any rights under an Award under
the Plan pertaining to any other security, such other security.
2.16 "Subsidiary" means any corporation other than the Company in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
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2.17 "Successor" means the legal representative of the estate of a deceased
Employee or the persons who shall acquire the right to exercise an Award by
bequest or inheritance or by reason of the death of the Employee.
2.18 "Term" means the period during which a particular Award may be
exercised.
3. Stock Subject to the Plan. There will be reserved for use, upon the
exercise of Awards to be granted from time to time under the Plan, an aggregate
of 250,000 Shares, which Shares may be, in whole or in part, as the Board shall
from time to time determine, authorized but unissued Shares, or issued Shares
which shall have been reacquired by the Company. Any Shares subject to issuance
upon exercise of Options but which are not issued because of a surrender, lapse,
expiration or termination of any such Option prior to issuance of the Shares
shall once again be available for issuance in satisfaction of Awards.
4. Administration of the Plan. The Board shall appoint the Committee, which
shall consist of not less than three (3) disinterested members of the Board as
defined in Rule 16(b)-3 promulgated pursuant to the Securities Exchange Act of
1934. No member of the Board shall be eligible to serve or continue to serve on
the Committee if, at the time, or at any time during the twelve months preceding
commencement of his service, he is or was eligible to receive an Award under the
Plan or any award under any other employee benefit plan of the Company entitling
him to acquire stock, stock options or stock appreciation rights of the Company.
Subject to the provisions of the Plan, the Committee shall have the full
authority, in its discretion, to determine the Employees to whom Awards shall be
granted, the number of Shares to be covered by each of the Awards, and the terms
of any such Award; to amend or cancel Awards (subject to Section 18 of the
Plan); to accelerate the vesting of Awards; to require the cancellation or
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surrender of any previously granted options under this Plan or any other plan of
the Company as a condition to the granting of an Award; to interpret the Plan;
and to prescribe, amend, and rescind rules and regulations relating to it, and
generally to interpret and determine any and all matters whatsoever relating to
the administration of the Plan and the granting of Awards hereunder. The Board
may, from time to time, appoint members to the Committee in substitution for or
in addition to members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee shall select one of its members as its
Chairman and shall hold its meetings at such times and places as it shall deem
advisable. A majority of its members shall constitute a quorum. Any action of
the Committee may be taken by a written instrument signed by all of the members,
and any action so taken shall be fully as effective as if it had been taken by a
vote of a majority of the members at a meeting duly called and held. The
Committee shall make such rules and regulations for the conduct of its business
as it shall deem advisable and shall appoint a Secretary who shall keep minutes
of its meeting and records of all action taken in writing without a meeting. No
member of the Committee shall be liable, in the absence of bad faith, for any
act or omission with respect to his service on the Committee.
5. Employees to Whom Awards May Be Granted. Awards may be granted in each
calendar year or portion thereof while the Plan is in effect to such of the
Employees as the Committee, in its discretion, shall determine.
In determining the Employees to whom Awards shall be granted and the number
of Shares to be subject to purchase under such Awards, the Committee shall take
into account the duties of the respective Employees, their present and potential
contributions to the success of the Company, and such other factors as the
Committee shall deem relevant in connection with
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accomplishing the purposes of the Plan.
No Award shall be granted to any member of the Committee so long as his
membership on the Committee continues or to any member of the Board who is not
also an officer or key Employee of the Company or any Subsidiary.
6. Stock Options.
6.1 Types of Options. Options granted under this Plan may be (i) Incentive
Stock Options, (ii) Non-Qualified Stock Options, or (iii) a combination of the
foregoing. The Award Agreement shall designate whether an Option is an Incentive
Stock Option or a Non-Qualified Stock Option.
6.2 Option Price. The option price per Share of any Option granted under
the Plan shall not be less than the Fair Market Value of the Shares covered by
the Option on the date the Option is granted.
Notwithstanding anything herein to the contrary, in the event an Incentive
Stock Option is granted to an Employee who, at the time such Incentive Stock
Option is granted, owns, as defined in Section 425 of the Code, stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of:
(i) the Company; or
(ii) if applicable, a Subsidiary; or
(iii) if applicable, a Parent
then the option price per Share of any Incentive Stock Option granted to such
Employee shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares covered by the Option on the date the Option
is granted.
