<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________.
Commission File Number 1-5899
U.S. HOME CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 21-0718930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10707 Clay Road, Houston, Tx 77041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 877-2311
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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
----- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
Common stock, $.01 par value 13,676,630 shares
<PAGE> 2
U.S. HOME CORPORATION
---------------------
INDEX
-----
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance
Sheets -- September 30, 1999
and December 31, 1998 3
Consolidated Condensed Statements
of Operations -- Three and Nine
Months Ended September 30, 1999
and 1998 5
Consolidated Condensed Statements
of Cash Flows -- Nine Months
Ended September 30, 1999 and 1998 6
Notes to Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 21
Part II. Other Information
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
HOUSING:
<S> <C> <C>
Cash (including restricted funds) .......... $ 8,145 $ 8,172
Receivables, net ........................... 56,655 60,510
Single-Family Housing Inventories .......... 1,219,442 986,878
Option Deposits on Real Estate ............. 104,112 103,451
Other Assets ............................... 79,547 59,636
---------- ----------
1,467,901 1,218,647
---------- ----------
FINANCIAL SERVICES:
Cash (including restricted funds) .......... 5,665 5,660
Residential Mortgage Loans ................. 73,758 82,479
Other Assets ............................... 20,868 8,987
---------- ----------
100,291 97,126
---------- ----------
CORPORATE:
Cash and Other Assets ...................... 44,441 37,203
---------- ----------
$1,612,633 $1,352,976
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 4
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
CORPORATE AND HOUSING:
<S> <C> <C>
Accounts Payable ............................ $ 133,877 $ 129,200
Accrued Expenses and Other Current
Liabilities ................................ 105,130 89,156
Revolving Credit Facility ................... 170,000 130,000
Long-Term Debt .............................. 553,333 424,980
----------- -----------
962,340 773,336
----------- -----------
FINANCIAL SERVICES:
Accrued Expenses and Other Current
Liabilities ............................... 12,464 32,287
Revolving Credit Facilities ................. 78,046 33,112
----------- -----------
90,510 65,399
----------- -----------
Total Liabilities ......................... 1,052,850 838,735
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, authorized
50,000,000 shares, outstanding
13,410,288 shares at September 30, 1999
and 13,501,630 shares at December 31, 1998. 137 137
Capital In Excess of Par Value .............. 403,467 402,754
Retained Earnings ........................... 169,653 118,061
Unearned Compensation on Restricted
Stock ..................................... (4,798) (1,475)
----------- -----------
568,459 519,477
Less Treasury Stock, at cost, 266,342 shares
at September 30, 1999 and 175,000 shares
at December 31, 1998 ...................... (8,676) (5,236)
----------- -----------
Total Stockholders' Equity ................ 559,783 514,241
----------- -----------
$ 1,612,633 $ 1,352,976
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 5
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
HOUSING:
<S> <C> <C> <C> <C>
Operating Revenues ........................ $ 462,676 $ 373,158 $ 1,305,126 $ 1,059,984
----------- ----------- ----------- -----------
Operating Costs and Expenses -
Cost of products sold ................... 376,549 304,344 1,063,316 862,468
Selling, general and administrative ..... 45,036 36,160 127,792 104,005
Interest ................................ 11,755 10,474 33,974 29,822
----------- ----------- ----------- -----------
433,340 350,978 1,225,082 996,295
----------- ----------- ----------- -----------
Housing Operating Income .................. 29,336 22,180 80,044 63,689
----------- ----------- ----------- -----------
FINANCIAL SERVICES:
Operating Revenues ........................ 10,790 8,818 28,887 24,044
General, Administrative and Other Expenses. 5,993 5,247 16,355 14,997
----------- ----------- ----------- -----------
Financial Services Operating Income ....... 4,797 3,571 12,532 9,047
----------- ----------- ----------- -----------
CORPORATE GENERAL AND ADMINISTRATIVE ........ 2,864 3,390 10,030 9,865
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS 31,269 22,361 82,546 62,871
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES:
Federal and State Income Taxes ............ 11,725 8,273 30,954 23,262
Tax Benefit ............................... - - - (7,474)
----------- ----------- ----------- -----------
11,725 8,273 30,954 15,788
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS ............ 19,544 14,088 51,592 47,083
EXTRAORDINARY LOSS FROM EARLY RETIREMENT OF
DEBT, NET OF INCOME TAX BENEFIT ........... - - - (3,026)
----------- ----------- ----------- -----------
NET INCOME .................................. $ 19,544 $ 14,088 $ 51,592 $ 44,057
=========== =========== =========== ===========
</TABLE>
<PAGE> 6
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
<S> <C> <C> <C> <C>
Income Before Extraordinary Loss .......... $ 1.46 $ 1.03 $ 3.86 $ 3.76
Extraordinary Loss ........................ $ - $ - $ - $ (.24)
Net Income ................................ $ 1.46 $ 1.03 $ 3.86 $ 3.52
DILUTED EARNINGS PER SHARE:
Income Before Extraordinary Loss .......... $ 1.43 $ 1.00 $ 3.76 $ 3.48
Extraordinary Loss ........................ $ - $ - $ - $ (.22)
