Form 10-QSB
[ x ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 1998
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 333-10109
UNITED MORTGAGE TRUST
(Exact Name of Registrant as Specified in its
Governing Instruments)
(a Maryland trust) (IRS Employer Identification
Number 75-6496585)
1701 N. GREENVILLE, SUITE 403
RICHARDSON TX 75081
(972) 705-9805
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes X No ___
UNITED MORTGAGE TRUST
INDEX TO FORM 10-QSB
Page Number
PART I -- FINANCIAL INFORMATION.......................3
Item 1. Financial Statements...........................3
Balance Sheets
March 31, 1998 and December 31, 1997...........F1
Statements of Operations
Three Months Ending March 31, 1998 and 1997....F2
Statements of Cash Flows
Three Months Ending March 31, 1998 and 1997....F3
Notes to Financial Statements.....................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.....6
PART II -- OTHER INFORMATION...........................9
Item 6. Exhibits and Reports on Form 8-K...............9
SIGNATURE..............................................9
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNITED MORTGAGE TRUST
BALANCE SHEETS
March 31, 1998 and December 31, 1997
ASSETS
March 31,
December 31,
1998
1997
(unaudited)
(audited)
Cash
$ 256,114
$ 248
Investment in first lien mortgage notes
4,591,702
2,722,036
Interim mortgage notes
1,200,785
877,275
Accrued interest receivable
58,815
38,746
Receivable from affiliate (Note 4)
-
12,116
Equipment, less accumulated depreciation
1,721
1,850
of $866 and $736
Other assets
8,042
2,337
6,117,179
3,654,608
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable (Note 3)
325,254
138,000
Dividend payable
56,942
33,799
Accounts payable and accrued liabilities
1,762
883
383,958
172,682
Commitments and contingencies
-
-
Shareholders' equity:
Shares of beneficial interest; $.01 par
value; 100,000,000 shares authorized;
327,694 and 202,508 shares outstanding
3,277
2,025
Additional paid-in capital
5,707,177
3,467,964
Retained earnings (deficit)
22,766
11,937
Total shareholders' equity
5,733,220
3,481,926
$ 6,117,178
$3,654,608
See accompanying notes to financial statements.
F1
UNITED MORTGAGE TRUST
STATEMENTS OF OPERATIONS
Quarters Ended March 31, 1998 and 1997
March 31,
March 31,
1998
1997
Revenues:
Interest income
$ 164,116
$ 556
Expenses:
Salaries and wages
16,447
16,447
General and administrative
28,967
1,582
Interest expense
3,646
-
Expense reimbursements from
affiliate (Note 4)
(35,813)
-
13,247
18,029
Net income (loss)
$ 150,869
$ (17,473)
Net income (loss) per share
of beneficial interest
$ 0.54
$ (1.75)
Weighted average shares outstanding
277,850
10,000
See accompanying notes to financial statements.
F2
UNITED MORTGAGE TRUST
STATEMENTS OF CASH FLOWS
Quarters Ended March 31, 1998 and 1997
March 31,
March 31,
1998
1997
Cash flows from operating activities:
Net income (loss)
$ 150,869
$ (17,473)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization
175
67
Amortization of discount on mortgage notes
(11,921)
-
Accrued interest receivable
(20,069)
137
Other assets
(5,750)
-
Accounts payable and accrued liabilities
879
29,315
Net cash provided by operating
activities:
114,183
12,046
Cash flows from investing activities:
Investment in first lien mortgage notes
(1,807,988)
-
Principal receipts on first lien mortgage notes
7,967
38
Investment in interim mortgage notes
(323,510)
-
Loan acquisition cost
(57,724)
-
Net cash used in investing activities
(2,181,255)
38
Cash flows from financing activities:
Proceeds from issuance of shares of
beneficial interest
2,240,465
-
Offering costs
-
(42,587)
Net borrowings on note payable
187,254
22,469
Receivable from affiliate
12,116
-
Dividends
(116,897)
-
Net cash provided by financing
activities:
2,322,938
(20,118)
Net increase (decrease) in cash
255,866
(8,034)
Cash at beginning of period
248
13,051
Cash at end of period
$ 256,114
$ 5,017
Interest paid
$ 3,646
$ -
See accompanying notes to financial statements.
F3
UNITED MORTGAGE TRUST
Notes to Financial Statements
March 31, 1998
1. Description of Business
The Company
United Mortgage Trust ("UMT" or the "Company") is a
Maryland real estate investment trust which intends to
qualify as a real estate investment trust under federal
income tax laws. The advisor to the Company is Mortgage
Trust Advisors, Inc. (the "Advisor"), a Texas corporation.
The Company invests in the following types of Mortgage
Investments: (1) first lien, fixed rate mortgages secured
by single family residential property throughout the United
States ("Residential Mortgages"), and (2) loans of 12 months
or less in term, made to borrowers for the purchase,
renovation and sale of single family homes ("Interim
Mortgages"). Such loans will be originated by others to the
Company's specifications or to specifications approved by
the Company. Most, if not all, of such loans are not insured
or guaranteed by a federally owned or guaranteed mortgage
agency.
Operations commenced on March 5, 1997 when approval was
given by the Securities and Exchange Commission for the
Company's initial public offering of shares. The Company is
currently offering up to 2,500,000 shares at an offering
price of $20 per share.
