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, 1999
[ ] 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 ___
<PAGE>
UNITED MORTGAGE TRUST
INDEX TO FORM 10-QSB
Page Number
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . . .3
Item 1. Financial Statements . . . . . . . . . . . . . . . .3
Balance Sheets
March 31, 1999 and December 31, 1998. . . . . . . . 3
Statements of Income
Three Months Ending
March 31, 1999 and 1998. . . . . . . . . . . . . . .4
Statements of Cash Flows
Three Months Ending
March 31, 1999 and 1998. . . . . . . . . . . . . . .5
Notes to Financial Statements. . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . .7
PART II -- OTHER INFORMATION . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 11
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . .12
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
<CAPTION>
March 31, December 31,
1999 1998
(unaudited) (audited)
ASSETS
<S> <C> <C>
Cash $ 159,036 $ 58,054
Investment in residential mortgages
and contracts for deed 13,689,358 11,159,863
Interim mortgages 3,295,965 3,285,023
Accrued interest receivable 157,127 133,478
Receivable from affiliate (Note 4) 13,443 15,185
Equipment, less accumulated depreciation
of $1,386 and $1,256, respectively 1,856 1,986
Other assets 40,350 5,350
----------- -----------
Total Assets $17,357,135 $14,658,939
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit (Note 3) 2,869,000 1,484,308
Dividend payable 134,152 121,164
Accounts payable & accrued
liabilities 80 1,519
----------- -----------
Total Liabilities 3,003,232 1,606,991
----------- -----------
Shareholders' equity:
Shares of beneficial interest; $.01 par
Value; 100,000,000 shares authorized
805,141 and 734,271 shares
outstanding 8,052 7,343
Additional paid-in capital 14,242,543 12,974,938
Retained earnings 103,308 69,667
----------- -----------
Total Shareholders' Equity $14,353,903 $13,051,948
----------- -----------
Total liabilities & shareholders' equity $17,357,135 $14,658,939
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDING MARCH 31, 1999 AND 1998
<CAPTION>
March 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Income:
Gain on sale of notes $ 1,068 $ --
Interest income 484,450 164,116
-------- --------
485,518 164,116
-------- --------
Expense:
Salaries and wages 16,228 16,447
General and administrative 62,302 28,967
Interest expense 31,732 3,646
Expense reimbursement from
affiliate(Note 4) (48,060) (35,813)
-------- --------
62,202 13,247
-------- --------
Net income $423,316 $150,869
======== ========
Net income per share of beneficial
interest $0.54 $0.54
======== ========
Weighted average shares outstanding 778,380 277,850
======== ========
<FN>
See accompanying notes to financial statements.
Page F2
</FN>
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING MARCH 31, 1999 AND 1998
<CAPTION>
March 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 423,316 $ 150,869
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 130 175
Amortization of discount on
mortgage investments (27,111) (11,921)
Accrued interest receivable (23,649) (20,069)
Other assets (35,000) (5,750)
Accounts payable and accrued
liabilities (1,439) 879
Net cash provided by operating ----------- ---------
activities: 336,247 114,183
----------- ---------
Cash flows from investing activities:
Investment in residential mortgages
and contracts for deed (2,576,928) (1,807,988)
Principal receipts on residential
mortgages and contracts for deed 153,006 7,967
Investment in interim mortgages (2,532,075) (700,250)
Principal receipts on interim mortgages 2,521,133 376,740
Loan acquisition costs (78,462) (57,724)
Net cash used in investing --------- ---------
activities: (2,513,326) (2,181,255)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of shares of
beneficial interest 1,268,314 2,240,465
Net borrowings on credit line 1,384,692 187,254
Receivable from affiliate 1,743 12,116
Dividends (376,688) (116,897)
Net cash provided by financing ---------- ----------
activities: 2,278,061 2,322,938
---------- ----------
Net increase in cash 100,982 255,866
Cash at beginning of period 58,054 248
---------- ----------
Cash at end of period $ 159,036 $ 256,114
---------- ----------
Interest paid $ 31,732 $ 3,646
---------- ----------
<FN>
See accompanying note to financial statements.
Page F3
</FN>
</TABLE>
UNITED MORTGAGE TRUST
Notes to Financial Statements
March 31, 1999
1. Description of Business
The Company
United Mortgage Trust is a self administered real estate
investment trust (a "REIT") that invests in mortgages and contracts for
deed. Most, if not all, of the mortgages and contracts for deed that we
purchase are not insured or guaranteed by a federally owned or
guaranteed mortgage agency and involve borrowers who do not satisfy all
of the income ratios, credit record criteria, loan-to-value ratios,
employment history and liquidity requirements of conventional mortgage
financing. The advisor to the Company is Mortgage Trust Advisors, Inc.
