1
EXHIBIT 1
2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of December 31, 1996 by and among Crown NorthCorp, Inc., a Delaware
corporation ("Crown"), CNC/DUS Newco, Inc., a Delaware corporation ("Newco") and
National City Corporation, a Delaware corporation ("NCC").
BACKGROUND INFORMATION
A. Crown owns all of the issued and outstanding capital stock of Newco.
B. NCC currently owns all of the issued and outstanding common stock
(the "Shares") of Merchants Mortgage Corporation, an Indiana corporation
("Merchants").
C. The parties hereto want Newco to acquire the Shares on the terms and
conditions set forth in this Agreement (the "Transaction"). In exchange for the
Shares, NCC will receive cash and stock as described in this Agreement.
D. Crown, as the sole stockholder of Newco and the directors of Newco
have approved the Transaction pursuant and subject to this Agreement.
THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
Section 1.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"Affiliate": when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with the Person specified.
"Annual Gross Servicing Revenue": as described in Section 2.03(d).
"Bank Regulatory Authority": a Regulatory Authority having jurisdiction
over NCC by reason of its status as a bank holding company.
"Burdensome Condition": any action taken, or credibly threatened, by
any Regulatory Authority or other Person to investigate or challenge the
legality of the Transaction under any
3
Federal or state law or that would otherwise deprive any party of any material
benefit under this Agreement, which action may include (i) the pendency of a
governmental investigation (formal or informal), (ii) the institution of
litigation or the threat thereof, (iii) an order by a Regulatory Authority of
competent jurisdiction preventing consummation of the Transaction or placing any
material conditions or limitations upon such consummation or (iv) the issuance
of any subpoena, civil investigative demand or other request for documents or
information that is unreasonably burdensome in the reasonable judgment of the
applicable person.
"Closing": the closing of the Transaction set forth in Article II of
the Agreement.
"Closing Date": the date on which the Closing shall occur.
"Contract" means any unexpired agreement, license, lease for real
property or personal property, permit, arrangement, commitment, understanding or
contract, whether written or oral, expressed or implied, contingent, fixed or
otherwise.
"Custodian": State Street Bank and Trust Company, a Massachusetts
banking corporation.
"DUS": FNMA's Delegated Underwriting and Servicing mortgage purchase
product line, as described in the DUS Guide.
"DUS Contract": the Delegated Underwriting and Servicing Addendum to
Mortgage Selling and Servicing Contract entered into between FNMA and Merchants
effective as of March 1, 1994, which is an amendment and restatement of a
Delegated Underwriting and Servicing Addendum dated May 25, 1988.
"DUS Guide": FNMA's Delegated Underwriting and Servicing Guide, as
amended from time to time.
"DUS Loss Sharing Agreement": the Delegated Underwriting and Servicing
Master Loss Sharing Agreement between FNMA and Merchants effective as of March
2, 1994 (executed by FNMA as of March 1, 1994 but effective one day thereafter),
which is an amendment and restatement of various prior DUS Loss Sharing
Agreements.
"DUS Reserve Agreement": the Delegated Underwriting and Servicing
Reserve Agreement among FNMA, Merchants and the Custodian effective as of March
1, 1994, which is an amendment and restatement of a prior DUS Reserve Agreement
of unknown date.
"ERISA": the Employment Retirement Income Security Act of 1974, as
amended.
"FNMA": the Federal National Mortgage Association, a Regulatory
Authority.
2
4
"FRB": the Federal Reserve Board, a Regulatory Authority.
"GAAP": generally accepted accounting principles.
"GNMA": the Government National Mortgage Association, a Regulatory
Authority.
"HUD": the Department of Housing and Urban Development, a Regulatory
Authority.
"IRC": the Internal Revenue Code of 1986, as amended.
"Loan Servicing Portfolio": as itemized on Schedule 2.03 and serviced
by Merchants.
"Material Contract": is one potentially representing at least 5% or
more of annual revenues, excluding payoffs in the Loan Servicing Portfolio or
fluctuations of escrows in the normal course of business. Any reference to any
fact, event, change or effect being "material" with respect to any party shall
mean a fact, event, change or effect that is or, insofar as can reasonably be
foreseen, will be material to the business, properties, assets, liabilities,
financial condition or results of operations of such party taken as a whole.
"Net Residential Loans": as described in Section 4.02(d).
"Person": shall mean any individual, firm, corporation, partnership,
trust, joint venture, Regulatory Authority or other entity, and shall include
such successors or assigns of such entity as are permitted pursuant to the terms
of this Agreement.
"Purchase Price": the sum in Section 2.03 hereof.
"Regulatory Approval": any approval of, or declaration, notice or
filing with (in cases where there is not specific approval to be obtained and
such declaration, notice or filing is all that is required), any Regulatory
Authority.
"Regulatory Authority": any administrative agency, commission or other
governmental or quasi-governmental agency or instrumentality of competent
jurisdiction.
"Series B Preferred Stock": as described in Section 2.03(b).
"Series C Convertible Preferred Stock": as described in Section
2.03(c).
Section 1.02 Other Defined Terms. Unless otherwise defined in the
Agreement, all capitalized terms not specifically defined in Section 1.01 above
shall have the meanings ascribed to them in the DUS Contract.
3
5
ARTICLE II
PURCHASE, SALE AND EXCHANGE OF THE SHARES
Section 2.01 Purchase and Sale of the Shares. At the Closing, NCC shall
sell to Newco and Newco shall purchase from NCC the Shares in exchange for (i)
$11,048,898 cash, (ii) the Series B Preferred Stock and (iii) the Series C
Convertible Preferred Stock (collectively, the "Purchase Price"), subject to
adjustments as set forth in Section 2.03(d) and payable as set forth in Section
2.04 hereof.
Section 2.02 Closing Date. The Closing Date shall be December 31, 1996
or such other date established by the parties in accordance with Section 7.09
hereof following the satisfaction or waiver of the last of the conditions set
forth in Article III to be met to the satisfaction of, or waived by, each party.
The Closing shall occur in the manner agreed to by the parties.
Section 2.03 Purchase Price; Adjustments. In consideration of the
Transaction, Crown and Newco shall pay to NCC the Purchase Price, subject to
adjustment as set forth in subparagraph (d) below, as follows:
(a) Cash at Closing. $11,048,898
(b) Issuance of Series B Preferred Stock. Crown shall issue NCC 2,000
shares of Crown's Series B preferred stock, which shall have the certain rights
and preferences set forth in Exhibit A attached hereto and incorporated herein
by reference. In conjunction with the issuance of the Series B Preferred Stock,
a cash collateral account assignment shall be issued at Closing to NCC in the
form appearing on Exhibit A-1 attached hereto and incorporated by reference
herein. With respect to an "Offering," as defined in Exhibit A, to the extent
and in the manner permitted by applicable securities laws, Crown will keep the
holders of the Series B Preferred Stock apprised of the status and anticipated
closing date of an Offering. Further, for so long as any of the Series B
Preferred Stock remains outstanding, without having obtained the prior written
consent of the holders of two-thirds of the outstanding shares of the Series B
Preferred Stock, Crown will not redeem any common or preferred stock of Crown,
in whole or in part, except for redemptions of up to 300 shares of Crown's
common stock (adjusted, as necessary, for any stock dividends, subdivisions,
combinations, capital reorganizations or reclassifications) held by a particular
holder. Crown agrees not to issue any additional shares of Series B Preferred
Stock without the prior written consent of the holders of two-thirds of the
outstanding shares of the Series B Preferred Stock.
(c) Issuance of Series C Convertible Preferred Stock. Crown shall issue
NCC 500 shares of Crown's Series C Convertible Preferred Stock, which shall have
the certain rights and preferences set forth in Exhibit B attached hereto and
incorporated herein by reference. Crown agrees not to issue any additional
shares of Series C Convertible Preferred Stock
4
6
without the prior written consent of the holders of two-thirds of the
outstanding shares of the Series C Convertible Preferred Stock
(d) Adjustments. (i) The Purchase Price shall be adjusted by the
written agreement of the parties hereto to reflect loans in the Loan Servicing
Portfolio which are paid in full prior to the Closing as provided in
subparagraph (ii) below. The Purchase Price shall not be adjusted by reason of
NCC retaining the Net Residential Loans as provided in Section 4.02(d) hereof.
(ii) Appearing on Schedule 2.03 is the Annual Gross Servicing Revenue
attributable to each loan in the Loan Servicing Portfolio. In making the
adjustment contemplated by Section 2.03(d)(i), the cash at Closing (as provided
in Section 2.03(a)) shall be reduced by the product of 3.12 times the aggregate
Annual Gross Servicing Revenue attributable to the loans paid in full prior to
Closing.
Section 2.04 Payment of Purchase Price. Crown shall make or cause Newco
to make the payments and stock issuances provided in Section 2.03. All cash
payments shall be in immediately available funds by wire transfer to the account
of NCC.
Section 2.05 Deliveries at the Closing. The following deliveries
required under this Agreement shall be made concurrently at the Closing:
(a) Crown and Newco to NCC. The cash portion of the Purchase Price in
the manner set forth in Sections 2.03 and 2.04 hereof.
(b) Crown to NCC. Stock certificates for the Series B Preferred Stock
and for the Series C Convertible Preferred Stock.
(c) NCC to Newco. Stock certificates for the Shares, duly endorsed in
blank or accompanied by stock powers duly executed in blank with signatures
guaranteed and any other documents required to transfer title to the Shares to
Newco, free and clear of all liens, restrictions, encumbrances, charges, adverse
interests and claims other than those on sale or distribution imposed by
compliance with applicable securities law.
Section 2.06 Partial Repayment of Purchase Price. Notwithstanding any
other provisions of this Article II, NCC agrees to repay to Newco that portion
of the Purchase Price attributable to loans in the Loan Servicing Portfolio for
which payment in full is received on or before the forty-fifth day following
the Closing Date. Upon receipt of a loan repayment described in the preceding
sentence, Newco shall present NCC with a statement of the partial repayment of
the Purchase Price due computed by multiplying by 3.12 the Annual Gross
Servicing Revenue of loans repaid in the manner described in this Section 2.06
and subtracting from that product prepayment or other fees received by Newco in
conjunction with the repayment. Statements shall be payable by NCC within thirty
days after receipt. Any balances unpaid after thirty days shall accrue interest
at the rate of 18% per annum from such thirtieth
5
7
day.
ARTICLE III
CONDITIONS TO CLOSING
Section 3.01 Conditions to Each Party's Obligations. The respective
obligation of each party to consummate the transactions to be performed by it
under this Agreement is subject to the satisfaction or waiver, as of the Closing
Date, of the following conditions:
(a) Performance. Each other party shall have performed or complied with
in all material respects their respective covenants and agreements contained
herein.
(b) Representation. Each representation and warranty made by each other
party in this Agreement shall be true and correct in all material respects on
the Closing Date as if made on and as of the Closing Date.
(c) Legality. No change shall have occurred in any law, rule or
regulation that would prohibit consummation of the Transaction.
(d) Litigation; Burdensome Condition. No court, agency or other
authority shall have issued any order, decree or judgment to set aside,
restrain, enjoin or prevent the consummation of the Transaction or to impose a
Burdensome Condition. No action, suit or proceeding before any court or any
Regulatory Authority shall have been commenced, and no action, suit or
proceeding by any Regulatory Authority shall have been threatened, against any
of the parties to this Agreement, or any of the principals, officers or
directors of any of them, seeking to restrain, prevent or materially change the
Transaction or questioning the validity or legality of the Transaction or
seeking damages in connection with the consummation of the Transaction.
