Form 10-QSB
[ x ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 2000
[ ] 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)
5740 Prospect Avenue
Suite 1000
Dallas, Texas 75206
(214) 237-9305
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 ___
(i)
<PAGE>
UNITED MORTGAGE TRUST
INDEX TO FORM 10-QSB
Page Number
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . . .2
Item 1. Financial Statements . . . . . . . . . . . . . . . .2
Balance Sheets
September 30, 2000 and December 31, 1999. . . . . . 2
Statements of Income
Three Months and Nine Months Ending
September 30, 2000 and 1999. . . . . . . . . . . . .3
Statements of Cash Flows
Nine Months Ending
September 30, 2000 and 1999. . . . . . . . . . . . .4
Notes to Financial Statements. . . . . . . . . . . . .5
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
Accountants' Review Report . . . . . . . . . . . . . . . . 13
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<CAPTION>
September 30, December 31,
2000 1999
(unaudited) (audited)
ASSETS
<S> <C> <C>
Cash $ 59,004 $ 14,331
Investment in residential mortgages
and contracts for deed 30,785,265 21,877,468
Interim mortgages 5,969,935 4,199,632
Accrued interest receivable 601,711 244,381
Receivable from affiliate (Note 4) 132,529 23,765
Equipment, less accumulated depreciation
of $2,166 and $1,776, respectively 1,830 2,219
Other assets 40,350 40,350
----------- -----------
Total Assets $37,590,624 $26,402,146
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit (Note 3) 6,749,528 5,000,000
Dividend payable 279,152 227,181
Accounts payable & accrued
liabilities 4,394 126
----------- -----------
Total Liabilities 7,033,074 5,227,307
----------- -----------
Shareholders' equity:
Shares of beneficial interest; $.01 par
Value; 100,000,000 shares authorized
1,709,430 and 1,185,544 shares
outstanding 17,094 11,856
Additional paid-in capital 30,417,936 21,047,321
Retained earnings 122,520 115,662
----------- -----------
Total Shareholders' Equity $30,557,550 $21,174,839
----------- -----------
Total liabilities & shareholders' equity $37,590,624 $26,402,146
=========== ===========
See accompanying notes to financial statements.
2
<PAGE>
</TABLE>
<TABLE>
STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE ENDING SEPTEMBER 30, 2000 AND 1999
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Income:
Gain (loss) on
sale of notes $ ( 5,426) $(12,032) $ 2,518 $ 26,559
Interest income 1,004,788 683,567 2,705,832 1,754,784
--------- -------- ---------- ----------
999,362 671,535 2,708,350 1,781,343
--------- -------- ---------- ----------
Expense:
Salaries and wages 42,807 26,134 119,818 64,722
General and administrative 106,023 66,673 268,177 189,091
Interest expense 127,307 114,706 380,969 231,663
Expense reimbursement from
affiliate(Note 4) (94,000) (49,145) (210,000) (140,369)
-------- -------- ---------- ----------
182,137 158,368 558,964 345,107
-------- -------- ---------- ----------
Net income $817,225 $513,167 $2,149,386 $1,436,236
======== ======== ========== ==========
Net income per share of
beneficial interest $0.50 $0.52 $1.47 $1.62
======== ======== ========== ==========
Weighted average shares
outstanding 1,639,841 995,116 1,463,298 886,583
========= ======= ========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
<CAPTION>
SEPTEMBER 30,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,149,386 $1,436,236
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 390 390
Net amortization of discount on
mortgage investments (29,898) (40,124)
Changes in assets and liabilities:
Accrued interest receivable (357,330) (71,973)
Other assets -- (35,000)
Accounts payable and accrued
liabilities 4,268 (1,350)
Net cash provided by operating ----------- ---------
activities 1,766,816 1,206,948
----------- ---------
Cash flows from investing activities:
Investment in residential mortgages
and contracts for deed (9,195,306) (9,534,684)
Principal receipts on residential
mortgages and contracts for deed 584,206 1,402,256
Investment in interim mortgages (8,882,104) (7,143,937)
Principal receipts on interim mortgages 7,111,802 6,302,113
Loan acquisition costs (266,764) (257,540)
Net cash used in investing --------- ---------
activities (10,648,166) (9,231,792)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of shares of
beneficial interest 9,375,853 5,784,106
Net borrowings on credit line 1,749,528 3,515,691
Receivable from affiliate (108,763) (7,460)
Dividends (2,090,595) (1,275,969)
Net cash provided by financing ---------- ----------
activities 8,926,023 8,016,368
---------- ----------
Net increase in cash 44,673 (8,476)
Cash at beginning of period 14,331 58,054
---------- ----------
Cash at end of period $ 59,004 $ 49,578
---------- ----------
Interest paid $ 380,969 $ 231,663
---------- ----------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
4
<PAGE>
UNITED MORTGAGE TRUST
Notes to Financial Statements
September 30, 2000
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, 1999 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 and nine months ending
September 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
5
<PAGE>
3. Line-of-Credit
The Trustees approved and the Company entered into a new
twelve-month credit facility with a new lender in the amount of
$7,000,000, which will expire on August 22, 2001. The line-of-credit
was collateralized with the assignment of certain Residential
Mortgages. Interest is fixed at 10.5%.