(the "Advisor"), a Texas corporation.
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, except 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, 1998 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, 1999
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
3. Line of Credit
On March 23, 1999 the Company renewed and increased its Revolving
Loan Agreement (the "Agreement") with Legacy Bank of Texas (the
"Bank"), wherein the Company can borrow up to $5,000,000 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 $10,000,000 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. The outstanding balance of the Revolving Line
of Credit was $2,869,000 and $325,254 for the March 31, 1999 and 1998
periods, respectively. The Company used the funds to purchase Mortgage
Investments.
4. Related Party Transactions
In 1997 the Company 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 $48,060 and $35,813 in expense reimbursements for the three
months ending March 31, 1999 and 1998, respectively. 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 Acquisition Fees of $78,462 and
$57,724 during the three months ending March 31, 1999 and 1998,
respectively. The fee is calculated at 3% of the unpaid principal
balance of the Residential Mortgages as of the purchase date.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
We were formed on July 12, 1996, however our business operations
commenced in March 1997 when the Securities and Exchange Commission
issued an order of registration for our initial public offering of
Shares. The following table sets forth certain information about the
Mortgage Investments that we purchased during the periods set forth
below.
<TABLE>
<CAPTION>
Three Months Ending
March 31,
1999 1998
RESIDENTIAL MORTGAGES
<S> <C> <C>
Purchase price $2,071,297 $1,807,041
Total number 44 43
Number purchased from affiliates 28 32
Number purchased from other sources 16 11
Blended interest rate 11.28% 11.51%
Aggregate principal balance $2,164,626 $1,924,147
Average principal balance $49,196 $44,750
Remaining term in months (1) 351 338
Current yield (1) 11.78% 12.26%
Purchase price/principal balance (1) 95.69% 93.91%
Investment-to-value ratio (1)(2) 85.07% 84.29%
CONTRACTS FOR DEED
<S> <C> <C>
Purchase price $498,210 0
Total number 12 0
Number purchased from affiliates 3 0
Number purchased from other sources 9 0
Blended interest rate 11.77% 0
Aggregate principal balance $509,445 0
Average principal balance $42,453 0
Remaining term in months(1) 352 0
Current yield (1) 12.04% 0
Purchase price/principal balance (1) 97.79% 0
Investment-to-value ratio (1)(2) 88.90% 0
INTERIM MORTGAGES
<S> <C> <C>
Dollars invested during period $2,532,075 $700,250
Total number participated in
during period 73 27
Number purchased from affiliates 73 27
Number purchased from other sources 0 0
Blended interest rate 12.75% 13.07%
Remaining term in months <12 months <12 months
Current yield at year-end (1) 12.93% 13.25%
Purchase price/principal balance (1) 100% 100%
Investment-to-value ratio (1)(2) 50% 50%
<FN>
(1) These amounts were determined at the time the Mortgage Investments
were purchased.
(2) The investment-to-value ratio is determined at the time a Mortgage
Investment is acquired and is determined by dividing the amount paid
to acquire that Mortgage Investment by the value of the underlying
real estate that is security for that Mortgage Investment.
</FN>
</TABLE>
As of March 31, 1999, our mortgage portfolio in the aggregate
consisted of 281 Residential Mortgages and 41 Contracts for Deed. As
of the dates of purchase, the portfolio had an unpaid principal
balance of $13,950,463, and was purchased for a discounted price of
$13,249,293 (94.97% of the unpaid principal balance). The average loan
in the portfolio had a blended interest rate of 11.44%, an unpaid
principal balance of $43,324, a term remaining of 333 months, and a
current annual yield of 12.04%, and an investment-to-value ratio of
84.10%. As of March 31, 1999 we also had 115 active interim mortgages
with an outstanding principal balance of $3,295,965.
By comparison, our portfolio as the end of March 31, 1998
consisted of 115 Residential Mortgages with an unpaid principal
balance of $4,748,005, and was purchased for a discounted price of
$4,442,567 (93.56% of the unpaid principal balance). The average loan
in the portfolio had a blended interest rate of 11.44%, an unpaid
principal balance of $41,228, a term remaining of 319 months, and a
current annual yield of 12.22%, and an investment-to-value ratio of
84.25%. As of March 31, 1998 we had 46 active Interim Mortgages with
an outstanding principal balance of $1,200,785.