(e) Proceedings Satisfactory. All corporate and legal proceedings
required to be taken in connection with the consummation of the Transaction and
all documents and papers relating to the consummation of the Transaction shall
be reasonably satisfactory in form and substance to each party and its counsel.
(f) Closing Documents. Each party shall have received any and all
certificates or other closing documents required under this Agreement or
reasonably requested by such party and such documents shall be reasonably
satisfactory to the parties.
(g) Regulatory Approvals. All Regulatory Approvals necessary for the
consummation of the Transaction shall have been obtained or made and all waiting
periods imposed by any Regulatory Authority or law shall have expired. Without
limiting the generality of the preceding sentence, Regulatory Approvals shall
include:
6
8
(i) FNMA. Newco receiving evidence satisfactory to Newco, in its sole
discretion, that FNMA has granted DUS loan origination and servicing rights to
Newco as of the Closing Date on terms acceptable to Newco. Newco anticipates
that such satisfactory evidence may include but not be limited to (A) an
addendum or amendment to the DUS Contract mutually satisfactory to FNMA and
Newco, (B) FNMA's written consent to the assignment to Newco of any and all
right, title and interest that Merchants has or may have in and to the DUS Loss
Sharing Agreement, (C) FNMA's written consent to the assignment to Newco of any
and all right, title and interest that either Merchants or NCC has or may have
in and to the DUS Reserve Agreement, including but not limited to rights to
"Collateral," as that term is defined in the DUS Reserve Agreement and (D) a
certification from the Custodian acknowledging the matters set forth in the
preceding clause (C) and stating that it is now the Collateral for the benefit
of Newco and FNMA subject to the terms of the DUS Reserve Agreement.
(ii) HUD. Newco receiving evidence satisfactory to Newco, in its sole
discretion, that HUD has approved the transfer to Newco as of the Closing Date
of any and all loan origination and servicing rights granted by HUD to
Merchants.
(iii) Bank Regulatory Authority. NCC receiving evidence satisfactory to
NCC, in its sole discretion, that it has received all Regulatory Approvals from
Bank Regulatory Authorities authorizing NCC to enter into the Transaction.
(iv) FNMA Conditional Approval. Without limiting the generality of
Section 3.01(i), Crown and Newco satisfying, prior to Closing, all of the
conditions set forth in a letter from FNMA to Crown dated October 17, 1996
conditionally approving both the Transaction and a separate transaction.
(h) Receipt of Regulatory Approvals. Promptly upon receipt of any
Regulatory Approval, Crown and Newco on the one hand and NCC on the other shall
(i) advise the other party of the receipt of a Regulatory Approval and (ii)
cooperate with the other party to confirm with the applicable Regulatory
Authority, to the satisfaction of such other party, that a Regulatory Approval
applicable to one party (Crown and Newco being considered one party for such
purpose) imposes no ongoing liability or responsibility on the other party
and/or removes any such ongoing liability or responsibility, including, but not
limited to, termination of the $2,500,000 letter of credit issued by NBD Bank,
N.A. at the request of Merchants in favor of FNMA.
Section 3.02 Conditions to Newco's Obligations. Newco's obligation to
consummate the Transaction is subject to the satisfaction (or waiver by Newco)
on or prior to the Closing Date of the following additional conditions:
(a) NCC Secretarial Certificates. Newco shall have received reasonably
satisfactory secretarial certificates evidencing the authority of the
appropriate NCC officer to execute and deliver this Agreement and any other
agreements referenced herein to which NCC is a
7
9
signatory and the consummation of the Transaction.
(b) Certificates of Good Standing. Newco shall have received
certificates of the Secretary of State of Indiana, dated a recent date,
certifying as to the legal existence and good standing of Merchants as well as
similar certificates from those foreign jurisdictions in which Merchants is
qualified to transact business as set forth on Schedule 4.02.
(c) Opinion of Counsel. Newco shall have received an opinion of
in-house counsel for NCC in form and substance reasonably satisfactory to
counsel for Newco.
(d) No Material Adverse Change. There shall have occurred no material
adverse change (whether or not covered by insurance) in the business, operations
or financial condition of Merchants since March 31, 1996. Without limiting the
generality of the foregoing, as of the Closing Date, Merchants' Total
Shareholders' Equity (reflected on the Financial Statements, as hereinafter
defined) must equal $9,948,000.
(e) Tax Treatment. NCC, Crown and Newco shall have executed documents
satisfactory to Newco electing to treat the Transaction in accordance with
Section 338(h)(10) of the IRC (the "Section 338(h)(10) Election").
(f) Resignations. Changes in Business Records. Newco shall have
received the resignations of all of the officers and directors of Merchants (or
the Board of Directors of Merchants shall have removed such officers and
directors) as well as evidence satisfactory to Newco that all of Merchants'
files, systems and similar business records have been changed to reflect the
custody and control of Newco of those items. At the Closing, NCC will cause
Merchants to transfer the funds in its bank accounts to an account(s) designated
by Newco.
Section 3.03 Conditions to Obligations of NCC. The obligations of NCC
to consummate the Transaction is subject to the satisfaction (or waiver by NCC)
on or prior to the Closing Date of the following additional conditions:
(a) Resolutions. NCC shall have received certified copies of
resolutions of the Board of Directors and stockholder of Newco and the Board of
Directors of Crown authorizing the execution, delivery and performance of this
Agreement and any other agreements referenced herein to which Newco or Crown,
respectively, is a signatory and the consummation of the Transaction.
(b) Opinion of Counsel. NCC shall have received an opinion of in-house
counsel for Crown and Newco in form and substance reasonably satisfactory to
counsel for NCC.
8
10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties of NCC with respect to the
NCC. NCC hereby makes each of the following representations and warranties to
Crown and Newco:
(a) Title to Stock. At the Closing, NCC shall be the lawful owner of
the Shares, free and clear of all liens, restrictions, encumbrances, charges,
adverse interests and claims, other than those on sale or distribution imposed
by compliance with applicable securities law, with full power, right, and
authority to sell the Shares pursuant to this Agreement. The number of shares is
350; the Shares are evidenced by Certificate Nos. 1 and 2.
(b) Authority of NCC. This Agreement has been authorized and duly
executed and delivered by NCC and this Agreement constitutes the legal, valid
and binding obligation of NCC enforceable in accordance with its terms, except
insofar as enforceability is limited by applicable bankruptcy, creditor,
insolvency or other laws of similar effect and by general principles of equity.
The execution, delivery and performance of this Agreement by NCC will not
violate or conflict with any provision of any charter document, by-law, contract
or agreement to which NCC is subject. NCC is not a party to, or subject to, or
bound by, any litigation, judgment, injunction, order or decree of any court or
governmental authority, or any arbitration award which would restrict the
performance by NCC of this Agreement or such other documents or instruments to
be executed or delivered by NCC in connection herewith which, in any such case,
would have a material adverse effect upon the transactions contemplated
hereunder.
(c) Transactions or Arrangements. Except as set forth on Schedule 4.01
and the agreements and transactions entered into in connection with this
Agreement, NCC is not presently, directly or indirectly, a party to any
transaction with Merchants, currently in effect or which will be in effect after
the Closing, including without limitation: (i) any Contract, agreement,
understanding, commitment or other arrangement providing for the furnishing of
goods or services to Merchants by rental of real or personal property from or
otherwise requiring payments to NCC or any Affiliate of NCC or to any third
party for the benefit of NCC or any Affiliate of NCC; (ii) any Contract for the
disposition by sale, lease or otherwise of any loan or for the servicing or
subservicing of any loans or for the performance of mortgage servicing under any
pooling and servicing agreement (iii) any Contract, agreement, understanding,
commitment or other arrangement relating to the employment of any Person by or
on behalf of Merchants, or any bonus, deferred compensation, collective
bargaining, termination, severance, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit plan maintained by
either NCC or Merchants for the benefit of Merchants or any Affiliate of
Merchants; and (iv) any loans, advances, warehousing agreements or repurchase
agreements to or from Merchants.
9
11
Section 4.02 Representations and Warranties of NCC with respect to
Merchants. NCC hereby makes each of the following representations and warranties
to Crown and Newco:
(a) Organization and Qualification. (i) Merchants is duly incorporated
and validly existing as a corporation in good standing under the laws of the
State of Indiana, and possesses corporate power and authority to own, lease and
operate its properties and conduct its business as it is now being conducted;
(ii) Merchants is duly qualified as a foreign corporation to transact business
in the jurisdictions listed on Schedule 4.02 (which constitute all of the
jurisdictions in which its ownership or leasing of properties or the conduct of
its business requires such qualification except where the failure to be so
qualified would not have a material adverse effect on Merchants) and is in good
standing in such jurisdictions; (iii) Merchants has no subsidiaries and does not
own any capital stock (except for shares of FNMA stock) or other interest in any
other corporation or entity; (iv) true, complete and correct copies of the
Articles of Incorporation and Bylaws of Merchants have been previously delivered
to Crown; and (v) the minute books and stock record books of Merchants
containing minutes of director and stockholder meetings and stock transfer and
ownership records, respectively, are complete and correct in all material
respects.
(b) Authorized Capital Stock. The total authorized, issued and
outstanding shares of capital stock of Merchants is as set forth on Schedule
4.02. The Shares are duly authorized and are fully paid and non assessable. No
warrants, options or other rights exist for the issue or purchase of the capital
stock or other securities of Merchants, and there are not any securities
convertible into or exchangeable for the capital stock or other securities of
Merchants, or any plans, contracts or commitments providing for the issuance of
or granting of rights to acquire, any capital stock of Merchants or securities
convertible into or exchangeable for the capital stock of Merchants. Merchants
is not a party to any agreement or commitment requiring it to repurchase,
reacquire or redeem any of the Shares.
(c) Financial Statements; Absence of Undisclosed Liabilities. The
financial statements of Merchants as of and for the years ended December 31,
1993, 1994 and 1995 and for the three (3) months ended March 31,1996
(collectively the "Financial Statements"), which Financial Statements have been
delivered to Newco, have been prepared in accordance with GAAP and present
fairly the financial position and the results of operations of Merchants at the
indicated dates and for the indicated periods and have been prepared in a manner
consistent with past practices of Merchants. As of the Closing Date, Merchants'
Total Shareholders' Equity, as reflected on the Financial Statements, will equal
$9,948,000. Without limiting the generality of the foregoing, except for losses
which may arise under the DUS Loss Sharing Agreement or the co-insurance program
with HUD, Merchants has no material indebtedness, liability, claim, loss
(whether caused by a borrower default or otherwise), damage, deficiency or
obligation, liquidated or unliquidated, of any nature, whether accrued,
absolute, contingent or otherwise, whether due or to become due, which is not
reflected in the Financial Statements.
10
12
(d) Absence of Change of Events. Since March 31, 1996, Merchants has
carried on its business in the ordinary course consistent with past practice.