2. Basis of Presentation
The accompanying unaudited financial statements have
been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-QSB of Regulation S-B. They
do not include all information and footnotes required by
generally accepted accounting principles for complete
financial statements. However, expect as disclosed herein,
there has been no material change in information disclosed
in the notes to the financial statements for the year ending
December 31, 1997 included in the Company's 10-KSB filed
with the Securities and Exchange Commission. The interim
unaudited financial statements should be read in conjunction
with those financial statements. In the opinion of
management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring
adjustments, have been made. Operating results for the three
months ending March 31, 1998 are not necessarily indicative
of the results that may be expected for the year ending
December 31, 1998.
3. Notes Payable
On March 27, 1998 the Company renewed and increased its
Revolving Loan Agreement (the "Agreement") with Abrams
Centre National Bank (the "Bank"), wherein the Company can
borrow up to $500,000 on a revolving basis for a term of one
year from the date of the Agreement. Interest on the
outstanding principal balance of the loan is paid monthly at
a varying rate per annum of one and one-half percent (1-
1/2%) in excess of the Bank's prime rate of interest. The
borrowing base in the Agreement is an amount equal to fifty
percent (50%) of the aggregate unpaid principal of the
Collateral pledged to the Bank. Collateral for the Agreement
is $1,000,000 unpaid principal balance of residential
mortgages owned by the Company. As security for the prompt
satisfaction of all obligations of the Agreement, the
Company agreed to assign, transfer and set over to the Bank
all of its right, title and interest in and to the
Collateral. As of March 31, 1998 the outstanding balance of
the Revolving Line of Credit was $325,254. The Company used
the funds to purchase Mortgage Investments.
4. Related Party Transactions
In 1997 UMT entered into a Funding Agreement with the
Advisor whereby the Advisor agreed to fund the Company's
general and administrative expenses. In connection with this
Agreement, the Company received $35,813 in expense
reimbursement from the Advisor in the quarter ending March
31, 1998. In consideration of the Agreement, the Company
contributed to the Advisor an amount equal to one-half of
one percent (.5%) of the Company's average invested assets
for the immediately preceding month.
The Company also paid the Advisor an Acquisition Fee of
$57,724 calculated at 3% of the unpaid principal balance of
the Residential Mortgages as of the purchase date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Results of Operations
During the quarter ending March 31, 1998 UMT purchased
43 Residential Mortgages secured by single family,
residential property in Texas. The Residential Mortgages had
a blended annual interest rate of 11.51%, a current annual
yield of 12.26% and an investment-to-value ratio of 84.29%
(the Company's investment in the note divided by the value
of the home that is security for the note.) On average, the
notes had an unpaid principal balance $44,750, a term
remaining of 338 months, and were acquired for 93.91% of the
outstanding unpaid principal balance of the notes, as of the
purchase date. Thirty-two of the notes were acquired from
South Central Mortgage, Inc. and 11 were acquired from
private individuals.
This compares to the quarter ending March 31, 1997
during which UMT owned one Residential Mortgage with
interest at 11.5%, a current annual yield of 12.34% and an
investment-to-value ratio of 83.34%, as of the purchase date
of the mortgage note. The note had an unpaid principal
balance of $29,990, a term remaining of 356 months and was
acquired for 92.81% of the unpaid principal balance as of
the purchase date.
UMT's total portfolio of Residential Mortgages as of
March 31, 1998 consisted of 115 Residential Mortgages with
an aggregate unpaid principal balance of $4,748,005 as of
the purchase dates of the notes. The Residential Mortgages
were acquired for an aggregate sum of $4,442,567, or for
93.56% of the outstanding principal balance of the notes as
of the purchase date. The Residential Mortgages had a
blended annual interest rate of 11.44%, a current annual
yield of 12.22% and an investment-to-value ratio of 84.25%.
On average the notes had an unpaid principal balance of
$41,228 and a term remaining of 319 months.
As of March 31, 1998 the Company had investments in 46
Interim Mortgages for an aggregate total of $1,200,785. The
Interim Mortgages had terms of no greater than 12 months and
were made to borrowers for the purchase, renovation and sale
of single family homes. These loans, which are first lien
mortgage notes secured by properties in Texas, had a blended
interest rate of 14.57% and investment-to-values of no
greater than 50%.
UMT had no Interim Mortgages during the quarter ending
March 31, 1997.
All of the properties that are security for the
Residential Mortgages and Interim Mortgages are located in
Texas. Each of the properties was adequately covered by a
mortgagees title insurance policy and hazard insurance.
The Company's Residential Mortgages and Interim
Mortgages generated $164,116 of interest income during the
quarter ending March 31, 1998. Expenses of $49,060 were
offset by reimbursement from the Advisor of $35,813. During
the quarter the Company realized net income of $150,869 and
earnings per share of $.54.
This compares to interest income during the quarter
ending March 31,1997 of $556 and expenses of $18,029,
resulting in a net loss of $17,473 or $1.75 per share.
Capital Resources and Liquidity
During the quarter ending March 31, 1998 UMT added 59
new shareholders increasing the total number of shareholders
to 231. The Company issued 125,186 shares of beneficial
interest thereby increasing the outstanding shares to
327,694. Gross Offering Proceeds increased by $2,503,721
resulting in aggregate Gross Offering Proceeds of
$6,553,880. Gross Offering Proceeds for the quarter ending
March 31, 1998 were distributed as follows: $2,240,465 to
the Company as Net Offering Proceeds; 10% or $250,372 to the
Selling Group Manager for Selling Commissions; 0.5% or
$12,519 to the Selling Group Manager for Due Diligence Fees;
and $365 to the Escrow Agent as compensation for
distributing interest accrued to subscribers.