All of the properties that are security for the Residential
Mortgages and Interim Mortgages were located in Texas. Each of the
properties was adequately covered by a mortgagee title insurance
policy and hazard insurance.
Our Mortgage Investments generated $485,518 and $164,116 of total
income during the quarters ending March 31, 1999 and 1998,
respectively, which represents a 196% increase. The rise was
attributed to the significant addition of Mortgage Investments
purchased using Net Offering Proceeds derived from the sale of our
Shares during the year proceeding the current period. Expenses of
$110,262 in the 1999 quarter were offset by reimbursement from the
Advisor to us of $48,060. Expenses of $49,060 in the 1998 quarter were
offset by reimbursement from the Advisor of $35,813. The 57% rise in
the 1999 quarter was attributed to an additional interest expense
commensurate with and substantially higher borrowing on our credit
line.
Net income of $423,316 and $150,869 for the quarters ending
March 31, 1999 and 1998, respectively, represented a 181% increase.
Earnings per weighted average share remained constant at $0.54 for the
1999 and 1998 quarters.
As of March 31, 1999, 11 of our Mortgage Investments, or 2.52% of
our active portfolio, were in default. This compares to 3 defaulted
investments at March 31, 1998, or 1.86% of our active portfolio. As a
result of the recourse provisions under which the Mortgage Investments
were purchased, we did not experience a loss of interest income due to
the defaults in either quarter.
Dividends declared and paid per share of beneficial interest for
the quarters ending March 31, 1999 and 1998 were $0.504 and $0.527,
respectively. Both quarters exceed a 10% annualized rate of return for
our shareholders.
CAPITAL RESOURCES AND LIQUIDITY FOR THE QUARTERS ENDING MARCH 31, 1999
AND 1998
We utilize funds made available from the sale of our Shares,
funds made available on our bank line of credit and payment of
principal on our Mortgage Investments to purchase Mortgage
Investments. During the 1999 quarter we sold 70,870 shares of
beneficial interest for Gross Offering Proceeds of $1,417,400 and Net
Offering Proceeds (after the deduction of selling commissions and
fees) to us of $1,268,314. By comparison, 125,186 shares of beneficial
interest were sold during the 1998 quarter, for Gross Offering
Proceeds of $2,503,720 and Net Offering Proceeds to us of $2,240,465.
Net borrowing on our line of credit in the 1999 quarter was $1,384,692
compared to $187,254 in the 1998 quarter. Payments of principal on our
Mortgage Investments for the 1999 and 1998 quarters were $2,674,139
and $384,707, respectively.
Using a combination of Net Offering Proceeds, borrowing on our
credit line and payments of principal on our Mortgage Investments, we
purchased 129 Mortgage Investments with and unpaid principal balance
of $5,206,146 and 70 Mortgage Investments with an unpaid principal
balance of $2,624,397, in 1999 and 1998, respectively.
As of March 31, 1999, we had sold an aggregate total of 795,141
Shares for Gross Offering Proceeds of $15,902,820 and Net Offering
Proceeds to us of $14,225,594. Total shares outstanding at March 31,
1999 were 805,141, which included 10,000 sold to the Advisor before
the public offering commenced. This compares to an aggregate total of
317,694 Shares for Gross Offering Proceeds of $6,353,880 and Net
Offering Proceeds to us of $5,685,463 as of March 31, 1998. Total
shares outstanding at March 31, 1998 were 327,694, which included
10,000 sold to the Advisor before the public offering commenced.
On March 23, 1999 we renewed and increased our Revolving Loan
Agreement (the "Legacy Agreement") with Legacy Bank of Texas, a Texas
State Bank ("Legacy"), wherein we could borrow up to $5,000,000 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 was paid
monthly at a varying rate per annum which was one and one-half percent
(1-1/2%) above the "Wall Street Journal Prime" rate of interest. As
security for the prompt satisfaction of all obligations of the Legacy
Agreement, we pledged through collateral assignment $10,000,000 of
residential mortgages. The outstanding loan balance at March 31, 1999
was $2,869,000.
YEAR 2000 ISSUES
Certain computer programs and embedded logic devices that utilize
two digit rather than four to define the applicable year may fail to
properly recognize date sensitive information when the year changes to
2000 (the "Year 2000 Issue").