Since March 31, 1996, there has not been with respect to Merchants: (i) any
material adverse change in financial condition, results of operations, business
or earnings other than the Transaction; (ii) any damage, destruction or casualty
loss, whether covered by insurance or not, materially and adversely affecting
business, operations or financial condition; (iii) any change or increase in the
rate or terms of any compensation or benefits receivable by any employee except
in accordance with established payroll administration guidelines consistent with
past practice; (iv) any entry into, or modification, amendment, renewal,
extension or termination of, a Material Contract or commitment; (v) any
violation of any laws, ordinances, orders, injunctions or decrees that would
materially and adversely effect business, operations or financial condition;
(vi) any failure to collect accounts receivable or to pay accounts payable in a
manner other than consistent with past practices; (vii) any creation or
assumption of a mortgage, pledge or other lien or encumbrance upon any of the
real or personal property owned or leased which is being transferred to Crown or
Newco hereunder; (viii) any sale, assignment, lease, transfer or other
disposition of any real or personal property owned or leased except as otherwise
disclosed to Crown or Newco; (ix) any material change in accounting or
bookkeeping methods, principles or practices; (x) any borrowing of money,
including any increase or extension of purchase money credit, or any material
increase in the liabilities from those reflected in the Financial Statements;
(xi) any dividend, distribution, declaration or payment in redemption,
repurchase or otherwise with respect to the Shares, except for such dividends or
distributions that may be necessary in order to achieve Total Shareholder's
Equity of $9,948,000; (xii) any issuance of any equity or debt security; (xiii)
any gift or charitable donation; and (xiv) any cancellation of any debts owed to
Merchants or claims held by Merchants. Notwithstanding the foregoing, the
parties hereto understand and agree that, at or prior to Closing, NCC shall
withdraw from Merchants and retain for its or an Affiliate's own account Net
Residential Loans as itemized and described on Schedule 4.02.
(e) Contractual Obligations. Except as set forth on Schedule 4.02 or
pursuant to or in connection with this Agreement, Merchants is not bound by or
subject to any Contract including but not limited to: (i) Contracts for the
purchase or sale of any fixed or capital assets, or continuing Contracts for the
purchase of any materials, supplies equipment or services, or Contracts for the
sale of any service; (ii) collective bargaining agreements, employment
contracts, management or consulting agreements or any other Contracts with
employees, agents, distributors, representatives, consultants; (iii) Contracts
with any Affiliate or with NCC; (iv) Contracts to make any gift or charitable
donation; (v) Contracts with any Person to sell Shares or to effect any merger,
consolidation or other reorganization, or to enter into any future agreement
with respect to such transactions; (vi) Contracts for the borrowing of money or
issuance of any note, bond, indenture, loan, credit agreement or other evidence
of indebtedness or direct or indirect guaranty or assumption of indebtedness,
liabilities or obligations of others; (vii) Contracts for leasing personal
property; (viii) Contracts containing covenants not to compete, which otherwise
restrict any type of business or which restrict the use or dissemination of
information or the hiring of employees; (ix) Contracts for the purchase
11
13
or sale of any loan or loan servicing; (x) Contracts or agreements with
underwriters, agents, brokers or sales representatives; or (xi) powers of
attorney or similar authorizations granted to any person.
(f) Legal Proceedings. Merchants is not (i) subject to any pending or,
to the best of its knowledge, threatened lawsuits, administrative proceedings or
governmental investigations, (ii) in default or violation of any judgment or
order of any court or administrative agency or (iii) aware, to the best of its
knowledge, of any event which could reasonably give rise to a claim not covered
by insurance policies in full force and effect.
(g) Licenses; Compliance with Law. Schedule 4.02 sets forth, as of the
date of this Agreement, the licenses, permits, approvals and other
authorizations issued by any governmental body or agency and required for the
operation of Merchants. Merchants owns or possesses all licenses,
accreditations, permits, approvals and other authorizations necessary to carry
on its business, all of which are in full force and effect, including but not
limited to a license from FNMA. Merchants has received no notice that any such
license, accreditation, permit, approval or other authorization will not be
renewed, or will be revoked or withdrawn. Merchants is in material compliance
with all rules, laws and regulations related to the operation of its business.
(h) Agreements in Full Force and Effect. Merchants: (i) has performed
all material obligations required to be performed under all Contracts to which
it is a party or is bound, (ii) is and has at all times been in compliance in
all material respects with all representations, warranties and covenants
contained in the DUS Contract, the DUS Loss Sharing Agreement and the DUS
Reserve Agreement and (iii) is aware of no notice or claim of default with
respect to any Contract to which it is a party or is bound which would have a
material adverse effect thereon. The Contracts set forth on Schedule 4.02 are
and remain in full force and effect, to the best of its knowledge.
(i) ERISA. Merchants has no employees and does not maintain, administer
or participate in any pension benefit or welfare benefit plans of any kind or
nature, except that it is a participating employer in various NCC pension and
welfare benefit plans as defined in Sections 3(2) and 3(1) of ERISA,
respectively, maintained by NCC (the "NCC Plans"). Merchants' affiliation with
the NCC Plans will be terminated at or prior to Closing and NCC shall deliver to
Newco at or prior to Closing reasonably satisfactory certifications evidencing
(A) that such termination has occurred, (B) that, to the best of NCC's
knowledge, the NCC Plans are in material compliance with applicable provisions
of ERISA, including but not limited to the full payment when due of all amounts
required to be made as contributions to the NCC Plans and (C) that Merchants has
no financial or reporting liabilities with respect to the NCC Plans.
(j) Required Consents. Except for the Regulatory Approvals described in
Section 3.01(g)(iii) hereof, NCC is not required to obtain the consent,
approval, authorization,
12
14
declaration, filing or registration of any party in connection with the
execution, delivery and performance of this Agreement and the consummation of
the Transaction, which consent, approval, authorization, declaration, filing or
registration if not obtained or made would materially impair the ability to
consummate the Transaction, other than written notifications to FNMA, HUD, the
Government National Mortgage Association and the Indiana Housing Authority
informing them of this Transaction.
(k) Taxes. NCC has filed or caused to be filed on behalf of Merchants
all tax returns, reports and information returns (all hereinafter referred to as
"returns") required to be filed by it on or before the date hereof by any taxing
jurisdiction to which it is or has been subject. Merchants has timely paid (or
NCC has paid on its behalf) or has set up an adequate reserve on the books of
Merchants for the payment of all taxes required to be paid in respect of the
periods covered by such returns and has set up an adequate reserve on the books
of Merchants for the payment of all Taxes with respect to Merchants to be
payable in respect of periods through the Closing Date. Merchants is not
delinquent in the payment of any Tax, assessment or governmental charge. As of
the date hereof, no deficiencies for any Taxes have been proposed, asserted or
assessed against Merchants, no requests for waivers of the time to assess any
such Tax are pending, and no audits of Merchants tax returns are currently in
progress.
For the purposes of this subsection (k), "Taxes" shall mean all taxes,
charges, fees, levies or other assessments imposed by any federal, state, local
or foreign taxing authority, including without limitation, income, excise,
property, sales, transfer, payroll, franchise and withholding taxes (including
any interest, penalties or additions attributable to or imposed on or with
respect to any such assessment).
(l) Title to Properties. Merchants has, or will have at Closing, good
and marketable title to all of its properties and assets (real and personal,
tangible and intangible) necessary to the conduct of its business and reflected
in the Financial Statements, which title is or will be free of any encumbrance,
lien, charge or other restriction of any kind or character.
(m) Real Property; Leases. Merchants does not own any real property in
whole or in part nor is it a party to any lease of real property, either as
lessor or lessee.
(n) Environmental Matters. Merchants (i) is and at all times has been
in material compliance with any and all federal, state or local environmental
laws, regulations and ordinances relating to the use, generation, storage,
transportation, treatment or disposal of hazardous, toxic or polluting
substances (ii) has obtained and complied in all material respects with any and
all permits or approvals required with respect to environmental matters and
(iii) is not aware, to the best of its knowledge, of any claim, demand or
notification that it is or may be responsible with respect to any environmental
remediation.
(o) Bank Accounts. Schedule 4.02 contains a list of all bank accounts
or other relationships Merchants maintains at any financial institution. No
Persons other than
13
15
employees or agents of Merchants or NCC are authorized to transact business with
respect to these relationships. Merchants has one (1) safety deposit box
maintained at National City Bank of Indiana which it will close at or prior to
Closing.
(p) Servicing of Loan Servicing Portfolio. (i) Each loan in the Loan
Servicing Portfolio and the servicing of such loan by Merchants complies, in all
material respects, with the terms of the DUS Guide, including, without
limitation, all applicable documents relating to such loan.
(ii) The information provided by NCC or Merchants to Crown or Newco
with respect to each loan in the Loan Servicing Portfolio is true and correct in
all material respects, including without limitation, the following loan
characteristics: loan number, aggregate unpaid principal amount, maturity date,
interest rate, monthly principal and interest constant, monthly tax and
insurance constant, escrow account balances, due date of next installment
payment of principal and interest and the composition of any reserve accounts.
(iii) To the best of its knowledge, no material breach of any
representation of warranty exists with respect to any mortgage loan the
ownership of which was transferred by Merchants to any Person.
(iv) The selling and origination representations and warranties made by
Merchants to investors under any sale or servicing agreements were true and
correct in all material respects on the date made and such of those
representations and warranties which, under the applicable sale or servicing
agreement, are "continuing" representations and warranties required to be true
on and after the date such representations and warranties were made continue to
be true and correct in all material respects.
(q) Advances. Except as set forth on Schedule 4.02, neither NCC nor
Merchants has outstanding advanced funds with respect to any loan in the Loan
Servicing Portfolio. Any advances that may be made prior to Closing shall be
accounted for in the manner set forth in Section 6.07 hereof.
(r) Access to Records. NCC and Merchants have provided Crown and Newco
complete access to all books and records of Merchants and such books and records
are complete, true and accurate in all material respects.
Section 4.03 Representations and Warranties of Crown and Newco. Crown
and Newco, jointly and severally, hereby make each of the following
representations and warranties to NCC:
(a) Authority of Crown and Newco. (i) Crown and Newco are each
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and are duly qualified and in good standing in
each jurisdiction in which the nature of the business
14
16
conducted by them or the properties owned, leased or operated by them requires
such qualification.
(ii) This Agreement has been authorized and duly executed and delivered
by both Crown and Newco and this Agreement constitutes the legal, valid and
binding obligation of both Crown and Newco enforceable in accordance with its
terms, except insofar as enforceability is limited by applicable bankruptcy,
creditor, insolvency or other laws of similar effect and by general principles
of equity. The execution, delivery and performance of this Agreement by each of
Crown and Newco will not violate or conflict with any provision of any charter
document, by-law, contract or agreement to which either Crown or Newco is
subject. Neither Crown nor Newco is a party to, or subject to, or bound by, any
litigation, judgment, injunction, order or decree of any court or governmental
authority, or any arbitration award which would restrict the performance by
either Crown or Newco of this Agreement or such other documents or instruments
to be executed or delivered by either Crown or Newco in connection herewith
which, in any such case, would have a material adverse effect upon the
transactions contemplated hereunder.
(b) Required Consents. Except for the Regulatory Approvals described in
Section 3.01(g)(i), (ii) and (iv) hereof, neither Crown nor Newco is required to
obtain the consent, approval, authorization, declaration, filing or registration
of any party in connection with the execution, delivery and performance of this
Agreement and the consummation of the Transaction, which consent, approval,
authorization, declaration, filing or registration if not obtained or made would
materially impair the ability to consummate the Transaction.
(c) Preferred Stock. As of the Closing Date, the Series B Preferred
Stock and the Series C Convertible Preferred Stock will be duly authorized and
issued and, when issued, will be fully paid and non-assessable.
(d) Payment of Purchase Price. Crown and Newco currently have, or have
made arrangements to have, the cash necessary to pay the Purchase Price at
Closing.
(e) Investment Representation. Newco is acquiring the Shares for its
own account, for investment purposes only and not with a view to, or for sale in
connection with, any distribution of the Shares, or with any present intention
of selling all or a part of the Shares.