This compares to the quarter ending March 31, 1997 when
UMT had one shareholder, its Advisor, Mortgage Trust
Advisors, Inc. and had been initially capitalized with
$200,000 from the sale to the Advisor of 10,000 shares of
beneficial interest.
During the quarter ending March 31, 1998 UMT used
$1,924,147 of the Net Offering Proceeds to purchase 43
Residential Mortgages for $1,807,041, or for 93.91% of the
unpaid principal balance of the notes as of the purchase
date. Net Offering Proceeds were also used to pay an
Acquisition Fee of $57,724 to the Advisor, calculated at 3%
of the unpaid principal balance of the Residential Mortgages
as of the purchase date.
During the quarter ending March 31, 1997 UMT used part
of the proceeds from its initial capitalization to purchase
one Residential Mortgage for $27,834, or for 92.81% of the
unpaid principal balance of the note as of the purchase
date. No acquisition fee was paid to the Advisor in the
transaction.
As of March 31, 1998 UMT had invested $1,200,785 in 46
Interim Mortgages. The Interim Mortgages bore interest at a
blended rate of 14.57%.
UMT declared and paid three dividends to shareholders
during the quarter ending March 31, 1998. The annualized
rate-of-return to shareholders was 10.6%.
No dividends were paid during the quarter ending March
31, 1997.
On March 27, 1998 UMT renewed and increased its
Revolving Loan Agreement (the "Agreement") with its lending
bank (the "Bank") wherein the Company can borrow up to
$500,000 on a revolving basis for a term of one year from
the date of the Agreement. Interest on the outstanding
principal balance of the loan is paid monthly at a varying
rate per annum which is one and one-half percent (1-1/2%) in
excess of the Bank's prime rate of interest. The outstanding
balance of the line of credit at March 31, 1998 was
$325,254. The Company uses the line of credit to purchase
Mortgage Investments prior to its two monthly closings.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 1 - One (1) Year $500,000 Revolving Loan
(Renewal) Agreement dated March 27, 1998 between United
Mortgage Trust and Abrams Centre National Bank.........Pg 10
(b) Reports on Form 8-K
During the period covered by this report, the Company
filed reports on Form 8-K dated January 14, 1988, February
10, 1998 and March 27, 1998 to report the status of its
offering of shares.
SIGNATURES
In accordance with the requirements of the Exchange
Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunder duly authorized.
UNITED MORTGAGE TRUST
(Registrant)
Date: May 14, 1998 /S/Christine A. Griffin
Christine A. Griffin
President
EXHIBIT 1
ONE (1) YEAR
$500,000
REVOLVING LOAN (RENEWAL) AGREEMENT
THIS REVOLVING LOAN AGREEMENT, dated the 27th March
1998, by and between UNITED MORTGAGE TRUST (the "Borrower"),
and ABRAMS CENTRE NATIONAL BANK (the "Bank").
WITNESSETH:
BACKGROUND. Borrower is in the business of buying first
lien mortgage notes secured by liens on residential properties
collectively called the "Residential Paper" as an investment
in Residential Paper and in the past has obtained a
$150,000.00 line of credit for such purpose. Borrower has
request the Bank to renew, extend and increase said loan by
$350,000, viz. to lend it up to the sum of FIVE HUNDRED
THOUSAND ($500,000) DOLLARS, in aggregate, on a revolving loan
basis (the "Loan") from which to reimburse Borrower up to
$500,000 for all or part of Borrower's cost of acquisition of
Residential Paper obtained for investment; and, Borrower
maintains an inventory ("Inventory") of unencumbered current
Residential Paper of not less than $1,000,000 with which to
secure the Loan. Bank is willing to advance the Loan upon the
terms and conditions hereinafter set forth. This Agreement
renews (and supersedes) said $150,000 revolving loan line of
credit agreement dated on or about the 20th day of March,
1997.
NOW, THEREFORE, in consideration of the promises herein
contained, and each intending to be legally bound hereby, the
parties agree as follows:
Section I: The Loan
1.01 Disbursement of the Loan. Subject to the terms thereof,
Bank will credit the proceeds of the revolving Loan advanced
from time to time to the Borrower's deposit account with the
Bank or a title company designated by Borrower.
1.02 General Terms. Subject to the terms hereof and the
Note (defined below), the Bank will lend the borrower, from
time to time until twelve (12) months after this date (the
"Loan Termination Date"), such sums as the Borrower may
request by draw ("Draw") request to the Bank, received by
the Bank not less than three (3) banking days before Bank is
requested to fund such Draw and which shall not exceed, in
the aggregate principal amount at any one time outstanding
an amount equal to the lesser of $500,000.00 (the "Loan
Commitment") or the Borrowing Base, defined in 1.06. The
Borrower may borrow, repay without penalty or premium and
reborrow hereunder, from the date of this Agreement until
the Loan Termination Date, either the full amount of the
Loan Commitment or any lesser sum. It is the intention of
the parties that the outstanding principal amount of the
Loan shall at no time exceed the amount of the then existing
Borrowing Base, and if, at any time, an excess shall for any
reason exist, the full amount of such excess, together with
accrued and unpaid interest thereof as herein provided,
together with accrued and unpaid interest thereon as herein
provided, shall be immediately due and payable in full.