We are conducting a comprehensive review to determine if the Year
2000 Issue will affect our computer system. We currently believe that
we do not face "legacy" computer systems and software issues because
we commenced operations within the past five years. Thus, we do not
anticipate incurring internal Year 2000 Issue costs that would be
material to our financial position, results of operations, or cash
flows in future periods. Through March 31, 1999, we incurred less than
$1,000 of expenses in connection with our review of the Year 2000
Issue.
There can be no assurance, however, that our lenders, custodians,
loan servicers, vendors, clients and other third-party partners
(collectively, "Contract Parties") will resolve their own Year 2000
Issues in a timely manner, or that any failure by these contract
Parties to resolve such issues would not have an adverse effect on our
operations and financial condition. Each Contract Party is in turn
subject to the Year 2000 Issues of various third parties with which it
does business, making our exposure to the noncompliance of any
Contract Party difficult to assess. We believe we are devoting the
necessary resources to address all of the Year 2000 Issues over which
we have control. With respect to the Year 2000 Issues of Contract
Parties, over which we have no control, our contingency plan is to
identify replacement vendors, where possible.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 1 - One Year $5,000,000 Revolving Loan (Renewal) Agreement
dated March 23, 1999 between United Mortgage Trust and Legacy Bank of
Texas.
(b) Reports on Form 8-K
During the period covered by this report, the Company filed
reports on Form 8-K dated March 3, 1999 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, 1999 /S/Christine A. Griffin
Christine A. Griffin
President
<PAGE>
Exhibit 1
ONE (1) YEAR
$5,000,000.00
REVOLVING LOAN AGREEMENT
(RENEWAL AND INCREASE)
THIS REVOLVING LOAN AGREEMENT (RENEWAL AND INCREASE), dated the
24th day of March, 1999, by and between UNITED MORTGAGE TRUST, a Trust
organized under the laws of the State of Maryland (the "Borrower"), and
LEGACY BANK OF TEXAS, a Texas state bank (the "Bank").
WITNESSETH:
BACKGROUND. Borrower is in the business of buying mortgage notes
secured by first and prior liens on residential properties located
within the State of Texas (collectively called the "Residential
Paper"). Borrower has requested the Bank to extend a loan not to
exceed FIVE MILLION DOLLARS ($5,000,000.00), in aggregate, on a
revolving loan basis (the "Loan") from which to reimburse Borrower up
to $5,000,000.00 for all or part of Borrower's cost of acquisition of
Residential Paper obtained for investment; and, Borrower maintains an
inventory (?Eligible Inventory?) of unencumbered current Residential
Paper of not less than $10,000,000.00 with which to secure Loan. Bank
is willing to advance the Loan upon the terms and conditions
hereinafter set forth.
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 hereof, Bank
will credit the proceeds of the revolving Loan advanced from time to
time to the Borrower's deposit account with the Bank or, at Bank's
discretion, to other depository accounts 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 months (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 one (1) banking day
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 (the "Loan Commitment") equal to the lesser of $5,000,000.00 or
the Borrowing Base, defined in Section 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 thereon as
herein provided, shall be immediately due and payable in full.
This Loan will be secured inter alia by Pledged Residential Paper
(hereinafter defined) which shall at all times during the term of the
loan have an aggregate outstanding principal balance equal to at least
200% of the outstanding principal balance of the Loan.
1.03 Draws and Draw Fees. Draws will be submitted not more
frequently than weekly on forms acceptable to Bank accompanied in each
case by a $50.00 fee to process each Draw.
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 Fees. In exchange for
Bank's agreement to set aside funds to accommodate Borrower's rights to
draw hereunder, Borrower will pay Bank $35,000.00 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 Pledged
Residential Paper. For purposes hereof, the term ?Pledged Residential
Paper? shall mean Residential Paper pledged to Bank by Borrower and
secured by a first and prior deed of trust lien encumbering residential
real property located within the Texas counties of Dallas, Collin,
Tarrant, Ellis, Rockwall, Denton and Harris, excluding any Residential
Paper which is or becomes past due by more than sixty (60) days.
Borrower will remove from the Pledged Residential Paper pledged to the
Bank at once and without demand any Residential Paper that is more than
sixty (60) days past due and will replace the same with unpledged
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, the
Borrower may draw up to the available amount for borrowing. 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 if any default
by Borrower is threatened or has occurred 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 Pledged 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 no Item of Pledged Residential Paper
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 ? 1.08(B), interest on the
principal balance of the Loan from time to time outstanding will
be payable in monthly installments at a varying rate per annum
(the ?Variable Rate?) which is one and one half (1.50%) percent
per annum in excess of "Wall Street Journal Prime" rate of
interest, as published from time to time and as further defined in
the Note, 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 Variable Rate to be made on the same day as any change in
the Wall Street Journal Prime 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 Variable 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 the Variable 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 equals the amount of interest which
would have accrued if the Variable 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 hereunder.