ARTICLE V
COVENANTS PENDING CLOSING
Section 5.01 Covenants of NCC. From the date of this Agreement until
Closing or termination of this Agreement in accordance with Section 7.09 hereof,
NCC will cause Merchants to operate and conduct its business, properties and
assets only in the ordinary course and, without limiting the generality of the
foregoing, will cause Merchants to do the
15
17
following:
(a) No Material Change. Merchants will (i) carry on its business in the
ordinary course and in accordance with past practice; (ii) will not change its
structure or capitalization, except as contemplated in Section 4.02(d)(xi)
hereof; (iii) not make or agree to make any distribution of cash or other assets
except as provided in Section 4.02(d) hereof; (iv) not sell, pledge, lease,
mortgage, encumber or otherwise dispose of any assets other than in the normal
course of business for fair value; and (v) not enter into any contracts or
commitments of any kind involving, in the aggregate, in excess of $25,000.
(b) Servicing Transfer of Loan Servicing Portfolio. To facilitate
Newco's servicing of the Loan Servicing Portfolio, at or prior to Closing,
Merchants will deliver to Newco the data and reports itemized on Schedule 5.01
in the format specified therein.
(c) Maintenance of Loan Servicing Portfolio. Except for loan servicing
actions which arise in the ordinary course of business and consistent with past
practice Merchants will not, without the written consent of Newco, take any
action with respect to any loan in the Loan Servicing Portfolio set forth on
Schedule 2.03 which constitutes a material or significant action with respect to
the loan including, but not limited to, enforcement of any collection remedies,
other than collection letters that may need to be sent for loan payments not
received within the applicable grace period, and agreement to any forbearance or
compromise. Merchants will promptly disclose to Newco any material changes or
defaults in the Loan Servicing Portfolio.
(d) Investigation. Crown, Newco and their representatives, at all
reasonable times and upon reasonable prior notice, shall have full access to all
books, contracts and records of Merchants for the purpose of familiarizing
themselves with the operation and conduct of the business.
(e) No Solicitation. No action, directly or indirectly, will be taken
to solicit indications of interest or offers for the sale of Merchants (whether
by sale of stock, assets, merger or otherwise) to anyone other than Newco.
(f) Preserve Accuracy of Representations. NCC and Merchants will
refrain from taking any action which would render any representation or warranty
contained in this Agreement inaccurate in any material respect at and as of the
Closing Date, except for changes specified in, permitted or contemplated by,
this Agreement. NCC and Merchants will disclose to Newco any changes in the
information contained in the schedules and exhibits to this Agreement which may
make any representation or warranty inaccurate in any material respect.
Section 5.02 Covenants of Crown and Newco. Crown and Newco will refrain
from taking any action which would render any representation or warranty
contained in this Agreement inaccurate in any material respect at and as of the
Closing Date, except for changes specified in, permitted or contemplated by,
this Agreement.
16
18
Section 5.03 Pursuit of Regulatory Approvals; Advice to Other Parties.
Crown, Newco and NCC each agree to use their best efforts to promptly obtain all
Regulatory Approvals as described in Section 3.01(g).
ARTICLE VI
OTHER COVENANTS
Section 6.01 Taxes. (a) NCC and Newco agree that Merchants will be
included in the consolidated federal income tax returns filed by NCC through the
Closing Date and NCC shall be responsible for making all required payments
associated with such return. Prior to Closing, Merchants will be required to pay
NCC for all liabilities recorded as payable to NCC, including Taxes.
(b) (i) NCC shall indemnify and hold Newco harmless against any and all
Taxes, interest and penalties of the affiliated group of which NCC is the common
parent (the "NCC Affiliated Group") or of Merchants for any taxable year or
period ending on or before the Closing Date, and NCC shall be entitled to all
refunds of such Taxes. Taxes attributable to the Section 338(h)(10) Election,
Taxes attributable to intercompany transactions recognized or taken into account
by reason of the Closing (including restoration of deferrals) under the
provisions of Section 1502 of the IRC or the regulations thereunder by NCC,
Merchants, or any other member of an affiliated group including Merchants, and
properly includable in the consolidated return described in Section 6.01(a), or
any prior consolidated return of any such group (and similar Taxes under state
and local laws), and Taxes attributable to adjustments under Section 481 of the
IRC (or any predecessor of the IRC or similar provisions of other tax laws) with
respect to pre-Closing changes of accounting methods shall be treated as Taxes
for a taxable year or period ending on or before the Closing Date.
(ii) Newco and Crown shall indemnify and hold NCC harmless against any
and all Taxes, interest and penalties of or due by Merchants or any affiliated
group of which Merchants becomes a member after the Closing Date for any taxable
year or period beginning on or after the Closing Date and Newco shall be
entitled to all refunds of such Taxes.
(iii) The tax liability of Merchants for the taxable year or period
that begins before and ends after the Closing Date shall be apportioned between
Newco and NCC, with Newco responsible for Taxes attributable to the post-Closing
portion of such period and NCC responsible for Taxes attributable to the
pre-Closing portion of such period. The determination of the Taxes attributable
to each portion shall be made by assuming that Merchants had two taxable
periods, with the pre-Closing portion representing the first such period and the
post-Closing portion representing the second such period. Exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned as noted in Internal Revenue
Service regulations. If there is
17
19
no reference in the regulations, then apportionment shall be on a daily basis.
If necessary, the actual tax for such taxable year or period shall be
apportioned between the two portions of such year or period in proportion to the
ratio of Taxes that would result for such portions if such portions were
separate taxable periods.
(c)(i) Newco shall file or cause to be filed when due all returns in
respect of Taxes of Merchants for taxable years or periods ending after the
Closing Date and shall pay or cause to be paid the Taxes shown to be due on any
such return. Upon notification and satisfactory documentation from Newco, NCC
shall pay to Newco the Taxes to be paid with such return that NCC is liable for
pursuant to Sections 6.01(a) and (b) of this Agreement. Newco shall be
responsible for the audits of such returns and shall be entitled to receive, at
least fifteen days in advance of any payment that it makes in connection with
the settlement or other disposition of such proceeding, that part of any such
payment for which NCC is liable under Section 6.01(b) hereof.
(ii) NCC agrees that it shall be responsible for the preparation of all
returns in respect of Taxes for Merchants for the taxable years or periods
ending on or before the Closing Date. To the extent that any such return
requires a tax payment, NCC shall deliver such return to Newco who will pay or
cause to be paid the amount due with the return and file the return with the
proper tax authority. Newco's responsibility for the payment of such Taxes shall
be limited to amounts as to which NCC has set up an adequate reserve on the
books of Merchants as provided for in Section 4.02(k). Newco also agrees that it
will be responsible for payment of all other Taxes as to which NCC has set up an
adequate reserve on the books of Merchants as provided for in Section 4.02(k).
To the extent any taxes payable hereunder by Newco exceed such reserve, NCC
shall reimburse Newco such excess amount (or such excess amount less any equity
above the $9,948,000 that may result from adjustments) prior to the due date of
such Taxes.
(iii) Newco and NCC shall cooperate with each other in the conduct of
any audit or other proceedings involving Merchants or any entity with which it
is consolidated or combined for any tax purposes. Newco and NCC agree to keep
each other fully informed of all matters relating to any audit or judicial or
administrative proceeding, including without limitation any settlement
negotiations. In the event of an audit or contest with taxing authorities
relating to periods ending on or prior to the Closing Date, NCC and Newco shall
be jointly responsible for conducting such audit or contest and all decisions
regarding such audit or contest, including settlement or selection of a forum
for contest, shall require the approval of both NCC and Newco. In the event of
an audit or contest with taxing authorities relating to periods ending
subsequent to the Closing Date, Newco shall be solely responsible for conducting
such audit or contest and shall have the right to control and make all decisions
regarding such audit or contest, including settlement or selection of a forum
for contest, so long as Newco's control and decisions do not have a legally
binding effect of increasing the tax liability of Merchants by an amount in
excess of $100,000 for any taxable period ending on or prior to the Closing
Date.
18
20
(d) For the purposes of this Section 6.01, "Taxes" shall have the same
meaning as in Section 4.02(k).
Section 6.02 Section 338 Election. Newco agrees that it shall make an
election under Section 338(g) of the IRC (and any comparable election under
state or local tax law) with respect to Merchants, and Newco agrees that it
shall make, and NCC agrees that it shall cause the common parent of the NCC
affiliated group to join with Newco in making, the Section 338(h)(10) Election
with respect to Merchants (and any comparable election under state or local tax
law). Unless otherwise agreed by the parties in writing, the Section 338(h)(10)
Election shall be made in the form attached hereto as Exhibit C and the "deemed
sale price", as defined in Treasury Regulation 1.338(h)(10)-1(f) shall be
allocated for purposes of the Section 338(h)(10) Election as further provided in
Exhibit C. NCC, Crown and Newco each agree for federal, state and local income
or franchise tax purposes to report the transactions contemplated by this
Agreement, including the tax consequences of the Section 338(h)(10) Election and
any reporting required under Section 1060 of the IRC, in a manner consistent
with the information set forth in Exhibit C. The parties shall cooperate in the
execution and timely filing of the Section 338(h)(10) Election in accordance
with the provision of Section 338 of the IRC and the provisions of Treasury
Regulation Section 1.338(h)(10)-1 (and any comparable provisions of state or
local tax law) or any successor provision.
Section 6.03 Indemnification for Breaches of Representations and
Warranties. Crown and Newco, on the one hand, and NCC, on the other, shall
indemnify and hold each other harmless from any loss, claim or damage arising
out of a breach or breaches of representations and warranties set forth in
Article IV hereof.
Section 6.04 Activities Following Closing; Indemnification.
Notwithstanding anything in this Agreement to the contrary and without limiting
the generality of this Agreement, Crown and Newco acknowledge and agree that, as
a result of the Transaction, Crown and Newco shall assume all of Merchants'
obligations under any agreements between Merchants and FNMA, GNMA, HUD and the
Indiana Housing Authority, respectively, as set forth on Schedule 4.02(b) hereof
and shall assume all of the contingent liability of Merchants, existing as of
the Closing and thereafter, arising respectively out of the loss sharing
obligations of DUS (including but not limited to any guaranty fee obligations)
or the co-insurance program with HUD or the guaranty fee obligations with
respect to Merchants' ▇▇▇▇ ▇▇▇ Loan Servicing Portfolio. Crown and Newco shall
indemnify and hold NCC and its Affiliates harmless from any loss, claim or
damage arising out of such contingent liability or arising out of the conduct of
the business of Merchants after the Closing Date or any other activity of Crown,
Newco or Merchants, or their Affiliates, occurring after the Closing Date.
19
21
Section 6.05 Crown Financial Information. Crown agrees to promptly
provide such financial information relating to Crown and its Affiliates as may
be reasonably requested by NCC from time to time as long as NCC owns any of the
Series B Preferred Stock or Series C Convertible Preferred Stock. Crown and NCC
agree that, for so long as Crown is a public company, this covenant shall be
satisfied by Crown delivering to NCC, as and when filed, copies of filings Crown
makes to the Securities and Exchange Commission or to other governmental
entities which are otherwise publicly available.
Section 6.06 Heritage Apartments Loan. Crown and Newco agree and
acknowledge that NCC will retain the right to pursue any collection efforts
regarding the Heritage Apartments commercial loan (which loan is not part of the
Loan Servicing Portfolio) and will be entitled to retain any amounts recovered
in such collection efforts. Crown and Newco agree to take or cause Merchants to
take any reasonable actions after the Closing (e.g. endorsing to NCC any check
made payable to Merchants) to facilitate NCC's receipt of any such collection
proceeds.