This Loan will be secured inter alia by the Inventory
containing not less than $1,000,000 in current insured first
lien notes, as below provided.
1.03 Draws and Draw Fees. Draws will be submitted on forms
acceptable to Bank; and, Bank will invoice Borrower for a
$50.00 fee to process each Draw, as requested by Borrower.
1.04 The Note. The Loan shall be evidenced by a note
("Note"), having a stated maturity on the Loan Termination
Date, in form acceptable to Bank.
1.05 The Origination and/or Commitment Fee. In exchange for
Bank's agreement to set aside funds to accommodate Borrower's
right to draw hereunder, Borrower will pay Bank $3,750 upon
execution of this Agreement by Borrower.
1.06 Borrowing Base. The Borrowing Base is an amount equal to
fifty (50%) percent of the aggregate unpaid principal of the
Inventory, viz. the unpaid principal balances of all
Residential Paper pledged to Bank by Borrower (not to exceed
the Loan Commitment) without considering any Residential Paper
past due by more than sixty (60) days held by Bank in
connection with the Loan and subject to Bank's liens ("Liens")
mentioned herein. Borrower will remove from the Inventory at
once and without demand any Residential Paper that is more
than sixty (60) days past due and will replace the same and
replenish the Inventory with Residential Paper that is
current, i.e. not more than sixty (60) days past due; and,
such replenishment will be accomplished by Borrower promptly
without notice from Bank to do so. Borrower will submit a
reconciliation of collateral and debt on the first day of each
month (the "Settlement Date") on which will be reported the
Borrowing Base for that month. If the reconciliation shows
available borrowing to be less than the amount outstanding,
the Loan will be paid down to the available amount, i.e. the
Borrowing Base, at that time. No Draw will be funded in any
default by Borrower is threatened under any of Bank's Loan
Documents in Bank's reasonable commercial judgment.
1.07 Residential Paper Tracking. In order to induce Bank to
enter into this Agreement, Borrower has represented to Bank
that Borrower will furnish Bank with all information
needed/requested by Bank to track each item of Residential
Paper ("Item") viz. each first lien note and each first lien
securing the payment of such first lien note pledged to Bank
in order to independently determine its currency, and to
remain assured that not Item of Inventory considered in the
Borrowing Base is more than sixty (60) days past due. In
addition, Borrower will furnish any certification of
Residential Paper currency under oath that Bank may request
from time to time during the term of the Loan.
1.08 Interest Rate and Payments of Interest.
(A) Except as otherwise provided under S 1.08(B), interest on
the principal balance of the Loan from time to time
outstanding will be payable monthly at a varying rate per
annum which is one and one-half (1-1/2%) percent per annum
(the "Margin Percentage") in excess of "Wall Street Journal
Prime" rate of interest, as published from time to but in no
event to exceed the maximum rate of nonusurious interest
allowed by law, as may hereafter be in effect, hereinafter
called the ("Highest Lawful Rate"), with adjustments in such
varying rate to be made on the same day as any change in such
prime commercial rate. All past due principal and interest
shall bear interest at a rate per annum which is equal to the
Highest Lawful Rate from maturity until paid. Notwithstanding
the foregoing provisions concerning such varying rate, if at
any time the sum of the Margin Percentage plus such prime
commercial rate exceeds the Highest Lawful Rate, the rate of
interest to accrue on the note shall be limited to the Highest
Lawful Rate, but if thereafter if the sum of the Margin
Percentage plus such prime commercial rate is less than the
Highest Lawful Rate, the rate of interest to accrue on the
Note shall be the Highest Lawful Rate until the total amount
of interest accrued on the Note equal the amount of interest
which would have accrued if a varying rate per annum equal to
the sum of the Margin Percentage plus such prime commercial
rate had at all times been in effect.
(b) It is the intention of the parties hereto to comply with
the usury laws applicable to the Loan; accordingly, it is
agreed that notwithstanding any provision to the contrary in
Agreement or in any of the documents securing payment of the
Loan, no such provision shall require the payment or permit
the collection of interest in excess of the maximum permitted
by law. If any excess interest is provided for, contracted
for, charged for or received, then the provisions of this
paragraph shall govern and control and neither the Borrower
hereof nor any other party liable for the payment thereof
shall be obligated to pay the amount of such excess interest.
Any such excess interest which may have been collected shall
be, at the Bank's option, either applied as a credit against
the then unpaid amount hereof or refunded to Borrower. The
effective rate of interest shall be automatically subject to
reduction to the maximum lawful contract rate allowed under
the usury laws as now or hereafter construed. It is further
agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged
for, or received under this Agreement which are made for the
purposes of determining whether such rate exceeds the maximum
lawful rate, shall be made, to the extent permitted by law, by
amortizing, prorating, allocating and spreading in equal parts
during the full stated term of the Loan, all interest
contracted for, charged for or received from the Borrower or
otherwise by the Bank.
1.09 Payment to the Bank. All sums payable to the Bank
hereunder shall be paid directly to the Bank in immediately
available funds. The Bank may send the Borrower statements of
all amounts due hereunder, which statements shall be
considered correct and conclusively binding on the Borrower
unless the Borrower notifies the Bank to the contrary within
thirty (30) days of its receipt of any statement that it deems
to be incorrect.