Net Income ................................ $ 1.43 $ 1.00 $ 3.76 $ 3.26
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
U.S. HOME CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Net Cash Flows From Operating Activities ....... $(146,847) $(151,203)
--------- ---------
Net Cash Flows From Investing Activities
Increase in restricted cash .................. (908) (2,131)
Principal collections on investments in
mortgage Loans ............................. 1,798 2,732
Purchase of property, plant and equipment,
net of Disposals ........................... (7,393) (6,836)
Other ........................................ (557) (739)
--------- ---------
Net cash used by investing activities ........ (7,060) (6,974)
--------- ---------
Net Cash Flows From Financing Activities
Proceeds from revolving credit facilities,
net of repayments .......................... 84,934 110,401
Net proceeds from sale of senior notes and
senior subordinated notes .................. 122,113 98,237
Repayment of notes and mortgage notes payable (44,916) (3,731)
Repurchase of common stock ................... (7,420) -
Purchase of senior notes ..................... - (82,980)
Net proceeds from exercise of Class B warrants - 36,431
Other ........................................ 22 538
--------- ---------
Net cash provided by financing activites ..... 154,733 158,896
--------- ---------
Net Increase in Cash ........................... 826 719
Cash At Beginning Of Period .................... 7,285 6,466
--------- ---------
Cash At End of Period .......................... $ 8,111 $ 7,185
========= =========
Supplemental Disclosure
Interest paid, before amount capitalized -
Housing .................................... $ 50,846 $ 38,517
Financial Services ......................... 1,006 1,266
--------- ---------
$ 51,852 $ 39,783
========= =========
Income Taxes Paid ............................ $ 25,823 $ 20,486
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
U.S. HOME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1999
(Dollars in Thousands)
(Unaudited)
(1) BASIS OF PRESENTATION AND SEGMENT INFORMATION
Basis of Presentation -
The accompanying consolidated condensed balance sheet as of December
31, 1998, which has been derived from audited financial statements, and
the accompanying unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations. Although
the Company believes that the disclosures made are adequate to ensure
that the information presented is not misleading, it is suggested that
these consolidated condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's latest Annual Report on Form 10-K.
The preparation of consolidated condensed financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of any contingent
assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Management's
estimates and assumptions are reflective of, among other things,
prevailing market conditions, expected market conditions based on
published economic forecasts, current operating strategies and the
availability of capital, which are all subject to change. Changes to
the aforementioned or other conditions could in turn cause changes to
such estimates and assumptions and, as a result, actual results could
differ from the original estimates.
In the opinion of the Company, the accompanying consolidated condensed
financial statements contain all adjustments (all of which were normal
and recurring adjustments) necessary to present fairly the Company's
financial position as of September 30, 1999 and December 31, 1998 and
its results of operations for the three and nine month periods ended
September 30, 1999 and 1998 and cash flows for the nine month periods
ended September 30, 1999 and 1998.
Because of the seasonal nature of the Company's business, the results
of operations for the three and nine month periods ended September 30,
1999 and 1998 are not necessarily indicative of the results for the
full year.
<PAGE> 9
Segment Information -
The Company's financial reporting segments consist of home building,
financial services and corporate. The Company's home building
operations comprise the most substantial part of its business, with
approximately 98% of consolidated revenues in the three and nine month
periods ended September 30, 1999 and 1998 contributed by the home
building operations. The Company is one of the largest single-family
homebuilders in the United States based on homes delivered. Including
joint venture communities, the Company currently builds and sells homes
in more than 240 new home communities in 33 metropolitan areas in 13
states. The Company offers a wide variety of moderately priced homes
that are designed to appeal to the affordable, move-up and retirement
and active adult buyers. The Company's financial services operations
provide mortgage-banking services to the home building operations'
customers. The Company originates, processes and sells mortgages to
third party investors. The Company does not retain or service the
mortgages that it originates but, rather, sells the mortgages and
related servicing rights to investors. Corporate primarily includes the
operations of the Company's corporate office whose primary purpose is
to provide financing, cash management, risk management, capital
allocations, management reporting and general administration for the
home building and financial services segments.
Assets, operating revenues and operating income of the Company's
reportable segments are included in the consolidated condensed balance
sheets and consolidated condensed statements of operations.
Expenditures for long-lived assets and depreciation and amortization
expenses were insignificant for the three and nine month periods ended
September 30, 1999 and 1998.