Section 6.07 Settlement of Advances. At the Closing, Newco shall
reimburse NCC for any advance described in Section 4.02(q). If Newco is not
reimbursed for such advance by the borrower within sixty (60) days after the
Closing Date, then NCC will reimburse Newco the amount of the advance upon
demand. Thereafter, if Newco comes to receive the advance from the borrower, it
shall promptly forward the same to NCC.
Section 6.08 Release of Current Merchants Letter of Credit. Immediately
after the Closing, Crown and Newco shall execute all appropriate documents and
agreements with FNMA and the Custodian with respect to the DUS program and shall
post with the Custodian collateral in the form and manner required by FNMA and
the Custodian to collateralize their obligations under the DUS program. Crown
and Newco shall immediately forward such signed documents, agreements and
collateral to the Custodian and shall immediately take and perform all other
necessary and appropriate actions to enable the Custodian to release and cancel
the original, current Merchants Irrevocable Letter of Credit No. SB-036107
issued by NBD Bank, N.A. in the amount of $2,500,000 in favor of FNMA.
Section 6.09 Performance of Certain Year-End Obligations. Crown and
Newco agree to timely prepare and file the requisite Internal Revenue Service
Forms 1098 and 1099 for 1996 relating to the borrowers of loans serviced by
Merchants during calendar year 1996 and to timely prepare and file with HUD,
FNMA and GNMA the requisite audited financial statements for Merchants for
calendar year 1996. Crown and Newco shall be responsible for all costs and
expenses involved in preparing and filing such forms and financial statements
and agree to indemnify and hold NCC and its Affiliates harmless from any loss,
claim or damage, including, but not limited to, any information reporting
penalties, arising out of Crown's and Newco's failure to timely or accurately
prepare and file such forms and financial statements. NCC, for and on behalf of
itself and its Affiliates, agrees to cooperate with Crown and Newco as they
discharge their responsibilities under this section and to provide Crown and
Newco
20
22
such access to or copies of data processing reports, financial records, loan
histories or similar data as Crown or Newco may reasonably request.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Notices. Any notice, request or other document to be given
under this Agreement to any party shall be effective upon receipt (or refusal of
receipt) and shall be in writing and delivered personally or sent by telecopy,
reputable overnight courier or certified or registered mail, postage prepaid to
the parties at the following addresses (or at such other address as a party may
specify to the other parties in writing as provided herein):
If to Crown or Newco:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
Telephone: 614/▇▇▇-▇▇▇▇
Telecopy: 614/488-9780
If to NCC:
c/o ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
One ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: 317/▇▇▇-▇▇▇▇
Telecopy: 317/267-8899
with a copy to:
Chief Counsel, National City Bank of Indiana
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: 317/▇▇▇-▇▇▇▇
Telecopy: 317/267-3878
Any notice sent by telecopy shall be followed by a hard copy of such notice sent
by United States first class mail, postage prepaid, or any other manner set
forth above.
21
23
Section 7.02 Survival of Representations, Warranties and Covenants. The
representations and warranties contained in Article IV and the covenants
contained in Article VI shall survive the Closing for a period of three years,
provided however, that any and all representations and warranties relating to
title to the Shares shall survive the Closing in perpetuity.
Section 7.03 Entire Agreement; Amendment. This Agreement, including the
Schedules and Exhibits to this Agreement, contain the entire agreement among the
parties with respect to the transactions contemplated hereby and supersede all
prior oral and written agreements, memoranda, understandings and undertakings
among the parties relating to the subject matter of this Agreement, except for
that certain Confidentiality Agreement dated November 9, 1995 between Crown and
Merchants which shall remain in effect until the Closing, or in perpetuity in
the event this Agreement is terminated. This Agreement may be modified or
amended only by a written instrument executed by or on behalf of all of the
parties.
Section 7.04 Brokers. The parties each acknowledge and represent to one
another that no finder or broker has acted in connection with the Transaction
and no one is entitled to receive a fee from any party to this Agreement other
than NatCity Investments, Inc. who has acted on behalf of NCC and whose fee
shall be paid by NCC.
Section 7.05 Governing Law. This Agreement shall be governed by the
laws of the state of Delaware, without regard to choice of law principles.
Section 7.06 Severability. In case any provision in this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired.
Section 7.07 Construction. The section and subsection headings used in
this Agreement are for convenience of reference only, are not a part of this
Agreement and are not to affect the construction of, or be taken into
consideration in interpreting, any provision of this Agreement. As used in this
Agreement, the masculine, feminine and neuter gender each includes the other,
unless the context otherwise dictates.
Section 7.08 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 7.09 Termination.
(a) Grounds for Termination. This Agreement shall terminate prior to
the Closing Date: (i) if the Closing shall not have occurred on or prior to the
earlier of (A) fifteen days following execution of this Agreement by all parties
and Newco's receipt of the Regulatory Approvals set forth in Section 3.01(g)(i)
and (ii) or (B) December 31, 1996, unless extended
22
24
by mutual agreement of the parties; (ii) by consent of all the parties at any
time prior to the Closing; (iii) by either Newco or NCC in the event any of the
conditions to the Transaction of such party set forth in Article III are not met
or cannot be met; or (iv) in the case of a material breach of this Agreement
(including an anticipatory material breach) by NCC, on the one hand, or Newco or
Crown, on the other hand (NCC and Newco/Crown are referred to as "non-breaching
party" or "breaching party," as the case may be), by the non-breaching party if
such breach or anticipatory breach is not cured or resolved to the satisfaction
of the non-breaching party within thirty (30) days after receipt of written
notice of such breach or anticipatory breach by the breaching party, which
notice specifies the conduct, if any, required to cure such breach or
anticipatory breach.
(b) Effect of Termination. In the event this Agreement is terminated by
mutual consent of the parties, there shall be no liability on the part of any
party. If this Agreement is terminated by a party pursuant to Section
7.09(a)(i), (iii) or (iv), then the parties shall retain all rights and remedies
available to them under this Agreement and applicable law.
Section 7.10 Successors and Assigns; Assignability. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties and their respective legal representatives, successors and permitted
assigns. This Agreement (i) shall not confer upon any Person other than the
parties and their respective successors and permitted assigns any rights or
remedies under this Agreement; and (ii) shall not be assignable by any party
without the consent of all other parties.
Section 7.11 Further Assurances. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the Transaction.
Section 7.12 Payment of Expenses. Each party shall be responsible for
and shall pay all expenses incurred by such party in connection with the
preparation, execution and delivery of this Agreement and the other agreements,
actions and documents referred to or contemplated by this Agreement and the
consummation of the Transaction.
Section 7.13 Public Announcements. All parties to this Agreement agree
that no party shall make any further public announcements, press releases or
other public disclosure regarding the existence of this Agreement or the
Transaction without first providing the other party with an opportunity to
review and approve such announcement, release or disclosure, except to the
extent any disclosure is required by law or any stock exchange regulation, in
which case any such required disclosure shall be made only after consultation
with the other party.
[Signatures appear on next page]
23
25
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
CROWN NORTHCORP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman and CEO
CNC/DUS NEWCO, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman and CEO
NATIONAL CITY CORPORATION
By:
------------------------------
Name:
Title:
S-1
26
EXHIBIT A
27
SERIES B PREFERRED STOCK TERMS
A. DESIGNATION. There shall be a series of Preferred Stock to be
known as Series B Non-Voting, Non-Convertible Preferred Stock, par value $0.01
per share (hereinafter referred to as "Series B Preferred Stock") consisting
of 2,000 authorized shares. After the issuance of the Series B Preferred Stock
and until the redemption of all of the outstanding shares thereof, the
Corporation shall not authorize or issue any shares of common or preferred
stock having rights or preferences with respect to liquidation or redemption
that are senior to the rights and preferences of the Series B Preferred Stock
with respect to such matters without having obtained the prior written consent
of two-thirds of the holders.
B. LIQUIDATION IN GENERAL. In the event of a Liquidation (defined
below), the holders of record of Series B Preferred Stock shall be entitled to
be paid in full the sum of $1,000 per share (the "Liquidation Preference")
before assets of the Corporation shall be distributed among or paid over to
the holders of Common Stock or other shares ranking junior to Series B
Preferred Stock (the "Junior Securities") in the distribution of assets or
upon the Liquidation of the Corporation. Written notice of a Liquidation,
stating a payment date and the place where such payments shall be made, shall
be given to the holders of record of Series B Preferred Stock, such notice to
be addressed to each such holder at such holder's address as shown on the
records of the Corporation. The liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the Corporation's consolidation
or merger with any other entity or group of entities, in which the
stockholders of the Corporation prior to such transaction do not own at least
a majority of the voting capital stock of the surviving entity after the
merger or consolidation, or the Corporation's sale or transfer of all or
substantially all of the Corporation's assets, shall be deemed a "Liquidation"
within the meaning of the provisions of this Section B.
The Series B Preferred Stock shall rank in respect of the
distribution of assets or upon the Liquidation of the Corporation, subject to
the last sentence of this paragraph, on a parity with the Series A Convertible
Preferred Stock, the Series C Convertible Preferred Stock and any other Senior
Securities (as defined below). If upon any Liquidation, the net assets
available for distribution to the holders of shares of the Series A
Convertible Preferred Stock, Series B Preferred Stock and Series C Convertible
Preferred Stock and subsequent series of Preferred Stock issued with rights
equivalent to the Series A Convertible Preferred Stock, Series B Preferred
Stock and Series C Convertible Preferred Stock (collectively referred to
herein as the "Senior Securities") shall be insufficient to pay the holders of
all of the outstanding shares of the Senior Securities the full amounts to
which they respectively shall be entitled, the holders of such shares, without
regard to classes or series, shall share in any
B-1
28
distribution of assets in proportion to the amounts respectively due to them
on payment in full. In the event of a Liquidation resulting from the
Corporation's consolidation or merger with any other entity or group of
entities in which the stockholders of the Corporation prior to such
transaction do not own at least a majority of the voting capital stock of the
surviving entity after the merger or consolidation or the sale or transfer of
all or substantially all of the Corporation's assets, the Series B Preferred
Stock shall rank in respect of the distribution of assets prior to any other
Senior Securities whose terms do not specifically include within the
definition of "Liquidation" such consolidations, mergers or asset transfers.
If at any time, or from time to time, the Corporation reduces the
number of outstanding shares of Series B Preferred Stock by combining such
shares into a smaller number of shares, the Liquidation Preference then in
effect on the record date for such action shall be increased proportionately
as of such record date. If at any time, or from time to time, the Corporation
increases the number of outstanding shares of Series B Preferred Stock by
subdividing such shares into a greater number of shares, the Liquidation
Preference then in effect on the record date for such action shall be
decreased proportionately as of such record date.
C. NO DIVIDENDS. No dividends of any kind shall be paid in respect of
the Series B Preferred Stock.
D. REDEMPTION RIGHTS.
(i) Mandatory Redemption. Subject to the proviso set forth
below, the Corporation shall be required to redeem by paying the Redemption
Price (defined below) the following number of shares of Series B Preferred
Stock on each respective date set forth below for such redemption:
Number of Shares of Series B Date of Redemption
---------------------------- ------------------
Preferred Stock to be Redeemed
------------------------------
500 December 31, 1997
600 December 31, 1998
900 December 31, 1999
Any remaining unredeemed shares Closing Date of a Public
Offering of Common Stock
(an "Offering")
Provided, however, that the Corporation shall not be required to redeem any
shares of Series B Preferred Stock to the extent that, as a result of such
redemption, the Corporation would
B-2
29
fail to satisfy the now-current requirements for the Corporation to have a
certain net worth in order for the Corporation to act as a loan servicer under
the programs authorized for the Corporation by the Federal National Mortgage
Association and in which the Corporation is now participating. If, on a
particular redemption date as provided above, the total number of
corresponding shares of Series B Preferred Stock cannot be redeemed due to the
Corporation's inability to satisfy the foregoing net worth requirements after
such redemption, the Corporation will redeem as many shares of Series B
Preferred Stock on such redemption date that can be redeemed and still meet
such net worth requirements.