1.10 Audit of Pledged Residential Paper. The Borrower shall
permit representatives of Lender, including independent auditors,
collateral verification agents, attorneys and any other parties from
time to time to audit and inspect Borrower's property, including
Borrower's books and records, make photocopies thereof, and record
information relating thereto, and Borrower shall reimburse Lender upon
demand for the fees, costs and expenses of such audits and inspections
up to the maximum sum of $6,000.00 per year.
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 (Exhibit A), duly executed by the Borrower, in the
form acceptable to Bank;
(B) A duly executed Guaranty Agreement (Exhibit B) ("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, which
shall be satisfactory in form/content to Bank;
(D) Assignments of Notes/Liens (Exhibit C) ("Assignments")
encumbering the Residential Paper comprising the Pledged
Residential Paper 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 Trustees of the Borrower (Exhibit D),
authorizing the execution, delivery, and performance of this
Agreement, the Note, and all other documents to be delivered
pursuant hereto at such time.
The documents evidencing, securing or otherwise furnished by Bank in
connection with the Loan, including this Agreement, collectively are
called "Loan Documents".
Section III. Security Agreement
3.01 Grant of Security Interest. (a) As collateral security for
the payment and performance of the Note and any and all other
liabilities of Borrower to Bank, direct or contingent, of any nature
whatsoever, including both purchase money and non-purchase money
transactions, and whether now existing or hereafter arising
(collectively the "Obligations"), Borrower hereby grants to Bank a
continuing security interest in the following as collateral security
for the payment and performance of the Obligations, wherever the
following is located and whether the following is now owned or existing
or is owned, acquired, or arises hereafter, including, without
limitation, acquisition by contract or by operation of law (all terms
used in this Section 3.01 which are defined in the Uniform Commercial
Code shall have the meanings given to such terms in the Uniform
Commercial Code as adopted in the statutes of Texas): (i) all right,
title and interest of the Borrower in and to the promissory notes
constituting the ?Pledged Residential Paper?; (ii) all right, title and
interest of the Borrower in and to each and every deed of trust,
mortgage, guarantee, loan document, title policy, insurance policy, or
any other right ancillary to or securing or relating to the promissory
notes; (iii) all accounts and receivables of Borrower arising out of or
relating to the Pledged Residential Paper; (iv) all general intangibles
of Borrower relating to or arising out of the Pledged Residential
Paper; (v) all of the rights of Borrower to the payment of money,
including, without limitation, tax refund and insurance proceeds,
relating to the Pledged Residential Paper or the real properties
securing same; (vi) all files, records, books, ledger cards (including
without limitation, computer programs, tapes and related electronic
data processing software) and writings of Borrower or in which it has
an interest in any way relating to the Pledged Residential Paper; (vii)
all other personal property of Borrower of any kind or type whatsoever
relating to the Pledged Residential Paper; (viii) all additions,
substitutions, replacements, proceeds and products of each of the
foregoing described in this Section 3.01.
3.02 Power of Attorney. Borrower hereby designates and/or
appoints Bank and each of its designees or agents as attorney-in-fact
of Borrower, irrevocably and with power of substitution, with authority
to take any or all of the following actions upon the occurrence of an
Event of Default: (i) with respect to any Pledged Residential Paper,
demand, collect, receive, settle, compromise, adjust, foreclose and
resell and/or give discharges and releases, all as Bank may determine;
(ii) commence and prosecute any actions in any court for the purposes
of collecting amounts owed on Pledged Residential Paper and enforcing
any other rights in respect thereof; (iii) defend, settle or compromise
any action brought and, in connection therewith, give such discharge or
release as Bank may deem appropriate; (iv) receive, open and dispose of
mail addressed to Borrower and endorse checks, notes, drafts,
acceptances, money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment made on account of or funds
paid relating to Pledged Residential Paper on behalf of and in the name
of Borrower; (v) sell, assign, transfer, make any agreement in respect
of, or otherwise deal with or exercise rights in respect of, any
Pledged Residential Paper as fully and completely as though Bank were
the absolute owner thereof for all purposes; (vi) adjust and settle
claims under any insurance policy related thereto; and (vii) execute
financing statements or amendments thereto or any other documents or
writing deemed necessary by Bank to evidence or perfect Bank?s security
interest in the Pledged Residential Paper; provided that Bank agrees to
furnish copy of any document executed hereunder to Borrower, as
applicable, upon request; and (viii) enter on the premises of Borrower
in order to exercise any of Bank's rights and remedies. The
appointment of Bank as attorney-in-fact is coupled with an interest and
is irrevocable.