4. Related Party Transactions
In 1997 the Company entered into a Funding Agreement with its
Advisor whereby the Advisor agreed to fund the Company's general and
administrative expenses. In consideration of the Agreement, the Company
contributed to the Advisor an amount equal to one-half of one percent
annually (.5%) of the Company's average invested assets for the
immediately preceding month. In connection with this Agreement, the
Company received $94,000 and $49,145 in expense reimbursements during
the three months and $210,000 and $140,369 during the nine months
ending September 30, 2000 and 1999, and respectively.
The Company also paid the Advisor Acquisition Fees of $85,469
and $81,442 during the three months and $266,764 and $257,540 during
the nine months ending September 30, 2000 and 1999, respectively. The
fee is calculated at 3% of the unpaid principal balance of the
Residential Mortgages and Contracts for Deed as of the purchase date.
The Company currently leases its office space from an affiliate
under the terms of a 36-month lease at $5,409 per month and
subleases a major portion of space to South Central Mortgage, Inc.
("SCMI"), a related party, for $4,668 per month. The sublease rental
rate is approximately five percent higher than the amount paid by
the Company. Rent expense amounted to $1,817 and $1,755 during the
three months and $6,612 and $5,265 during the nine months ending
September 30, 2000 and 1999, respectively.
The Company has also entered into a Mortgage Servicing Agreement
with SCMI, incurring service fees of $36,892 and $22,425 during the
three months and $98,209 and $56,540 during the nine months ending
September 30, 2000 and 1999, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2000 AND 1999
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
September 30,
2000 1999
RESIDENTIAL MORTGAGES
<S> <C> <C>
Purchase price $2,694,000 $1,355,000
Total number 57 29
Number purchased from affiliates 8 22
Number purchased from other sources 49 7
Blended interest rate 11.55% 11.35%
Aggregate principal balance $2,760,000 $1,409,000
Average principal balance $48,000 $49,000
Remaining term in months (1) 336 342
Current yield (1) 11.84% 11.80%
Investment-to-value ratio (1)(2) 86.10% 83.80%
CONTRACTS FOR DEED
<S> <C> <C>
Purchase price $ 193,000 $1,754,000
Total number 4 39
Number purchased from affiliates 0 9
Number purchased from other sources 4 30
Blended interest rate 11.72% 11.89%
Aggregate principal balance $ 193,000 $1,777,000
Average principal balance $48,000 $46,000
Remaining term in months(1) 349 355
Current yield (1) 11.72% 12.05%
Investment-to-value ratio (1)(2) 84.50% 87.00%
INTERIM MORTGAGES
<S> <C> <C>
Portfolio beginning balance $4,212,000 $3,658,000
Portfolio ending balance $5,970,000 $4,127,000
Net increase in portfolio
from prior period $1,757,000 $ 469,000
Total number active in period 192 169
Number purchased from affiliates 192 169
Number purchased from other sources 0 0
Blended interest rate 12.75% 12.75%
Remaining term in months <12 months <12 months
Current yield (1) 12.93% 12.93%
Investment-to-value ratio (1)(2) 54.00% 52.00%
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ending
September 30,
2000 1999
RESIDENTIAL MORTGAGES
<S> <C> <C>
Purchase price $7,086,000 $5,608,000
Total number 150 122
Number purchased from affiliates 47 84
Number purchased from other sources 103 38
Blended interest rate 11.60% 11.30%
Aggregate principal balance $7,219,000 $5,838,000
Average principal balance $48,000 $48,000
Remaining term in months (1) 336 349
Current yield (1) 11.81% 11.76%
Investment-to-value ratio (1)(2) 83.70% 84.40%
CONTRACTS FOR DEED
<S> <C> <C>
Purchase price $2,109,000 $3,955,000
Total number 41 90
Number purchased from affiliates 8 35
Number purchased from other sources 33 55
Blended interest rate 11.73% 11.88%
Aggregate principal balance $2,126,000 $4,005,000
Average principal balance $47,000 $45,000
Remaining term in months(1) 350 354
Current yield (1) 11.84% 11.88%
Investment-to-value ratio (1)(2) 84.40% 87.40%
INTERIM MORTGAGES
<S> <C> <C>
Portfolio beginning balance $4,200,000 $3,285,000
Portfolio ending balance $5,970,000 $4,127,000
Net increase in portfolio
from prior period $1,770,000 $ 842,000
Total number active in period 292 273
Number purchased from affiliates 292 273
Number purchased from other sources 0 0
Blended interest rate 12.75% 12.75%