The "Redemption Price" for each share of Series B Preferred Stock
shall be equal to the Liquidated Preference. The Redemption Price shall be
paid in cash by wire transfer of immediately available funds to any holder of
not less than one hundred (100) shares of Series B Preferred Stock to an
account designated by such holder.
The Corporation shall deposit Two Million Dollars ($2,000,000) in a
non-interest bearing account (the "Deposit Account") at National City Bank of
Indiana to secure the Corporation's obligations to redeem the Series B
Preferred Stock. The holders of the shares of the Series B Preferred Stock
shall have control over this Deposit Account to perfect their secured interest
therein. The holders of the shares of Series B Preferred Stock shall be
entitled to withdraw from the Deposit Account the Redemption Price on any
outstanding shares of Series B Preferred Stock which the Corporation has
failed to redeem on the respective dates set forth above provided however
that, on a particular redemption date, the holders of the shares of Series B
Preferred Stock shall be entitled to withdraw from the Deposit Account only an
amount to effect such redemptions at the Redemption Price as will cause the
Corporation to still meet the net worth requirements set forth above.
The Corporation shall also cause to be pledged to National City
Corporation as the holder of Series B Preferred Stock certain additional funds
of the Corporation pursuant to a pledge agreement to be executed by the
Corporation. National City Corporation, pursuant to a pledge agreement to be
executed by the Corporation, will be entitled to exercise its rights and
remedies as the pledgee of such certain additional funds in the event that
funds in the Deposit Account are not maintained at certain designated levels.
The Corporation shall also cause to be pledged to National City
Corporation as the holder of Series B Preferred Stock, all of the shares of
the Common Stock of the Corporation owned legally and beneficially by ▇▇▇▇▇▇
Holding Company, Ltd. ("▇▇▇▇▇▇") pursuant to a pledge agreement to be executed
by ▇▇▇▇▇▇. National City Corporation, not earlier than the tenth business day
following a redemption date, will be entitled to exercise its rights and
remedies as the pledgee of such shares of Common Stock, including realizing
upon such shares for payment of any unpaid Redemption Price of any outstanding
shares of Series B
B-3
30
Preferred Stock in the event the Corporation has failed to redeem outstanding
Shares of Series B Preferred Stock, in whole or in part, on a redemption date.
In the event that any date set for redemption is not a business day,
then such redemption shall occur on the next following business day.
(ii) Voluntary Redemption. All or part of the outstanding shares of
Series B Preferred Stock are subject to redemption, at the option of the
Corporation, at a price equal to the Redemption Price upon two (2) business
days prior written notice to the holders of Series B Preferred Stock,
specifying the aggregate number of shares of Series B Preferred Stock being
called for redemption and the date of such redemption. The Corporation shall
give notice of any voluntary redemption to the holders of shares of Series B
Preferred Stock by first class mail, postage prepaid or by overnight courier
delivery with such notice to be given not less than two business days before
the date of such redemption. In the event that any voluntary redemption is for
less than all of the outstanding shares of Series B Preferred Stock, then such
redemption shall be made on a pro rata basis from all holders of shares of
Series B Preferred Stock. On the date of any redemption, the holders of shares
of Series B Preferred Stock shall be paid in cash for the shares being so
redeemed upon surrender to the Corporation of certificate(s) evidencing such
shares.
E. CONVERSION RIGHTS.
The shares of the Series B Preferred Stock are non-convertible.
F. VOTING RIGHTS.
The Shares of the Series B Preferred Stock shall have no voting rights
with respect to directors of the Corporation or any other matter requiring
stockholder approval except with respect to those matters requiring separate
class votes as mandated by the laws of the State of Delaware.
G. PREEMPTIVE RIGHTS. The holders of the shares of Series B Preferred
Stock shall have no preemptive rights.
B-4
31
EXHIBIT B
32
SERIES C CONVERTIBLE PREFERRED STOCK TERMS
A. DESIGNATION. There shall be a series of Preferred Stock to be
known as Series C Non-Voting, Convertible Preferred Stock, par value $0.01
per share (hereinafter referred to as "Series C Convertible Preferred Stock")
consisting of 500 authorized shares. After the issuance of the Series C
Convertible Preferred Stock and until the redemption of all of the
outstanding shares thereof, the Corporation shall not authorize or issue any
shares of common or preferred stock having rights or preferences with respect
to payment of dividends, liquidation or redemption that are senior to the
rights and preferences of the Series C Convertible Preferred Stock with
respect to such matters without having obtained the prior written consent of
two-thirds of the holders.
B. LIQUIDATION IN GENERAL. In the event of a Liquidation (defined
below), the holders of record of Series C Convertible Preferred Stock shall
be entitled to be paid in full the sum of $1,000 per share (the "Liquidation
Preference") before assets of the Corporation shall be distributed among or
paid over to the holders of Common Stock or other shares ranking junior to
Series C Convertible Preferred Stock (the "Junior Securities") in the
distribution of assets or upon the Liquidation of the Corporation. Written
notice of a Liquidation, stating a payment date and the place where such
payments shall be made, shall be given to the holders of record of Series C
Convertible Preferred Stock, such notice to be addressed to each such holder
at such holder's address as shown on the records of the Corporation. The
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, the Corporation's consolidation or merger with any other
entity or group of entities, in which the stockholders of the Corporation
prior to such transaction do not own at least a majority of the voting
capital stock of the surviving entity after the merger or consolidation, or
the Corporation's sale or transfer of all or substantially all of the
Corporation's assets, shall be deemed a "Liquidation" within the meaning of
the provisions of this Section B.
The Series C Convertible Preferred Stock shall rank in respect of
the distribution of assets or upon the Liquidation of the Corporation,
subject to the last sentence of this paragraph, on a parity with the Series A
Convertible Preferred Stock, the Series B Preferred Stock and any other
Senior Securities (as defined below). If upon any Liquidation, the net assets
available for distribution to the holders of shares of the Series A
Convertible Preferred Stock, the Series B Preferred Stock, the Series C
Convertible Preferred Stock and subsequent series of Preferred Stock issued
with rights equivalent to the Series A Convertible Preferred Stock, the
Series B Preferred Stock and the Series C Convertible Preferred Stock
(collectively referred to herein as the "Senior Securities") shall be
insufficient to pay the holders of all of the outstanding shares of the
Senior Securities the full amounts to which
C-1
33
they respectively shall be entitled, the holders of such shares, without
regard to classes or series, shall share in any distribution of assets in
proportion to the amounts respectively due to them on payment in full. In the
event of a Liquidation resulting from the Corporation's consolidation or
merger with any other entity or group of entities in which the stockholders of
the Corporation prior to such transaction do not own at least a majority of
the voting capital stock of the surviving entity after the merger or
consolidation or the sale or transfer of all or substantially all of the
Corporation's assets, the Series C Convertible Preferred Stock shall rank in
respect of the distribution of assets prior to any other Senior Securities
whose terms do not specifically include within the definition of "Liquidation"
such consolidations, mergers or asset transfers.
If at any time, or from time to time, the Corporation reduces the
number of outstanding shares of Series C Convertible Preferred Stock by
combining such shares into a smaller number of shares, the Liquidation
Preference then in effect on the record date for such action shall be
increased proportionately as of such record date. If at any time, or from time
to time, the Corporation increases the number of outstanding shares of Series
C Convertible Preferred Stock by subdividing such shares into a greater number
of shares, the Liquidation Preference then in effect on the record date for
such action shall be decreased proportionately as of such record date.
C. NON-CUMULATIVE DIVIDENDS. The holders of record of Series C
Convertible Preferred Stock shall be entitled to quarterly cash dividends at
the annual rate of eight percent (8%) per share of Series C Convertible
Preferred Stock on the Liquidation Preference (the "Dividend Rate"). Such
dividends shall not cumulate regardless of whether earned or payable. Such
dividends shall be paid solely and only to the extent that corporate funds are
legally available for the payment thereof and only to the extent that such
dividends are declared payable by the Corporation's Board of Directors.
In the event of a Liquidation, the holders of record of Series C
Convertible Preferred Stock shall be entitled to be paid in full all dividends
declared payable by the Corporation's Board of Directors before assets of the
Corporation shall be distributed among or paid over to the holders of Junior
Securities. Before the Liquidation, the full amount of all unpaid dividends
declared payable by the Corporation's Board of Directors on Series C
Convertible Preferred Stock shall be paid before the declaration or setting
apart for payment of any dividend or other distribution on Junior Securities.
No dividend shall be paid, declared or set apart for payment on any Junior
Securities unless the Corporation has paid all dividends on or in respect of
all outstanding shares of Series C Convertible Preferred Stock which have been
declared and are unpaid.
With respect to the payment of dividends, the Series C Convertible
Preferred Stock shall rank junior in priority to the payment of dividends on
the Series A Convertible
C-2
34
Preferred Stock and on parity with other Senior Securities (to the extent that
dividends are due on such other Senior Securities), and senior in priority to
all shares of Junior Securities.
D. CONVERSION RIGHTS.
(i) Voluntary Conversion. The holder of each outstanding
share of Series C Convertible Preferred Stock shall have the right during the
Conversion Period (defined below), at such stockholder's option and on and
subject to the terms and conditions hereinafter set forth, to convert such
shares of Series C Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock. Upon the conversion of Series C
Convertible Preferred Stock, dividends relating to the shares of Series C
Convertible Preferred Stock converted shall cease to cumulate and all
preferences upon Liquidation shall cease. Each outstanding share of Series C
Convertible Preferred Stock may, at the option of the holders thereof, be
converted into six hundred sixty-six and sixty-seven hundredths (666.67)
shares of Common Stock (the "Conversion Ratio"). The "Conversion Period" shall
be a forty-five (45) consecutive calendar day period commencing on the Trigger
Date (defined below). The "Trigger Date" is the last day of that thirty (30)
calendar day period in which the average per share price of the Common Stock,
as determined by the closing price on each day (i) on the OTC Bulletin Board
("OTCBB") administered by the National Association of Securities Dealers
("NASD"), as such closing price is shown on each day that the OTCBB is
conducting business in the records of the NASD Research Department (or is
available from any other reputable stock price reporting service) or (ii) if
the Common Stock is listed on an exchange, then by the closing price on each
day that the stock exchange on which the Common Stock is listed is conducting
business, as such closing price is shown in The Wall Street Journal (or is
available from any other reputable stock price reporting service), is equal to
or exceeds one dollar and fifty cents ($1.50).
(ii) Method of Conversion. In order to exercise the voluntary
conversion privilege provided in paragraph (i) above, each holder of Series C
Convertible Preferred Stock shall, during the Conversion Period, surrender
such holder's certificates representing Series C Convertible Preferred Stock
at the Corporation's office or at such other place as shall be designated by
the Corporation, duly endorsed to the Corporation. Upon the Corporation's
receipt of such certificates, the Corporation shall issue certificates
representing the appropriate number of shares of Common Stock in the
respective names of the holders of Series C Convertible Preferred Stock or in
the names of the holders' designees.