3.03 No Duty of Bank. Bank shall have no duty as to the
collection or protection of the Pledged Residential Paper nor as to the
preservation of any rights pertaining thereto. Borrower hereby
releases Bank from any claims, causes of action and demands at any time
arising out of the Pledged Residential Paper and its use and/or any
actions taken by Bank with respect thereto, and Borrower hereby agrees
to indemnify Bank and to hold Bank harmless from any and all such
claims, causes of action and demands.
3.04 Collection of Pledged Residential Paper. Prior to the Bank
exercising its right to collect the Pledged Residential Paper pursuant
to this section 3.04, Borrower shall collect with diligence all
payments due under the Pledged Residential Paper. After the occurrence
of an Event of Default, Borrower shall, at the request of Bank, notify
the account debtors of the Pledged Residential Paper provided for in
this Agreement and direct such Account Debtors to make all such
payments directly to Bank. Bank itself may at any time after the
occurrence of an Event of Default, so notify the account debtors and/or
collect payments due under the Pledged Residential Paper.
3.05 Perfection and Protection of Liens and Security Interest.
Borrower will from time to time deliver to Bank any financing
statements, continuation statements, extension agreements and other
documents, properly completed and executed (and acknowledged when
required) by Borrower in form and substance satisfactory to Bank for
the purpose of perfecting confirming, or protecting Bank's security
interest and other rights in the Pledged Residential Paper.
3.06 Notice of Assignment. All Pledged Residential Paper and all
promissory notes, instruments, documents and other agreements entered
into by Borrower and covering any of the use or proceeds of Pledged
Residential Paper shall contain (by way of stamp or other means
satisfactory to Bank) the following language: "COLLATERALLY ASSIGNED TO
LEGACY BANK OF TEXAS".
3.07 Rights in Property Held by the Bank. As further 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 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.
3.08 Priority of Liens. The foregoing liens and security interest
in favor of Bank shall be first and prior liens and security interest
except for any liens heretofore approved by Bank in writing.
3.09 Financing Statements. Assignments and Deeds of Trust.
(A) The Borrower will:
(1) Join with the Bank in executing such financing statements
(including amendments thereto and continuation statements
thereof), Assignments and any other collateral documents 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 Pledged Residential Paper.
3.10 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 to be pledged to the Bank;
(B) such Pledged Residential Paper has been assigned to Bank as
follows:
(1) the promissory notes evidencing the indebtedness have
been delivered and endorsed by Borrower to Bank with full
recourse against Borrower;
(2) the deeds of trust ("Mortgages") securing payment of such
Pledged Residential Paper have been transferred to Bank;
(C) Borrower has delivered a Request for Advance (Exhibit E) and a
Borrowing Base Certificate (Exhibit F) in form/content acceptable
to Bank;
(D) If required by Lender, Borrower has delivered an estoppel
certificate in form/content acceptable to Bank regarding the
Pledged Residential Paper;
(E) evidence that each of the Mortgages is an insured first lien
has been delivered to Bank (including the original mortgage title
insurance policies together with such endorsements as Bank may
deem necessary;
(F) the real properties described in each of the Mortgages have
been insured against loss by fire and other casualty in the full
amount of the indebtedness secured by such Mortgages and Bank is
shown as a loss payee in such policies, as its interests may
appear;
(G) appraisals relating to the properties described in such
Mortgages, and, if the Bank rejects any such appraisals for any
reason, in its sole discretion, Borrower shall obtain a current
appraisal of any such property, which is deemed satisfactory by
the Bank; and
(H) Borrower has submitted to Bank such evidence of such
environmental safety and soundness as Bank may request regarding
any of the properties described in the Mortgages;
(I) Evidence acceptable to Bank is provided establishing that no
Pledged Residential Paper comprising the Borrowing Base is more
than sixty (60) days past due, and that the outstanding principal
balance of the Loan is not more than 50% of the aggregate
outstanding principal balance of the Pledged Residential Paper;
and
(J) No Event of Default has occurred hereunder.