Remaining term in months <12 months <12 months
Current yield (1) 12.93% 12.93%
Investment-to-value ratio (1)(2) 54.00% 52.00%
<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>
7
<PAGE>
As of September 30, 2000 our mortgage portfolio in the aggregate
consisted of 496 Residential Mortgages and 184 Contracts for Deed. As
of the dates of purchase, the portfolio had an unpaid principal
balance of $30,920,000, and was purchased for a discounted price of
$29,964,000(96.91% of the unpaid principal balance). The average loan
in the portfolio had a blended interest rate of 11.58%, an unpaid
principal balance of $45,000, a term remaining of 342 months, a
current annual yield of 11.95%, and an investment-to-value ratio of
84.6%. As of September 30, 2000 we also had 157 active interim
mortgages with an outstanding principal balance of $5,970,000.
By comparison as of September 30, 1999, our mortgage portfolio in
the aggregate consisted of 341 Residential Mortgages and 110 Contracts
for Deed. As of the dates of purchase, the portfolio had an unpaid
principal balance of $19,899,000, and was purchased for a discounted
price of $19,082,000 (95.90% of the unpaid principal balance). The
average loan in the portfolio had a blended interest rate of 11.49%,
an unpaid principal balance of $44,000, a term remaining of 339
months, a current annual yield of 11.98%, and an investment-to-value
ratio of 84.4%. As of September 30, 1999 we also had 116 active
interim mortgages with an outstanding principal balance of $4,127,000.
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's title insurance
policy and hazard insurance.
During the three-month periods ending September 30, 2000 and 1999
our Mortgage Investments generated $999,000 and $672,000 of total
income, which represented a 49% 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
preceding the current period. Operating Expenses of $149,000 in the
2000 quarter were offset by reimbursement from the Advisor or $94,000
compared to $93,000 in the 1999 quarter offset by reimbursement from
the Advisor to us of $49,000. The net operating expense increase of
25% in the 2000-quarter was due to a bank fee associated with the new
credit facility that was expensed, higher loans servicing fees
commensurate with a larger loan portfolio and higher salary expense
because of the addition of one and a half employees. Interest expense
for the 2000 quarter was $127,000 compared to $115,000 during the 1999
quarter representing a 10% increase. The increased interest expense
was commensurate with higher borrowing on our credit line. Net income
of $817,000 and $513,000 for the quarters ending September 30, 2000
and 1999, respectively, represented a 59% increase due to a
significantly larger loan portfolio producing interest income.
Earnings per weighted average share were $0.50 and $0.52 for the 2000
and 1999 quarters.
8
<PAGE>
Dividends declared and paid per share of beneficial interest for
the three-month periods ending September 30, 2000 and 1999 were $0.50
each period. Dividends paid during both quarters were at a 10%
annualized rate of return for our shareholders.
During the nine-month periods ending September 30, 2000 and 1999,
respectively, our Mortgage Investments generated $2,708,000 and
$1,781,000 of total income, which represented a 52% increase. The rise
was attributed to the significant addition of Mortgage Investments
purchased using Net Offering Proceeds derived from the sale of our
Shares. Operating expenses of $388,000 in the 2000 nine-month period
were offset by reimbursement from the Advisor or $210,000 compared to
expenses of $254,000 in the 1999 nine-month period offset by
reimbursement from the Advisor to us of $140,000. The 57% increase in
the 2000 nine-month period was attributed to a greater salary expense
due to the addition of a full-time and part-time employee, higher
renewal fees for state registrations, a one-time bank fee for our new
line of credit and higher loan portfolio servicing fees commensurate
with a substantially larger portfolio. Interest expense during the
comparable nine-month periods increase 64% from $232,000 to $381,000
due to increased borrowings on our credit line. Net income of
$2,149,000 and $1,436,000 for the nine-month periods ending September
30, 2000 and 1999, respectively, represented a 50% increase, which is
in keeping with the increase in the size of our loan portfolio.