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by the Option on the date the Option is granted.
6.3 Term of Options. Options granted hereunder shall be exercisable for a
Term of not more than ten (10) years from the date of grant thereof, but shall
be subject to earlier termination as hereinafter provided. Each Award Agreement
issued hereunder shall specify the Term of the Option, which Term shall be
determined by the Committee in accordance with its discretionary authority
hereunder.
Notwithstanding anything contained herein to the contrary, in the event an
Incentive Stock Option is granted to an Employee who, at the time such Incentive
Stock Option is granted, owns, as defined in Section 425 of the Code, stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of:
(i) the Company; or
(ii) if applicable, a Subsidiary; or
(iii) if applicable, a Parent
the such Incentive Stock Option shall not be exercisable more than five (5)
years from the date of grant thereof, but shall be subject to earlier
termination as hereinafter provided.
7. Limit on Fair Market Value of Incentive Stock Options. No Employee may
be granted an Incentive Stock Option hereunder to the extent that the aggregate
Fair Market Value (such Fair Market Value being determined as of the date of
grant of the Option) of the stock with respect to which Incentive Stock Options
are exercisable for the first time by such Employee during any calendar year
(under all such plans of such Employee's employer
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corporation and its Parent and Subsidiary corporations) exceeds the sum of One
Hundred Thousand Dollars ($100,000).
8. Date of Grant. The date of grant of an Award granted hereunder shall
be on the date on which the Committee acts in granting the Award.
9. Exercise of Rights Under Awards. An Employee entitled to exercise an
Award may do so by delivery of a written notice to that effect specifying the
number of Shares with respect to which the Award is being exercised and any
other information the Committee may prescribe. The notice shall be accompanied
by payment in full of the purchase price of any Shares to be purchased, which
payment may be made in cash or, with the Committee's approval, in Shares valued
at Fair Market Value at the time of exercise or a combination thereof. No Shares
shall be issued upon exercise of an Option until full payment has been made
therefor. All notices or requests provided for herein shall be delivered to the
Company's president.
10. Award Terms and Conditions. The holder of an Award shall not have nay
of the rights of a stockholder with respect to the Shares subject to purchase
under an Award, except upon the due exercise of the Award.
12. Nontransferability of Awards. An Award shall not be transferable, other
than by will or the laws of descent and distribution, and an Award may be
exercised, during the lifetime of the holder of the Award, only by him.
13. Adjustments Upon Changes in Capitalization. In the event of changes in
all of the outstanding Shares by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations, exchanges of Shares,
separations, reorganizations or liquidations, the number and class of Shares
available under the Plan in the aggregate, the number and classes
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of Shares subject to Awards theretofore granted, applicable purchase prices and
all other applicable provisions, shall, subject to the provisions of the Plan,
be equitably adjusted by the Committee (which adjustment may, but need not,
include payment in cash or in Shares in an amount equal to the difference
between the price at which such Award may be exercised and the then current Fair
Market Value of the Shares subject to such Award as equitably determined by the
Committee). The manner of application of the foregoing provisions shall be
determined by the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional Share which might otherwise become
subject to a Award.
14. Unusual Corporate Events. Notwithstanding anything to the contrary,
in the case of an unusual corporate event such as liquidation, merger,
reorganization (other than a reorganization as defined by Section 368(a)(1)(F)
of the Code), or other business combination, acquisition or change in the
control of the Company through a tender offer or otherwise, the Committee may,
in its sole discretion, determine, on a case by case basis, that each Award
granted under the Plan shall terminate ninety (90) days after the occurrence of
such unusual corporate event. In the event the Committee elects to terminate
such Award, the Committee shall immediately notify the Award holder and the
Award holder shall have the right, commencing at least five (5) days prior to
such unusual corporate event, to immediately exercise any Options in full,
without regard to any vesting limitations, to the extent they shall not have
been exercised.