3.11 Real Property Described in the Residential Paper. Bank does
not make any warranties or representations, expressed or implied with
respect to the Pledged Residential Paper or the real property securing
the Pledged Residential Paper 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 incurred by Bank arising
directly or remotely from such real property and/or Pledged Residential
Paper or any sale, disposition, use, inadequacy, defect or deficiency
thereof.
Section IV. Covenants, Representations and Warranties of Borrower and
Guarantor
4.01 Agreements. To induce the Bank to enter into this Agreement,
the Borrower and Guarantor jointly and severally represent and warrant
to and covenant with the Bank as follows:
(A) The Borrower is a real estate investment trust duly organized,
validly existing, and in good standing under the laws of the State
of Maryland.
(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 documents of formation or constitution of the
Borrower, or violate any laws or result in a default under
any contract, agreement, or instrument to which the Borrower
or the Guarantor are a party or by which the Borrower, the
Guarantor or their respective properties are 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 or Guarantor, 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 Borrower's financial statement or disclosed
in, or permitted by, this Agreement;
(H) Borrower understands that Borrower only may collect monthly
installments due on the Pledged Residential Paper as they mature
monthly and then only for so long as an Event of Default has not
occurred. All amounts, if any, representing principal prepayments
or payoffs and all amounts, if any, collected by Borrower after
the occurrence of any Event of Default represent trust funds which
are assigned and belong to Bank and which are to be immediately
delivered to the Bank, and any retention of such funds by Borrower
after the occurrence of an Event of Default shall be deemed a
conversion by Borrower of Bank's property, ipso facto;
(I) Borrower will take all actions and pay all costs to keep and
maintain the validity, enforceability, security, priority and
collectability of the Pledged Residential Paper and will pay all
other amounts which may be necessary or desirable to preserve,
maintain and protect Bank's interest in the Pledged Residential
Paper. 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 or Guarantor and any other persons
or entities in connection with any matter including but not
limited to the Pledged Residential Paper or any part thereof;
(L) To the best of Borrower's knowledge, no hazardous substances
or solid wastes have been disposed of or otherwise released on or
to any of the properties described in the Mortgages securing the
Pledged Residential Paper. The terms "hazardous substance" and
"release" shall have the meanings specified in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as
amended, ("CERCLA"), and the terms "solid waste" and "disposal"
(or "disposed") shall have the meanings specified in the Resource
Conservation and Recovery Act of 1976, as amended, ("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 Pledged Residential Paper.
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, 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 and excluding escrow accounts. 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 and Guarantor will give immediate written notice to
the Bank of (1) any default of Borrower or Guarantor 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.
(P) Borrower shall not incur any indebtedness other than
indebtedness owed by Borrower to Bank and trade debt incurred and
paid in the ordinary course of business, and Borrower shall not
assign, pledge, grant any security interests or liens in or
otherwise transfer or encumber any of the Residential Paper now
owned and held or subsequently acquired by Borrower; it being the
intent of this provision that although the Bank shall not have a
direct lien or security interest in the Residential Paper which is
not or does not become Pledged Residential Paper, such unpledged
Residential Paper shall constitute a secondary source of repayment
of the Loan, and the continued availability of such unpledged
Residential Paper constitutes a material inducement for the Bank
to make and advance the loan.
(Q) Borrower currently has and shall maintain at all times
throughout the term hereof, a tangible net worth of not less than
$10,000,000.00, as determined in accordance with the audited
financial statements of Borrower based upon generally accepted
accounting principles.
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 of subparagraph 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 or under the Note
or any of the other Loan Documents, 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 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 delivered or to be delivered to the
Bank hereunder, shall be materially false, incorrect, or
incomplete when made;
(E) The dissolution of Borrower or death of 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 Guarantor, or for the readjustment of any of their
respective debts under the Bankruptcy Code, as amended, or any
part 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 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 Pledged Residential Paper
becomes more than sixty (60) days past due without prior
substitution of alternative Pledged Residential Paper, or if the
aggregate outstanding principal balance of the Pledged Residential
Paper shall ever be less than 200% of the outstanding principal
balance on the Loan, and such continues uncured for ten (10) days
following written notice from Bank;
(H) The Guarantor shall fail to comply fully with the requirements
of his Guaranty;
(I) The occurrence of a material adverse change in the financial
condition of either the Borrower or the Guarantor; and
(J) The sale, transfer or assignment of any of the assets or
properties of the Borrower or the Guarantor except for sales,
transfers or assignments of individual assets or properties in the
ordinary course of business and for equivalent value received.