Earnings per weighted average share were $1.47 and $1.62 for the 2000
and 1999 nine-month periods.
Dividends declared and paid per share of beneficial interest for
the nine-month periods ending September 30, 2000 and 1999 were $1.50
and $1.51, respectively. Dividends paid during both periods exceed a
10% annualized rate of return for our shareholders.
As of September 30, 2000, 4.4% of our Mortgage Investments were
in default compared to 3.0% at the 1999-quarter's end. Recoursed
loans accounted for 2.7% of the 4.4% and 1.7% of the loans were non-
recoursed.
9
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY FOR THE THREE MONTHS AND NINE MONTHS
ENDING SEPTEMBER 30, 2000 AND 1999
We utilize funds made available from the sale of our Shares,
funds made available on our bank line of credit and repayment of
principal on our Residential Mortgages and Contracts for Deed to
purchase Mortgage Investments.
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDING SEPTEMBER 30,
2000 1999
<S> <C> <C>
Shares issued 175,721 129,797
Number of new shareholders 58 57
Gross offering proceeds $3,514,000 $2,596,000
Net offering proceeds (after deduction
of selling commissions and fees) $3,481,000 $2,323,000
Principal receipts from Residential
Mortgages and Contracts for Deed $113,000 $479,000
Principal receipts from Interim Mortgages $3,145,000 $1,819,000
Net borrowing from credit line $1,830,000 $623,000
<CAPTION>
NINE-MONTH PERIODS
ENDING SEPTEMBER 30,
2000 1999
<S> <C> <C>
Shares issued 523,886 312,358
Number of new shareholders 192 147
Gross offering proceeds $10,476,000 $6,247,000
Net offering proceeds (after deduction
of selling commissions and fees) $9,376,000 $5,590,000
Principal receipts from Residential
Mortgages and Contracts for Deed $584,000 $1,402,000
Principal receipts from Interim Mortgages $7,112,000 $6,302,000
Net borrowing from credit line $1,749,000 $3,576,000
10
<PAGE>
As of September 30, 2000 we had sold an aggregate of 1,709,430
for Gross Offering Proceeds of $34.0 million and Net Offering Proceeds
to us of $30.4 million.
The Trustees approved and we entered into a new twelve-month
credit facility with a new lender in the amount of $7,000,000, which
will expire on August 22, 2001. The line-of-credit was
collateralized with the assignment of certain Residential Mortgages.
Interest is fixed at 10.5%. The line-of-credit is utilized to
acquire and warehouse Mortgage Investments as they become available.
The line-of-credit is reduced as new offering proceeds are received.
The outstanding loan balance at September 30, 2000 was $6,749,000
and at September 30, 1999 was $5,000,000 on a different line of
credit.
PART II - OTHER INFORMATION
Item 6. Exhibits
(a) Exhibit 1. One Year $7,000,000.00 Revolving Loan Agreement
between First State Bank of Texas and United Mortgage Trust
dated August 21, 2000.
11
<PAGE>
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: November 6, 2000 /S/Christine A. Griffin
Christine A. Griffin
President
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
United Mortgage Trust
We have reviewed the accompanying balance sheets of United Mortgage
Trust as of September 30, 2000 and the related statements of income for
the three and nine months then ended and cash flows for the nine months
then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of
interim financial information consists principally of analytical
procedures applied to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of United Mortgage Trust as of
December 31, 1999 and the related statements of earnings and cash flows
for the year then ended (not presented separately herein), and in our
report dated February 15, 2000, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth
in the accompanying balance sheet as of December 31, 1999 is fairly
stated, in all material respects, in relation to the balance sheet from
which it has been derived.
Jackson & Rhodes P.C.
Dallas, Texas
November 3, 2000
13
<PAGE>
Exhibit 1.
ONE (1) YEAR
$7,000,000.00
REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT, dated the 21st day of August, 2000,
by and between UNITED MORTGAGE TRUST, a Maryland real estate investment
trust (the "Borrower"), and FIRST STATE BANK OF TEXAS (the "Bank").