Alternatively, at its sole discretion, the Bank may charge
against any deposit account of the Borrower all or any part of
any amount due under the Note or hereunder.
Section II. Conditions Precedent
In addition to the provisions set forth in 3.06 below,
the obligation of the Bank to make any advance on the Loan is
subject to the following conditions precedent:
2.01 Documents Required for the Closing. The Borrower shall
have delivered to the Bank, prior to the initial disbursement
of any Loan amounts (the "Closing"), the following:
(A) The Note, duly executed by the Borrower, in the form
acceptable to Bank;
(B) A duly executed Guaranty Agreement ("Guaranty"), in form
acceptable to Bank signed by Theodore F. Etter, Jr.
("Guarantor") together with his current financial statement in
form/substance acceptable to Bank;
(C) Borrower's current financial statements (the "Financial
Statements") reviewed by its certified public accountant,
satisfactory in form/content to Bank;
(D)Collateral Assignments of Notes/Liens ("Assignments")
encumbering the Residential Paper comprising the Inventory
acceptable to Bank including physical possession of the Notes
endorsed to Bank and Financing Statements mentioned in Section
III;
(E) A copy, certified as of the date of the Closing, of
resolutions of the board of directors of the Borrower,
authorizing the execution, delivery, and performance of this
Agreement, the Note, Security Agreement and all other
documents to be delivered pursuant hereto at such item.
Documents evidencing, securing or otherwise furnished by Bank
in connection with providing for the Loan Collectively are
called Loan Documents.
Section III. Collateral Security
3.01 Composition of the Collateral. The property in which a
collateral interest is granted pursuant to the provisions of
3.02 and 3.03 (including Bank's Liens) is herein collectively
called the "Collateral". The Collateral, together with all
other property of the Borrower of any kind held by the Bank,
shall stand as one general, continuing collateral security for
all obligations (the "Obligations") of Borrower to Bank herein
created or mentioned herein or hereafter made including the
Note, Security Agreement, etc. and may be retained by the Bank
until all Obligations have been satisfied in full. The
Collateral at all times will include the Inventory, in
addition to all assets of Borrower mentioned in 3.02 and 3.03.
3.02 Rights in Residential Paper Held Either by the Borrower
or by the Bank. As security for the prompt satisfaction of all
Obligations, the Borrower hereby assigns to the Bank all of
its rights, title, and interest in and to, and grants the Bank
a lien upon and a security interest in, all Residential Paper
acquired by Borrower in connection with the Loan, together
with all replacements therefor and proceeds (including, but
without limitation, insurance proceeds) and products thereof.
3.03 Rights in Property Held by the Bank. As security for the
prompt satisfaction of all Obligations, the Borrower hereby
assigns, transfers, and sets over to the Bank all of its
right, title, and interest in and to, and grants the Bank a
lien on and a security interest in, all amounts that may be
owing, from time to time, by the Bank to the Borrower in any
capacity, including, but without limitation, any balance or
share belonging to the Borrower, or any deposit or other
account with the Bank, which lien and security interest shall
be independent of, and in addition to, any right of set-off
that the Bank has hereunder or otherwise, excluding escrow
accounts.
3.04 Priority of Liens. The foregoing liens shall be first and
prior liens except for any liens heretofore approved by Bank
in writing.
3.05 Financing Statements, Assignments and Deeds of Trusts.
(A) The Borrower will:
(1) Join with the Bank in executing such financing statements
(including amendments thereto and continuation statements
thereof) in form satisfactory to the Bank as the Bank, from
time to time, may specify;
(2) Pay, or reimburse the Bank for paying, all costs and taxes
of filing or recording the same in such public offices as the
Bank may designate; and
(3) Take such other steps as the Bank, from time to time, may
direct to perfect, to the satisfaction of the Bank, the Bank's
interest in the Collateral.
3.06 Residential Paper Draw Agreements. No Draw will be
submitted, processed or approved until all of the following
special conditions relating to the Draw have been satisfied:
(A) Bank has approved the form/content of any and all
Residential Paper within the Inventory pledged to Bank;
(B) such Residential Paper has been assigned to Bank as
follows:
(1) the indebtedness has been delivered and endorsed to Bank
with full recourse against Borrower;
(2) the mortgage ("Mortgage") securing payment of such
indebtedness has been transferred to Bank;
(C) Borrower and each of the original payee and the maker of
the Residential Paper has delivered an estoppel certificate in
form/content acceptable to Bank;
(D) evidence that such mortgage is an insured first lien (viz.
the title insurance policy)has been delivered to Bank;
(E) the property described in such Mortgage has been insured
against loss by fire and other casualty in the full amount of
the indebtedness secured by such Mortgage and Bank is shown as
a loss payee in such policy, as its interests may appear;
(F) the property described in such Mortgage has been appraised
by an appraiser acceptable to Bank and Bank has accepted the
form/content of such appraisal; and
(G) Borrower has submitted to Bank such evidence of such
environmental safety and soundness as Bank may request
regarding any property(ies) mentioned in any such Residential
Paper.
(H) Evidence acceptable to Bank that no Residential Paper of
which the Borrowing Base is comprised (i.e. no Item of
Inventory) is more than sixty (60) days past due.