The occurrence of any default by Borrower or 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 section 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 section
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 (Reassignment) Agreements
6.01 Bank will release its liens and security interests against
the Pledged Residential Paper, (i.e. Bank will reassign without
warranty or recourse the Pledged Residential Paper) 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;
(iii) with respect to any request for a partial release of Pledged
Residential Paper, the Bank has received (a) substituted Pledged
Residential Paper with an outstanding principal balance at least
equal to the outstanding principal balance of the Pledged
Residential Paper to be released or (b) cash equal to 50% of the
outstanding principal balance of the Pledged Residential Paper to
be released; or
(iv) the Loan is paid in full and Bank has no further obligation
to make advances hereunder.
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, Borrower will furnish to Bank (and will cause Guarantor
to furnish) Financial Statements in form/content acceptable to Bank, as
follows:
Borrower: Guarantor
Monthly Status Reports on Pledged Annual Statement
Residential Paper;
Monthly Borrowing Base Certificates;
Annual Statement; and
Quarterly Statements
The annual statements of Borrower will be audited by such party's
certified public accountant and the quarterly statements of Borrower
will be reviewed 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 Pledged Residential Paper
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 and/or Guarantor 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 and/or
Guarantor will from time to time become additionally indebted to Bank
all of which indebtedness shall be secured by said Pledged Residential
Paper 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 their address
shown by their names below, unless such address is changed by written
notice hereunder.
7.07 Waiver Release and Indemnity by the Guarantor and Borrower. To
the maximum extent permitted by applicable laws, each of the Guarantor
and 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
Guarantor or Borrower, and, except where required hereby or by any
applicable laws, notice of any other action 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 or Guarantor 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 Plano, Collin 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, and 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.
7.12 Renewal, Increase and Extension. The Loan described and
governed hereby is in part a renewal, increase and extension of that
certain loan evidenced by a promissory note dated October 28, 1998 in
the original principal sum of $1,500,000.00, executed by Borrower,
payable to Lender, and secured by the security interest created and
described in that certain Revolving Loan Agreement, dated October 28,
1999. The security interests, liens, charges and encumbrances set
forth in the security agreement dated October 28, 1998 are hereby
carried forward as security interests, liens, charges and encumbrances
securing the Loan, and nothing herein contained and nothing done
pursuant hereto shall affect or be construed to affect the validity of
said security interests, liens, charges or encumbrances or the priority
thereof over any other security interests, liens, charges or
encumbrances. Further, as a material inducement to cause Lender to
execute and deliver this Agreement and extend the Loan, Borrower and
Guarantor hereby acknowledge that they hold no existing claims,
defenses (personal or otherwise), counterclaims or rights of set-off
whatsoever with respect to the loan described in the October 28, 1998
loan agreement.
THIS WRITTEN LOAN AGREEMENT (AND ALL RELATED DOCUMENTS MENTIONED HEREIN
OR PREPARED OR APPROVED IN WRITING BY LENDER 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. LENDER:
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
Address: LEGACY BANK OF TEXAS
3512 Preston Rd.
Dallas, Texas 75093 By: /Ken Mixon/
Ken Mixon
Its: Vice President
BORROWER:
Address: UNITED MORTGAGE TRUST
1701 N. Greenville Avenue
Suite 403 By: /Christine A. Griffin/
Richardson, Texas 75081 Christine A. Griffin
Its: President
GUARANTOR:
/Theodore F. Etter, Jr./
Theodore F. Etter, Jr.
THE STATE OF TEXAS
COUNTY OF COLLIN
This instrument was acknowledged before me, on the 23 rd day of
March, 1999, by, Ken Mixon, Vice President of Legacy Bank of Texas, on
behalf of said bank.
_______________________
Notary Public, State of Texas
My commission expires: _________
THE STATE OF TEXAS
COUNTY OF COLLIN
This instrument was acknowledged before me, on the 23 day of March,
1999, by, Christine Griffin, President of United Mortgage Trust, on
behalf of said real estate investment trust.
_______________________
Notary Public, State of Texas
My commission expires: _________
THE STATE OF TEXAS
COUNTY OF COLLIN
This instrument was acknowledged before me, on the 23 rd day of
March, 1999, by Theodore F. Etter, Jr.
_______________________
Notary Public, State of Texas
My commission expires:_________
W:\4104\740\REV?LOAN.red 31