WITNESSETH:
BACKGROUND. Borrower is in the business of buying mortgage
notes secured by first and prior liens on residential properties and
installment contracts for deed for the sale of 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 SEVEN MILLION DOLLARS ($7,000,000.00), in
aggregate, on a revolving loan basis (the "Loan") from which to
reimburse Borrower up to $7,000,000.00 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 $14,000,000.00 with which
to secure Loan. Bank is willing to advance the Loan upon the terms
and conditions 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 the
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 fun 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 $7,000,000.00 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 full 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 Revolving Line
of Credit Promissory Note (the "Note"), having a stated maturity on
the Loan Termination Date, with a face amount of $7,000,000.00,
executed by Borrower and payable to the order of 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 $25,000.00 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 State of Texas, or fee
simple titles to the residential properties, excluding any Residential
Paper which is or becomes past due by more than sixty (60) days, and
excluding any Residential Paper secured by property located outside of
Texas or is modified, renewed or extended beyond the original terms of
the Residential Paper. 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 or any
Residential Paper that has been renewed, modified or extended in
anyway from the initial obligations represented thereby and will
replace the same with new Residential Paper that is current, i.e. not
more than sixty (60) days past due and without any modifications,
renewals or extensions; 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 moth (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 shall be immediately paid down
by the Borrower 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 promptly furnish Bank with all information
needed/requested by Bank from time to time to track each item of
Pledged Residential Paper ("Item") viz. Each first lien note and
installment contract for deed or first lien securing the payment of
such first lien note pledged to Bank in order to independently
determine its currently, 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 (as set forth in the
Note) at the fixed rate of ten and one-half percent (10.5%) per
annum based on a 360 day year and the actual number of days
elapsed (the "Fixed 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 Fixed Rate exceeds the Highest Lawful Rate, the rate of
interest to accrue on the Note shall be limited t the Highest
Lawful Rate, but if thereafter the Fixed 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 Fixed 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 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 contract 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 fifteen (15) 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 $1,000.00 per calendar quarter.
1.11 Servicing Rights. The Borrower covenants that the
servicing rights to the Pledged Residential Paper will not be sold or
assigned and upon an Event of Default the Bank will have control of
such rights.
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 init8ial disbursement of any
Loan amounts (the "Closing"), the following:
(A) Blanket Assignment of Notes and Liens (Exhibit "A") for
each County in which the Pledged Residential Paper is located,
executed by Legacy Bank of Texas in favor of Bank with;
(B) Blanket Allonge (Exhibit "B") executed by Legacy Bank of
Texas in favor of Bank;
(C) Blanket Assignment of Notes and Liens (Exhibit "C") for each
County in which the Pledged Residential Paper is located,
executed by Borrower in favor of Bank;
(D) Blanket Allonge (Exhibit "D") executed by Borrower in favor
of Bank;
(E) The duly executed Note, (Exhibit "E") having a stated
maturity on the Loan Termination Date, with a face amount of
$7,000,000.00, executed by Borrower and payable to the order of
Bank;
(F) A duly executed Guaranty Agreement (Exhibit "F")
("Guaranty"), in form acceptable to Bank signed by Todd F. Etter
("Guarantor"), together with his current financial statement in
form/substance acceptable to Bank;
(G) Borrower's current financial statements (the "Financial
Statements") reviewed by its certified public accountant, which
shall be satisfactory in form/content to Bank;
(H) Collateral Assignment of Notes and Liens (Exhibit "G")
("Assignment"), duly executed by Borrower in favor of Bank,
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;
(I) A copy, certified as of the date of the Closing, of
resolutions of the Trustees of the Borrower ("Exhibit H"),
authorizing the execution, delivery, and performance of this
Agreement, the Note, and all other documents to be delivered
pursuant hereto at such time;
(J) Two (2) UCC-1 (Exhibit "I") Financing Statements, duly
executed by Borrower, evidencing the Bank's security interest in
the Pledged Residential Paper.
(K) Statute of Frauds Notice (Exhibit "J") duly executed by
Bank, Borrower and Guarantor; and
(L) Errors and Omissions Letter (Exhibit "K") duly executed by
Bank and Borrower.
These 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 payment and performance of the Note and any and all other
liabilities of Borrower to Bank, director 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, installment contract for deed, mortgage, guarantee, loan
document, title policy, insurance policy, or any other right ancillary
to or securing or relating to the Pledged 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 designated 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 after 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 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 the 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 ad 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 of proceeds of
Pledged Residential Paper shall contain (by way of stamp or other
means satisfactory to Bank) the following language: "PAY TO THE ORDER
OF FIRST STATE BANK OF TEXAS, WITH FULL RECOURSE".
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
interests.