(iii) Fractional Shares. No fractional shares of Common
Stock, or scrip representing a fractional share, shall be issued upon the
conversion of any shares of Series C Convertible Preferred Stock pursuant to
this section D. If more than one share of Series C Convertible Preferred Stock
shall be surrendered for conversion at one time by the same holder, the number
of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series C
Convertible
C-3
35
Preferred Stock so surrendered. If any fractional interest in a share of
Common Stock would otherwise be deliverable upon the conversion of any shares
of Series C Convertible Preferred Stock, the Corporation shall pay, in lieu
thereof, a cash payment equal to the fair market value of such fractional
interest.
(iv) Adjustment of Number of Shares of Common Stock.
(a) Stock Dividends: Stock Splits. If the number of
shares of Common Stock outstanding at any time after the date
of issuance of the shares of Series C Convertible Preferred
Stock is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of
Common Stock, then immediately after the record date fixed
for the determination of holders of shares of Common Stock
entitled to receive such stock dividend or the effective date
of such subdivision or split-up, as the case may be, the
Conversion Ratio shall be appropriately reduced so that the
holder of any shares of Series C Convertible Preferred Stock
thereafter converted shall be entitled to receive the number
of shares of Common Stock of the Corporation which such
holder would have owned immediately following such action had
such shares of Series C Convertible Preferred Stock been
converted immediately prior thereto.
(b) Combination of Shares. If the number of shares
of Common Stock outstanding at any time after the date of
issuance of the shares of Series C Convertible Preferred
Stock is decreased by a combination of the outstanding shares
of Common Stock, then immediately after the effective date of
such combination, the Conversion Ratio shall be appropriately
increased so that the holder of any shares of Series C
Convertible Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock of
the Corporation which such holder would have owned
immediately following such action had such shares of Series C
Convertible Preferred Stock been converted immediately prior
thereto.
(v) Cancellation. All shares of Series C Convertible
Preferred Stock which shall have been surrendered for conversion as herein
provided in this Section D - Conversion Rights shall no longer be deemed to be
outstanding and all rights with respect to such shares of Series C Convertible
Preferred Stock, shall forthwith cease and terminate, except only the rights
of the holders thereof to receive shares of Common Stock or other assets or
property in exchange therefor and to receive the payment of accrued unpaid
dividends thereon from the Corporation as funds become legally available for
the payment thereof.
(vi) Reservation of Shares. The Corporation shall at all
times reserve and keep available, free from preemptive rights, out of its
treasury shares or its authorized but
C-4
36
unissued shares of Common Stock, for the purpose of effecting the conversion
of the shares of Series C Convertible Preferred Stock, the full number of
shares of Common Stock then deliverable upon the conversion of all shares of
Series C Convertible Preferred Stock then outstanding.
E. REDEMPTION RIGHTS.
(i) Mandatory Redemption. The Corporation shall be required
to redeem by paying the Liquidation Preference plus the full amount of any
unpaid dividends thereon declared payable by the Corporation's Board of
Directors the following number of shares of Series C Convertible Preferred
Stock on each respective date set forth below for such redemption:
Number of Shares of Series C Convertible Date of Redemption
---------------------------------------- ------------------
Preferred Stock to be Redeemed
------------------------------
One-half of the outstanding shares of
Series C Convertible Preferred Stock December 31, 2001
All remaining outstanding shares of
Series C Convertible Preferred Stock December 31, 2002
Such redemption payments shall be paid in cash by wire transfer of
immediately available funds to an account designated by the holder of the
Series C Convertible Preferred Stock.
In the event that any date set for redemption is not a business day,
then such redemption shall occur on the next following business day.
(ii) Voluntary Redemption. After the expiration of the
Conversion Period, all or part of the outstanding shares of Series C
Convertible Preferred Stock are subject to redemption, at the option of the
Corporation, at a redemption price equal to the Liquidation Preference plus
the full amount of any unpaid dividends thereon declared payable by the
Corporation's Board of Directors. The Corporation shall give notice of any
voluntary redemption specifying the aggregate number of shares of Series C
Convertible Preferred Stock being called for redemption and the date of such
redemption to the holders of shares of Series C Convertible Preferred Stock by
first class mail, postage prepaid or by overnight courier delivery with such
notice to be given not less than two business days before the date of such
redemption. In the event that any voluntary redemption is for less than all of
the outstanding shares of Series C Convertible Preferred Stock, then such
redemption shall be made on a pro rata basis from all holders of shares of
Series C Convertible Preferred Stock. On the date of any redemption, the
holders of shares of Series C Convertible Preferred Stock
C-5
37
shall be paid in cash for the shares being so redeemed upon surrender to the
corporation of certificate(s) evidencing such shares.
F. VOTING RIGHTS.
Prior to conversion of the shares of Series C Convertible Preferred
Stock to shares of Common Stock, the shares of the Series C Convertible
Preferred Stock shall have no voting rights with respect to directors of the
Corporation or any other matter requiring stockholder approval except with
respect to those matters requiring separate class votes as mandated by the
laws of the State of Delaware.
G. ISSUE TAX. The issuance of certificates representing shares of
Common Stock upon the conversion of Series C Convertible Preferred Stock shall
be made without charge to the holders thereof for any issuance, stock transfer
or documentary stamp tax in respect thereof, provided that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in the name
other than that of the record holder of the Series C Convertible Preferred
Stock that is being converted.
H. PREEMPTIVE RIGHTS. The holders of the shares of Series C
Convertible Preferred Stock shall have no preemptive rights.
C-6
38
EXHIBIT C
39
338 (h) (10) ELECTION SCHEDULE
Consideration for target stock $13,548,898
Liabilities of Target corp.
Loan loss reserve $ 3,445,000
Debt $ 676,415
-----------
Total liabilities $ 4,121,415
Tax liability on sale N/A
Other relevant items
Aggregate Class III assets $ 2,511,474
Intangible amortizable Class III assets
Purchased servicing rights $ 1,133,474
amortized as per FASB 122
40
SCHEDULE 2.03
41
SERVFEE1.WK4 ANNUALIZED SERVICING FEE SCHEDULE 01/03/97
MERCHANTS MORTGAGE PORTFOLIO - ADJUSTED FOR PAYOFFS
PRIN BALANCE SERV FEE ANNUALIZED Payoff Adjmnt
EDGWOOD $141,628 0.2500% $354
FALL CREEK $1,775,468 0.1000% $1,775
▇▇▇▇▇▇▇ PARK $1,249,357 0.1250% $1,562
WINDSOR PARK $2,965,741 0.1250% $3,707 $11,553
CROSS LAKES $7,044,022 0.2500% $17,610
DRAKE MANOR $641,554 0.2500% $1,604
CLOVERLEAF $1,280,396 0.2500% $3,201
CAMBRIDGE PLACE $2,737,634 0.1000% $2,738
BROADRIPPLE $1,550,722 0.2500% $3,877 $12,082
SUNCREST $3,340,824 0.1000% $3,341
BRAEBURN $10,660,203 0.2500% $26,651
SILVERTREE $2,839,793 0.5000% $14,199
WINDSONG $2,276,010 0.5000% $11,380
NORTHERNVIEW $1,802,973 0.5000% $9,015 $28,094
ENGLISH VILL $4,803,238 0.2500% $12,008 $37,422
WINTHROP NORTH $936,083 0.3750% $3,510
WINTHROP SOUTH $1,560,139 0.3750% $5,851
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ $483,643 0.3750% $1,814
WINTHROP DEFIANC $1,189,606 0.3750% $4,461
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ $1,794,161 0.3750% $6,728
PARK GREENWOOD $4,005,858 0.2500% $10,015
▇▇▇▇▇▇▇ VILLAGE $7,255,465 0.2500% $18,139 $56,527
SOLON CLUB $3,993,359 0.3750% $14,975
▇▇▇▇ VILLAGE $4,938,072 0.2500% $12,345
LONVALE GARDENS $5,578,020 0.2500% $13,945
LANDMARK $4,551,509 0.2500% $11,379 $35,460
ALPINE VILLAGE $2,182,699 0.2500% $5,457
HERITAGE VILLAGE $3,024,817 0.2500% $7,562
WESTOWN $3,134,632 0.2500% $7,837
GEORGETOWN $4,886,243 0.2500% $12,216 $38,068
▇▇▇▇▇▇▇▇▇ $2,416,944 0.2500% $6,042 $18,830
WHITEHALL $1,449,529 0.2500% $3,624
BROOKHAVEN $7,678,381 0.2500% $19,196
BRISTOL SQUARE $5,228,953 0.2500% $13,072
CAMBRIDGE $1,822,714 0.2500% $4,557 $14,201
HIDDEN ACRES $2,869,950 0.2500% $7,175
▇▇▇▇▇▇▇ ▇▇▇▇ $3,026,888 0.2500% $7,567
BRIDGEDALE TERR $1,085,112 0.3750% $4,069
ENCLAVE $8,862,412 0.2500% $22,156
WEDGEWOOD $2,042,209 0.3750% $7,658 $23,866
▇▇▇▇▇▇▇▇ VILLAGE $5,051,904 0.2500% $12,630
PORT CROSSING $3,093,362 0.2500% $7,733
BARRINGTON SQU $4,099,831 0.2500% $10,250
CARNABY VIL $4,747,955 0.2500% $11,870
ROUND BARN $3,455,864 0.1000% $3,456
WESTVIEW $986,242 0.1875% $1,849
FOUNTAIN PARK $17,794,105 0.6250% $111,213
DOERCHESTER $7,227,791 0.2500% $18,069
------- --------
TOTAL FEE $521,440 $276,102
PURCHASE PRICE $1,625,000 $1,348,898
MULTIPLIER 3.12
42
SCHEDULE 4.01
1. Merchants Mortgage Corporation is a participating employer in
various National City Corporation pension and welfare benefit plans as defined
in Sections 3(2) and 3(1) of ERISA, respectively, maintained by National City
Corporation.
2. Merchants Mortgage Corporation has assigned to National City Bank
of Indiana that certain Concord Assets Group commercial loan that was
previously 100% participated to National City Bank of Indiana.
3. Merchants Mortgage Corporation is a party to a Purchase and Sale
Agreement dated April 30, 1992 with National City Mortgage Co. which it will
assign to National City Corporation or another Affiliate at or prior to the
Closing. This Agreement relates to the sale of certain residential mortgage
loan servicing from Merchants Mortgage Corporation to National City Mortgage
Co.
4. Merchants Mortgage Corporation is a party to a Cross-Default
Agreement among Merchants, the Government National Mortgage Association
("GNMA") and Merchants' affiliate, National City Mortgage Co., dated November
23, 1994. Merchants will advise GNMA that as of the Closing, Merchants and
National City Mortgage Co. are no longer affiliated companies.
5. See GNMA Custodial Agreement with National City Bank, Kentucky
described in Schedule 4.02(b) hereof.
43
SCHEDULE 4.02
Foreign qualifications:
Illinois, Michigan and Ohio
Domestic qualifications:
Indiana
Authorized, issued and outstanding shares of Merchants
1,000 shares authorized at no par value; 350 shares outstanding
Net Residential Loans - See attached
Contractual obligations - See attached
Governmental licenses, permits, approvals - See attached
Bank accounts; other banking relationships - See attached
Advances - See attached
44
HUD
1. Application for Approval and HUD Approval as Mortgagee dated 2/2/94 -
Multifamily mortgage loans
2. Letter dated 2/13/87 issued by HUD re: Coinsurance Program approval
3. Letter dated 1/09/84 issued by HUD re: Coinsurance Program approval
Indiana Housing Finance Authority
1. Mortgage Servicing Agreement dated August 31, 1982 among The Indiana National
Bank, as Trustee, Indiana Housing Finance Authority, Merchants Mortgage
Corporation and Fall Creek Village I.