15. Form of Options. Nothing contained in the Plan nor any resolution
adopted by the Board or the stockholders of the Company shall constitute the
granting of any Award. An Award shall be granted hereunder only by action duly
taken by the Committee in granting an Award. Whenever the Committee shall
designate an Employee for the receipt of an Award, the
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Secretary or the President of the Company, or such other person as the Committee
shall appoint, shall forthwith send notice thereof to the Employee, in such form
as the Committee shall approve, stating the number of Shares subject to Award,
its Term, and the other terms and conditions thereof. The notice shall be
accompanied by a written Award Agreement in such form as may from time to time
hereafter be approved by the Committee, which shall have been duly executed by
or on behalf of the Company. If the surrender of previously issued Awards is
made a condition of the grant, the notice shall set forth the pertinent details
of such condition and the written Award Agreement executed by or on behalf of
the Company shall be delivered to the Employee on the date such surrender is
made, but it shall be dated as of the date on which the Committee designated the
Employee to receive an Award hereunder. Execution by the Employee to whom such
Award is granted of said Award Agreement in accordance with the provisions set
forth in this Plan shall be a condition precedent to the exercise of any Award.
16. Taxes. The Company shall have the right to require a person entitled to
receive Shares pursuant to the exercise of an Award under the Plan to pay the
Company the amount of any taxes which the Company is or will be required to
withhold with respect to such Shares before the certificate for such Shares is
delivered pursuant to the Award. Furthermore, the Company may elect to deduct
such taxes from any other amounts payable then or at any time thereafter, to the
Employee. If the Employee disposes of Shares acquired pursuant to an Incentive
Stock Option in any transaction considered to be a qualifying transaction under
Section 421 and 422A of the Code, the Company shall have the right to deduct any
taxes required by law to be withheld from any amounts otherwise payable to the
Employee.
17. Termination of Plan. The Plan shall terminate ten (10) years from the
date hereof,
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and an Award shall not be granted under the Plan after that date although the
terms of any Awards may be amended at any date prior to the end of its Term in
accordance with the Plan. Any Awards outstanding at the time of termination of
the Plan shall continue in full force and effect according to the terms and
conditions of the Award and this Plan.
18. Amendment of the Plan. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall:
(a) increase the number of Shares as to which Options may be granted
under the Plan;
(b) expand or change the class of persons eligible to receive Awards;
(c) permit the purchase price of Shares subject to an Option granted
under the Plan to be less than the Fair Market Value of such
Shares at the time the Option is granted;
(d) extend the term of the Plan; or
(e) materially increase the benefits to the Employees under the Plan.
Notwithstanding anything to the contrary contained herein, no amendment or
cancellation of the Plan or any Award granted under the Plan shall alter or
impair any of the
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rights or obligations of any person, without his consent, under any Award
theretofore granted under the Plan.
19. Delivery of Shares on Exercise. Delivery of certificates for Shares
pursuant to an Award exercise may be postponed by the Company for such period as
may be required for it, with reasonable diligence, to comply with any applicable
requirements of any federal, state or local law or regulation or any
administrative or quasi-administrative requirements applicable to the sale,
issuance, distribution or delivery of such Shares.
20. Fees and Costs. The Company shall pay all original issue taxes on the
exercise of any Award granted under the Plan and all other fees and expenses
necessarily incurred by the Company in connection therewith.
21. Effectiveness of the Plan. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the Company's
shareholders for approval and unless the Plan is approved by the affirmative
votes of the holders of Shares having a majority of the voting power of all
Shares represented at a meeting duly held in accordance with Illinois law within
twelve (12) months after being approved by the Board, the Plan and all Awards
made under it shall be void and of no force and effect.
22. Other Provisions. As used in the Plan, and in Awards and other
documents prepared in implementation of the Plan, references to the masculine
pronoun shall be deemed to refer to the feminine or neuter, and references in
the singular or the plural shall refer to the plural or the singular, as the
identity of the person or persons or entity or entities being referred to may
require. The captions used in the Plan, in the Awards and other documents
prepared
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in implementation of the Plan are for convenience only and shall not affect the
meaning of any provision hereof or thereof.
UNITED FINANCIAL MORTGAGE CORP.
By:
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