3.09 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), 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) Borrower has executed an Assignment of Notes and Liens
(Exhibit "L") for each County in which the Residential
Paper is located, assigning the Residential Paper to Bank;
(2) the original promissory notes and the original
installment contracts evidencing the indebtedness have
been delivered and endorsed by Borrower to Bank with full
recourse against Borrower with such endorsement being
evidenced by an Allonge (Exhibit "M") affixed to each
promissory note and the installment contract for deed, and
executed by Borrower in form/content acceptable to Bank;
(3) the deeds of trust and installment contracts for deed
(collectively the "Mortgages") securing payment of such
Pledged Residential Paper have been transferred to Bank;
and
(4) if the Pledged Residential Paper includes any
installment contracts for deed then Borrower will have
delivered a Warranty Deed (Exhibit "N") in form/content
acceptable to Bank, conveying the real property covered by
the installment contract for deed to the Bank in fee
simple, free and clear of any liens, subject only to such
installment contract for deed.
(C) Borrower has delivered a Request for Advance (Exhibit "O")
and a Borrowing Base Certificate (Exhibit "P") in form/content
acceptable to Bank;
(D) Borrower has delivered an Estoppel Certificate (Exhibit
"Q") in form/content acceptable to Bank for each Pledged
Residential Paper;
(E) Borrower has delivered a Notice Letter (Exhibit "R") in
form/content acceptable to Bank for each Pledged Residential
Paper;
(F) 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 or in the case of an installment contract for
deed a copy of Borrower's owner's policy of title insurance
showing Borrower as the fee simple owner of the property, free
and clear of liens) for each Pledged Residential Paper;
(G) 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;
(H) 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
(I) 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;
(J) 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 eligible Pledged
Residential Paper; and
(K) 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 (an 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 Sate 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 o 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 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 the
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 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 mounts 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 the 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 Conversation 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 or installment contracts for
deed comprising the Pledged Residential Paper. This indemnity
at the election of Bank shall survive repayment of the Loan and
shall continue as long as 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 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 $23,900,000.00 as determined in accordance with the audited
financial statements of Borrower based upon generally accepted
accounting principles.
(R) Borrower owns clear title to all Residential Paper free and
clear of any liens or security interests, except for the liens
and security interests of Bank. The Residential Paper is
payable to the order of Borrower prior to endorsement of same to
Bank.
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 in
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 all
obligations, whether hereunder or otherwise, including without
limitation the entire outstanding principal balance of the Note and
all accrued but unpaid interest thereon, shall immediately become due
and payable without further action of any kind.
5.03 Servicing Rights. Upon the occurrence of an Event of
Default Bank will have the ability to take over and control all
servicing rights for the Pledged Residential Paper.
5.04 Remedies. After any acceleration as provided for in
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.
5.05 Restricted Payments. If an Event of Default has occurred,
Borrower will not declare or pay any dividends or make any other
payment on account of its capital stock, or redeem, purchase or retire
any of its capital stock, or grant or issue any capital stock or any
warrant, right or option pertaining to its capital stock, or issue any
security convertible into capital stock.
Section VI. Partial Release's (Reassignment) Agreements
6.01 Partial Release. Bank may from time to time partially
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 Event or Default is pending or threatened under the Loan
Documents;
(ii) such partial release is documented, recorded and otherwise
accomplished without cost to Bank; and
(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
6.02 Release. If the Loan is paid in full and Bank has no
further obligation to make advances hereunder 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).
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 Financial Statement
Residential Paper; Annual Tax Return
Monthly Borrowing Base Certificates;
Audited Annual Financial Statement;
Quarterly Financial Statements prepared by Borrower; and
Proof of Insurance on underlying real properties
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 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 t 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 ad 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 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.
THIS WRITTEN LOAN AGREEMENT (AND ALL RELATED DOCUMENTS MENTIONED
HEREIN OR PREPARED OR APPROVED IN WRITING BY LENDER CONCURRENTLY
HEREWTIH, INCLUDING THE NOTE) REPRSENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSSEQUENT 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.
LENDER
Address: FIRST STATE BANK OF TEXAS
5936 West Park Boulevard
Plano, Texas 75093
By: /s/ Ken Mixon
Ken Mixon, Senior Vice
President
BORROWER
Address: UNITED MORTGAGE TRUST, a
5740 Prospect Avenue, Suite 1000 Maryland real estate investment
trust
Dallas, Texas 75206
By: /s/ Christine A. Griffin
Christine A. Griffin,
President
GUARANTOR
By: /s/ Todd F. Etter
Todd F. Etter
</TABLE>