3.07 Real Property Described in the Residential Paper. Bank
does not make any warranties or representations, expressed or
implied with respect to the Residential Paper or the real
property mentioned in the Residential Paper comprising a part
of the Collateral or its quality, marketability fitness,
suitability, or condition; and, Borrower agrees that Bank is
not responsible for (and Borrower indemnifies Bank against)
any claim, loss, damage, liability or expense of any kind
arising directly or remotely from such real property and/or
Residential Paper or any use, inadequacy, defect or deficiency
thereof.
Section IV. Covenants, Representations and Warranties of
Borrower
4.01 Agreements. To induce the Bank to enter into this
Agreement, the Borrower represents and warrants to and
covenants with the Bank as follows:
(A) The Borrower is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Texas;
(B) Borrower is not directly or indirectly controlled by, or
acting on behalf of, any person which is an "Investment
Company", within the meaning of the Investment Company Act of
1940, as amended;
(C) Borrower and Guarantor are not in default with respect to
any of their existing indebtedness, and the making and
performance of this Agreement, the Note, and the other Loan
Documents will not (immediately or with the passage of time,
the giving of notice, or both):
(1) Violate the trust agreement of the Borrower, or violate
any laws or result in a default under any contract, agreement,
or instrument to which the Borrower is a party or by which the
Borrower or its property is bound; or
(2) Result in the creation or imposition of any security
interest in, or lien or encumbrance upon, any of the assets of
the Borrower except in favor of the Bank;
(D) The Borrower and Guarantor, to the extent applicable to
him, has the power and authority to enter into and perform
this Agreement, the Note, and the other Loan Documents, and to
incur the obligations herein and therein provided for, and has
taken all actions necessary to authorize the execution,
delivery, and performance thereof;
(E) This Agreement, the Note, and the other Loan Documents
are, or when delivered will be, valid, binding and enforceable
in accordance with their respective terms;
(F) Except as otherwise shown herein, there is no pending
order, notice, claim, litigation, proceeding, or investigation
against or affecting the Borrower, whether or not covered by
insurance, that would or could materially or adversely affect
the financial condition or business prospects of the Borrower
or Guarantor if adversely determined;
(G) As of the date hereof, except for any other indebtedness
owed by Borrower to Bank, the Borrower has no material
indebtedness of any nature, including, but without limitation,
liabilities for taxes and any interest or penalties relating
thereto except the extent disclosed in, or permitted by, this
Agreement, or fully shown in Borrower's financial statements
delivered to Bank;
(H) Borrower will not demand or accept any prepayment of any
amounts on any of the Residential Paper comprising the
Collateral without Bank's prior written consent. Borrower
understands that Borrower only may collect monthly
installments due on said indebtedness as they mature monthly
and then only for so long as Borrower is not in default under
any of the Loan Documents. All amounts, if any, collected by
Borrower after the occurrence of any such default by Borrower
represent trust funds which are assigned and belong to Bank
and any retention of such funds by Borrower after such default
represents a conversion by Borrower of Bank's property, ipso
facto;
(I) Borrower will pay all costs to keep and maintain the
validity, enforceability, security, priority and
collectability of the Collateral and will pay all other
amounts which may be necessary or desirable to preserve,
maintain and protect Bank's interest in the Collateral
Borrower will pay or reimburse Bank for all costs incurred by
Bank to document, protect and enforce the Loan including legal
fees, mortgage title insurance, etc.;
(J) Bank shall have all rights, benefits and remedies provided
in the Loan Documents as well as those provided by law and may
(but is not obligated to) perform any act or pay any amount
which Borrower is required and fails to pay or perform, as the
case may be, at the cost and for the account of the Borrower;
and, Borrower agrees to reimburse Bank upon demand for any and
all such expenditures together with interest thereon at the
highest lawful contract rate together with all cost of
collection;
(K) Borrower and Guarantor will take all necessary action to
prevent the occurrence of any default/dispute under any
agreement or obligation between Borrower and the Guarantor and
any other persons or entities in connection with any matter
including but not limited to the Collateral or any part
thereof;
(L) Borrower will take all steps reasonably necessary to
determine and before submitting any Draw will have determined
that no hazardous substances or solid wastes have been
disposed of or otherwise released on or to any property
mentioned in such Draw. The terms "hazardous substance" and
"release" shall have the meanings specified in the
Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), and the terms "solid waste"
and "disposal" (or "disposed") shall have the meanings
specified in the Resource Conservation and Recovery Act of
1976 ("RCRA"); provided, to the extent that the laws of the
State of Texas establish a meaning for "hazardous substance,"
"release," "solid waste," or "disposal" which is broader than
that specified in either CERCLA or RCRA, such broader meaning
shall apply;
(M) Borrower and Guarantor indemnify Bank against any loss to
Bank, including without limitation attorney's fees and costs
of site investigation and cleanup, incurred by or imposed on
Bank as a result of any use, handling, storage,
transportation, or disposal of hazardous or toxic materials on
or about any property described in the liens comprising the
Collateral. This indemnity at the election of Bank shall
survive repayment of the Loan and shall continue as long any
risk of loss or liability by Bank exists;
(N) As additional security for the punctual payment and
performance of the Note, and as part of the security therefor,
Borrower hereby grants to Bank a security interest in, and a
pledge and assignment of, any and all money, property, deposit
accounts, accounts, securities, documents, chattel paper,
claims, demands, instruments, items or deposits of the
Borrower, now held or hereafter coming within Bank's custody
or control, including without limitation, all certificates of
deposit and other depository accounts whether such have
matured or the exercise of Bank's rights result in loss of
interest or principal or other penalty on such deposits, but
excluding deposits subject to tax penalties if assigned;
provided however, that such lien shall not apply to any
"escrow" accounts maintained by Borrower at the Bank. Without
prior notice or demand upon the Borrower, Bank may exercise
its rights granted above at any time when a default has
occurred. Bank's rights and remedies under this paragraph
shall be in addition to and cumulative of any other rights or
remedies at law and equity, including, without limitation, any
rights of set-off to which Bank may be entitled; and,
(O) Borrower will give immediate notice to the Bank of (1) any
default of Borrower hereunder; (2) any litigation or
proceeding in which it is a party if any adverse decision
therein would require it to pay more than $5,000.00 or deliver
assets the value of which exceeds such sum (whether or not the
claim is considered to be covered by insurance); and (3) the
institution of any other suit or proceeding involving it that
might materially and adversely affect its operation, financial
condition, property, or business prospects.