Other
1. Letter dated August 14, 1979 from the Federal Reserve Bank of Chicago
authorizing Merchants Mortgage Corporation's activities as a subsidiary of
Merchants National Corporation (predecessor in interest to National City
Corporation) and various approval letters from the Federal Reserve
subsequent thereto, for example, to expand its geographic scope and to
engage in equity financing.
Merchants Mortgage Corporation Software and Equipment Agreements
1. Software License Agreement dated 11/17/95 between Merchants Mortgage
Corporation and Synergy Software, Inc.
2. Rider to License Agreement (Source Code Escrow)
3. Participating Licensee Acceptance (Attachment to Source Code Escrow Master
Agreement)
4. Addendum to Software License Agreement and Rider to Software License
Agreement dated 11/27/95
5. Rider to Software License Agreement dated 11/17/95
45
SCHEDULE 4.02(a)
Net Residential Loans
---------------------
Outstanding As of
-----------------
Name of Borrower Loan No. June 28. 1996
---------------- -------- -------------
▇▇▇▇▇▇ 8137691 $340.270.96
▇▇▇▇▇▇▇▇ 8129423 $ 64,635.94
The foregoing loans were sold by Merchants Mortgage Corporation to its
affiliate, National City Bank of Indiana, on or about July 5, 1996.
46
Schedule 4.02(b)
Contractual Obligations and Governmental Licenses, Permits, Approvals
FNMA
1. Federal National Mortgage Association Mortgage Servicing Contract
effective 11/28/79
2. Federal National Mortgage Association Mortgage Selling Contract effective
11/28/79
3. The foregoing Servicing Contract and Selling Contract were apparently
combined into a single Mortgage Selling and Servicing Contract dated
January 7, 1983.
4. Addendum to Mortgage Selling and Servicing Contract effective June 26,
1984 (to sell and service Conventional Multifamily mortgage loans to FNMA)
5. Letter dated April 19, 1995 issued by FNMA re: Prior Approval lender
approval
6. Various letters from FNMA regarding authorization for Custodial Accounts
7. Merchants Mortgage Corporation's DUS Contract, DUS Loss Sharing Agreement
and DUS Reserve Agreement are more specifically described in Section 1.01
of the Stock Purchase Agreement of which this Schedule is a part.
GNMA
1. Government National Mortgage Association Selling Contract effective
November 28, 1979
2. Government National Mortgage Association Servicing Contract effective
November 28, 1979
3. Custodial Agreement for Mortgage-Backed Securities dated 1/13/94 between
Merchants Mortgage Corporation and National City Bank, Kentucky with GNMA
approval of 2/10/94
4. GNMA Approval for Commitment to Guarantee Mortgage-Backed Securities dated
February 18, 1994
5. GNMA Approval for Merchants Mortgage Corporation as Issuer of Multi-Family
Mortgage-Backed Securities dated March 17, 1983
47
HUD
1. Application for Approval and HUD Approval as Mortgagee dated 2/2/94-
Multifamily mortgage loans
2. Letter dated 2/13/87 issued by HUD re: Coinsurance Program approval
3. Letter dated 1/09/84 issued by HUD re: Coinsurance Program approval
Indiana Housing Finance Authority
1. Mortgage Servicing Agreement dated August 31, 1982 among The Indiana
National Bank, as Trustee, Indiana Housing Finance Authority, Merchants
Mortgage Corporation and Fall Creek Village I.
Other
1. Letter dated August 14, 1979 from the Federal Reserve Bank of Chicago
authorizing Merchants Mortgage Corporation's activities as a subsidiary of
Merchants National Corporation (predecessor in interest to National City
Corporation) and various approval letters from the Federal Reserve
subsequent thereto, for example, to expand its geographic scope and to
engage in equity financing.
Merchants Mortgage Corporation Software and Equipment Agreements
1. Software License Agreement dated 11/17/95 between Merchants Mortgage
Corporation and Synergy Software. Inc.
2. Rider to License Agreement (Source Code Escrow)
3. Participating Licensee Acceptance (Attachment to Source Code Escrow Master
Agreement)
4. Addendum to Software License Agreement and Rider to Software License
Agreement dated 11/27/95
5. Rider to Software License Agreement dated 11/17/95
48
6. Oral agreement with Automated Business Machines, Inc. for maintenance of
Check Protector equipment
The foregoing software and equipment agreements will not be assumed by Crown
or Newco. National City Corporation or an affiliate will retain or terminate
such agreements.
Letter of Credit - $2,500,000 - issued by NBD Bank, N.A.
1. Irrevocable Letter of Credit No. SB-036107 in the amount of $2,500,000.00
in favor of Federal National Mortgage Association expiring 6/1/97
2. Reimbursement Agreement dated 5/5/93 between Merchants Mortgage
Corporation and INB National Bank, a national banking association
(predecessor of NBD Bank, N.A.)
3. Amendment to Reimbursement Agreement dated 4/18/94
4. Limited Continuing Guaranty dated 4/18/94 by National City Corporation
5. Second Amendment to Reimbursement Agreement dated 4/14/95
6. Third Amendment to Reimbursement Agreement dated 4/23/96
The foregoing letter of credit, reimbursement agreement and guaranty will be
terminated on or prior to Closing.
49
Schedule 4.02(c)
10/28/96 PAGE 1
BK-ACCT ACCT-DESCRIP MEMO-1 MEM0-2
-------- -------------------------- -------------------------- ----------------
04014885 SERVICER CORPORATE ACCOUNT MMC CORPORATE CASH ACCOUNT
▇▇▇▇▇▇▇▇ DISBURSEMENTS CLEARING ACCOUNT GNMA DISBURSEMENT CLEARING A/C
1223718 SPECIAL RESERVES 520270 BRAEBURN INTEREST BEARING
1267512 PRIN/INT ONLY ▇▇▇▇ ▇▇▇ P&I ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES 565283 PARK GREENWOOD INTEREST BEARING
1292419 PRIN/INT ONLY FNMA ▇▇▇/▇▇▇ ▇&▇
▇▇▇▇▇▇▇ SPECIAL RESERVES 565234 WINTHROP SOUTH INTEREST BEARING
1296813 SPECIAL RESERVES 610667 ALPINE VILLAGE INTEREST BEARING
1296910 SPECIAL RESERVES ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ INTEREST BEARING
2018414 DISBURSEMENTS CLEARING ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES 588897 ▇▇▇▇ VILLAGE INTEREST BEARING
2298315 SPECIAL RESERVES 626739 HERITAGE VILLAGE INTEREST BEARING
2298412 SPECIAL RESERVES ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INTEREST BEARING
2344612 SPECIAL RESERVES 436964 CROSS LAKES INTEREST BEARING
291314 SPECIAL RESERVES 565226 WINTHROP NORTH INTEREST BEARING
294010 SPECIAL RESERVES 565259 WINTHROP DEFIANCE INTEREST BEARING
297512 SPECIAL RESERVES 565267 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INTEREST BEARING
300002876 RECEIPTS CLEARING ACCOUNT
▇▇▇▇▇▇▇ PRIN/INT ONLY GNMA P&I ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES 438234 ▇▇▇▇▇▇▇ - HELD INTEREST BEARING
3246612 SPECIAL RESERVES 653980 THE ENCLAVE INTEREST BEARING
3246816 PRIN/INT ONLY FNMA DUS P&I ACCOUNT
▇▇▇▇▇▇▇ ESCROWS ONLY ▇▇▇▇ ▇▇▇ T&I ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES 696740 ▇▇▇▇▇▇▇▇ VILLAGE INTEREST BEARING
3296714 SPECIAL RESERVES 626762 ▇▇▇▇▇▇▇▇▇ INTEREST BEARING
337414 SPECIAL RESERVES 696773 PORT CROSSING INTEREST BEARING
35415 PRIN/INT ONLY INDIANA HOUSING P&I ACCOUNT
▇▇▇▇▇▇▇▇ HOLDBACKS ▇▇▇▇ VILLAGE - 0588897 OPERATING DEFICIT ESCROW
4074414 ESCROWS ONLY GNMA T&I ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES 588848 SOLON CLUB INTEREST BEARING
500968867 SPECIAL RESERVES 270488 FALL CREEK VILLAGE INTEREST BEARING
501773331 HOLDBACKS 270488 FALL CREEK VILLAGE INTEREST BEARING
501773742 PRIN/INT ONLY NPA P&I ACCOUNT
501773755 SPECIAL RESERVES OPA REPLACEMENT RESERVES
501786360 SERVICER CORPORATE ACCOUNT MMC CORPORATE ACCOUNT #2
502317592 HOLDBACKS INSURANCE LOSS
50
10/28/96 PAGE 2
BK-ACCT ACCT-DESCRIP MEMO-1 MEMO-2
------- ---------------- ----------------------------- ----------------
5118311 PRIN/INT ONLY OPA P&I ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ INTEREST BEARING
5296712 SPECIAL RESERVES 626747 WESTOWN INTEREST BEARING
5296819 SPECIAL RESERVES ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ INTEREST BEARING
5296916 SPECIAL RESERVES 525865 WINDSONG INTEREST BEARING
5336012 SPECIAL RESERVES 707224 ROUNDBARN MANOR INTEREST BEARING
6088217 SPECIAL RESERVES 263285 EDGEWOOD/TRAYMORE INTEREST BEARING
6133719 ESCROWS ONLY OPA T&I ACCOUNT
▇▇▇▇▇▇▇ ESCROWS ONLY FNMA DUS T&I ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES 638346 CAMBRIDGE APTS INTEREST BEARING
6344919 SPECIAL RESERVES 626770 WHITEHALL MANOR INTEREST BEARING
7290211 SPECIAL RESERVES 696815 CARNABY VILLAGE INTEREST BEARING
8224613 SPECIAL RESERVES 449850 CLOVERLEAF INTEREST BEARING
8294915 SPECIAL RESERVES 525857 SILVERTREE/EVERBROOK INTEREST BEARING
8298717 SPECIAL RESERVES 638361 HIDDEN ACRES EAST INTEREST BEARING
8298814 SPECIAL RESERVES 822239 DORCHESTOR VILLAGE INTEREST BEARING
9035018 ESCROWS ONLY INDIANA HOUSING T&I ACCOUNT
▇▇▇▇▇▇▇ SPECIAL RESERVES 452862 BROADRIPPLE/WILRENE INTEREST BEARING
9242212 SPECIAL RESERVES 762005 WESTVIEW APTS INTEREST BEARING
9290316 SPECIAL RESERVES 565242 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ INTEREST BEARING
9296815 SPECIAL RESERVES 638403 ▇▇▇▇▇▇▇ HILLS INTEREST BEARING
51
Schedule 4.02(d)
Advances
If principal and interest payments on FNMA loans are not paid by the
18th day of each month, Merchants must advance those payments to FNMA.
Payments on the two (2) ▇▇▇▇▇▇▇▇▇ loans in the Loan Servicing Portfolio are
not usually received by Merchants until after the 18th and Merchants has
therefore advanced those principal and interest payments to FNMA.
52
SCHEDULE 5.01
Servicing Transfer of Loan Servicing Portfolio
Data or Report Format
-------------- ------
Trial Balances Paper and diskette
Escrow Trial Balances Paper and diskette
Last Investor Remittance Reports Paper and diskette
Screen Prints of Tax and Insurance
Trailers Paper
12-month loan histories Paper and diskette
For participations (if any) addresses,
telephone numbers and wire instructions
for participants Paper