4.02 Survival. All of the covenants representations and
warranties set forth in Section 4.01 shall survive until all
Obligations are satisfied in full and there remain no
outstanding Commitments hereunder; and, in the case sub 4.01
(M), such indemnity will remain in effect for so long as the
risk of loss to be indemnified against exists.
Section V Default
5.01 Events of Default. The occurrence of any one or more of
the following events shall constitute an Event of Default
hereunder:
(A) The Borrower shall fail to pay when due any installment of
principal or interest or fee payable hereunder, and such
failure shall continue for a period of ten (10) days;
(B) The Borrower shall fail to observe or perform any other
obligation to be observed or performed by it hereunder or
under any of the Loan Documents, and such failure shall
continue for ten (10) days after: (1) notice of such failure
from Bank; or(2) the Bank is notified of such failure or
should have been so notified pursuant to the provision of 4.01
(O), whichever is earlier;
(C) The Borrower shall fail to pay any indebtedness due any
third persons, and such failure shall continue beyond any
applicable grace period, or the Borrower shall suffer to exist
any other event of default under any agreement binding the
Borrower;
(D) Any financial statement, representation, warranty, or
certificate made or furnished by or with respect to any
Guarantor or Borrower to the Bank in connection with this
Agreement, or as an inducement to the Bank to enter into this
Agreement, or in any separate statement or document to be
delivered to the Bank hereunder, shall be materially false,
incorrect, or incomplete when made;
(E) The dissolution of Borrower or death of any Guarantor; or,
Borrower shall admit its inability to pay its debts as they
mature or shall make an assignment for the benefit of itself
or any of its creditors;
(F) Proceedings in bankruptcy, or for reorganization of the
Borrower or any Guarantor, or for the readjustment of any of
their respective debts under the Bankruptcy Code, as amended,
or any party thereof, or under any other laws, whether state
or federal, for the relief of debtors, now or hereafter
existing, shall be commenced against or by the Borrower or any
Guarantor and, except with respect to any such proceedings
instituted by the Borrower shall not be discharged within
thirty (30) days of their commencement;
(G) In Bank's discretion, if any Item of Residential Paper
pledged to Bank has passed its stated maturity date or
otherwise is in default or any Item remains on Borrower's
books (unsold to any Investor) for more than six (6) months,
and such aging also creates a deficiency in the Borrowing
Base;
(H) The Guarantor shall fail to comply fully with the
requirements of his Guaranty.
The occurrence of any default by Borrower or any Guarantor
under any other obligations of Borrower to Bank automatically
constitutes a default by Borrower under the Loan Documents.
5.02 Acceleration. Immediately, at the option of Bank and
without notice upon the occurrence of an Event of Default
specified in the foregoing 5.01(E) or (F) or at the option of
the Bank, but only upon notice to the Borrower, upon the
occurrence of any other Event of Default, all obligations,
whether hereunder or otherwise, shall immediately become due
and payable without further action of any kind.
5.03 Remedies. After any acceleration, as provided for in S
5.02, the Bank shall have, in addition to the rights and
remedies given it by this Agreement and the Loan Documents,
all those allowed by all applicable laws, including, but
without limitation, the Uniform Commercial Code.
Section VI. Release Agreements
6.01 Bank will release its Liens against the Inventory, i.e.
Bank will reassign without warranty or recourse the
Residential Paper assigned to Bank under the following
agreements:
(i) no default or dispute is pending or threatened under the
Loan Documents;
(ii) such release is documented, recorded and otherwise
accomplished without cost to Bank; and
(iii) the Loan is paid in full.
Section VII. Miscellaneous
7.01 Construction. The provisions of this Agreement shall be
in addition to those of any guaranty, security agreement,
note, or other evidence of liability now or hereafter held by
the Bank, all of which shall be construed as complementary to
each other. Nothing herein contained shall prevent the Bank
from enforcing any or all other guaranty, pledge or security
agreements, notes, or other evidences of liability in
accordance with their respective terms.
7.02 Further Assurance. From time to time, the Borrower will
execute and deliver to the Bank such additional documents and
will provide such additional information, including but not
limited, to supplementary Financial Statement information as
the Bank may reasonably require to carry out the terms of this
Agreement and be informed of the status and affairs of the
Borrower and Guarantor.
In particular, the Borrower will furnish to Bank (and will
cause Guarantor to furnish) Financial Statements in
form/content acceptable to Bank as follows:
Borrower: Annual Statements, Quarterly Statements
Guarantor: Annual Statements
The annual statements of Borrower will be audited by such
party's certified public accountant and the quarterly
statements of Borrower will be compiled by such party's
certified public accountant. Statements will be prepared in
form acceptable to Bank and will include, inter alia complete
contingent liability information, cash flow reports and income
and expense statements. In addition, Borrower and Guarantor
will furnish Bank copies of their current (filed) income tax
returns and future returns as and when they are filed with the
Internal Revenue Service during the term of the Loan.
7.03 Enforcement and Waiver by the Bank. The Bank shall have
the right at all times to enforce the provisions of this
Agreement and the Loan Documents in strict accordance with the
terms hereof and thereof, notwithstanding any conduct or
custom on the part of the Bank in refraining from so doing at
any time or times. The failure of the Bank at any time or
times to enforce its rights under such provisions, strictly in
accordance with the same, shall not be construed as having
created a custom in any way or manner modified or waived the
same. All rights and remedies of the Bank are cumulative and
concurrent and the exercise of one right or remedy shall not
be deemed a waiver or release of any other right or remedy. In
the event and to the extent, if any, that Borrower is indebted
to Bank under any obligation arising prior to the execution of
this Loan Agreement ("Prior Indebtedness"), Borrower agrees
that Borrower has no off-sets, defense or counterclaims to
payment of the Prior Indebtedness.
7.04 Future Advances Secured. The Collateral mentioned herein
secures and enforces The payment of the Obligations including,
but not limited to, all sums advanced by Bank to Borrower
pursuant to the Note and all other present and future debts,
obligations and Liabilities of Borrower to Bank (a) as
principal, surety, endorser, guarantor, accommodation Party or
otherwise, (b) arising by operation of law or otherwise, (c)
as a member of any Partnership, joint venture, firm, trust or
other association or (d) payable to or in favor of third
Parties and hereafter acquired by Bank with or without the
knowledge, consent or insistence Of Borrower, it being
contemplated that Borrower will from time to time become
additionally Indebted to bank directly or remotely all of
which indebtedness shall be secured by said Collateral unless
and until released by Bank.
7.05 Expenses of the Bank. The Borrower will, on demand,
reimburse the Bank for All expenses, including the reasonable
fees and expenses of legal counsel for the Bank, incurred By
the Bank in connection with the preparation, administration,
amendment, modification, Or enforcement of this Agreement and
the Loan Documents and the collection or attempted Collection
of the Note.
7.06 Notices. Any notices or consents required or permitted by
this Agreement shall be in writing and shall be deemed
delivered if delivered in person or if sent by certified mail,
postage prepaid, return receipt requested, or telegraph to the
parties at heir address shown by their names below, unless
such address is changed by written notice hereunder.
7.07 Waiver, Release and Indemnity by the Borrower. To the
maximum extent permitted by applicable laws, the Borrower:
(A) Waives (1) protest of all commercial paper at any time
held by the Bank on which the Borrower is in any way liable;
(2) except as the same may herein be specifically granted,
notice of acceleration and' of intention to accelerate; and
(3) notice and opportunity to be heard, after acceleration
before exercise by the Bank of the remedies of self-help, set-
off, or of other summary procedures permitted by any
applicable laws or by any agreement with the Borrower, and,
except where required hereby or by any applicable laws, notice
of any other anion taken by the Bank;
(B) Releases the Bank and its officers, attorneys, agents, and
employees from all claims for loss or damage caused by any act
or omission on the part of any of them except for willful
misconduct; and
(C) Indemnifies Bank against any loss, claim, cost, damage or
liability incurred by Bank in connection with or arising from
any failure, breach or default of any statement, warranty,
agreement, obligation or agreement of Borrower contained
herein or made/delivered to Bank in connection herewith
without regard to any act or omission of Bank and waives trial
by jury.
7.08 Applicable Law. This Agreement is entered into and
performable in Dallas, Dallas County, Texas and shall be
subject to and construed and enforced in accordance with the
laws of the State of Texas.
7.09 Binding Effect, Assignment. and Entire Agreement. This
Agreement shall inure to the benefit of, and shall be binding
upon, the respective successors and permitted assigns of the
parties hereto. The Borrower has no right to assign any of its
rights or obligations hereunder without the prior written
consent of the Bank. This Agreement, including any Exhibits
hereto, all of which are hereby incorporated herein by
reference, and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties
and may be amended only by a writing signed on behalf of each
party.
7.10 Severability. If any provision of this Agreement shall
be held invalid under any applicable laws, such invalidity
shall not affect any other provision of this Agreement that
can be given effect without the invalid provision, to this
end, the provisions hereof are severable.
7.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one
and the same instrument.
THIS WRITTEN LOAN AGREEMENT (AND ALL RELATED DOCUMENTS
MENTIONED HEREIN OR PREPARED OR APPROVED IN WRITING BY BANK
CONCURRENTLY HEREWITH INCLUDING THE NOTE) REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
Bank:
ABRAMS CENTRE NATIONAL BANK
9330 LBJ Freeway, Suite 150
Dallas, TX 75243
By: /S/ Bill R. Prince
Its: Senior Vice President
Borrower:
UNITED MORTGAGE TRUST
1701 N. Greenville Avenue, Suite 403
Richardson, Texas 75081
By: /S/ Christine A. Griffin
Its: President
Approved and Agreed
Guarantor:
/S/ Theodore F. Etter, Jr.
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