(2) INVENTORIES
The components of single-family housing inventories are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Housing completed and under construction $ 445,215 $ 382,080
Models 96,298 90,676
Finished lots 184,702 132,567
Land under development 178,429 133,791
Land held for development or sale 314,798 247,764
----------- -----------
$ 1,219,442 $ 986,878
=========== ===========
</TABLE>
<PAGE> 10
(3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
Housing -
The housing revolving credit facility and long-term debt consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Revolving credit facility $ 170,000 $ 130,000
------------ -----------
7.95% Senior notes due 2001 75,000 75,000
8.25% Senior notes due 2004 100,000 100,000
7.75% Senior notes due 2005 99,801 99,773
8.88% Senior subordinated notes due 2007 125,000 125,000
8.875% Senior subordinated notes due 2009 124,051 -
Notes and mortgage notes payable 29,481 25,207
------------ -----------
553,333 424,980
------------ -----------
$ 723,333 $ 554,980
============ ===========
</TABLE>
The Company has an unsecured revolving credit agreement (the "Credit
Facility") with a group of banks. The Credit Facility provides for
borrowings of up to $300,000, of which up to $35,000 may be used for
letter of credit obligations, subject to a borrowing base limitation.
Upon approval of the agent bank, the borrowings under the Credit
Facility may be increased, in multiples of $10,000, to a maximum of
$350,000, either by having additional banks (which have been approved
by the Company) become lenders or by having one or more of the existing
banks, with the approval of the Company, increase the amount of their
commitment. The amount available for borrowing under the Credit
Facility is based on housing inventories, land, finished lots and
closing proceeds receivable less outstanding senior debt borrowings (as
defined in the Credit Facility), including amounts outstanding under
the Credit Facility; as the amount invested in these categories
changes, the amount of available borrowings will increase or decrease.
At September 30, 1999, $114,480 of the Credit Facility commitment was
available for borrowing. Borrowings bear interest at a premium over the
London Interbank Offered Rate ("LIBOR") or the base rate announced by
the agent bank. The Credit Facility, as amended, expires on May 31,
2002, but may be extended annually for successive one-year periods with
the consent of the banks and contains numerous real estate and
financial covenants, including restrictions on the incurrence of
additional debt, creation of liens and the levels of land and housing
inventories maintained by the Company and limits the payment of cash
dividends in any fiscal quarter to fifty percent of the Company's
consolidated net income (as defined in the Credit Facility) for the
preceding fiscal quarter.
<PAGE> 11
From time to time, the Company may utilize interest rate swap
agreements to manage interest costs and hedge against risks associated
with changing interest rates. The Company designates interest rate
swaps as hedges of specific debt instruments and recognizes interest
rate differentials as adjustments to interest paid or accrued as the
differentials occur. Counterparties to these agreements are major
financial institutions. The Company believes that the likelihood of
credit loss from counterparty non-performance is remote. At September
30, 1999, the Company had an interest rate swap agreement outstanding
with a notional amount of $50,000 which will mature in 2000 and
effectively fixed the interest rate on a portion of its Credit Facility
borrowings.
In February 1999, the Company completed the sale of $125,000 principal
amount of its 8.875% senior subordinated notes due 2009 (the "2009
Senior Subordinated Notes"). The net proceeds were used to repay part
of the balance outstanding under the Credit Facility and for general
corporate purposes. The 2009 Senior Subordinated Notes were issued at
original issue discount of $1,012, which is being amortized over the
term of such Notes. Interest is payable semi-annually on February 15
and August 15. On or after February 15, 2004, the 2009 Senior
Subordinated Notes may be redeemed at the option of the Company, in
whole or in part, at prices ranging from 104.438% during the 12 month
period beginning February 15, 2004 to 100% (on or after February 15,
2007) of the principal amount thereof, together with accrued and unpaid
interest.
In June 1998, the Company redeemed $43,109 principal amount of its
9.75% senior notes due 2003 (the "2003 Senior Notes") and in the first
quarter of 1998, the Company purchased in open market transactions
$36,594 principal amount of the 2003 Senior Notes. The early retirement
of the 2003 Senior Notes resulted in an extraordinary loss of $3,026,
net of income tax benefit of $1,777 in the nine month period ended
September 30, 1998.
Financial Services -
The financial services credit facilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Mortgage Credit Facility $ 73,346 $ 33,112
Subsidiary Credit Agreement 4,700 -
------------- ------------
$ 78,046 $ 33,112
============= ============
</TABLE>
<PAGE> 12
The Company's mortgage banking subsidiary, U.S. Home Mortgage
Corporation ("Mortgage"), may borrow up to $80,000 under a revolving
line of credit (the "Mortgage Credit Facility"). The Mortgage Credit
Facility is secured by residential mortgage loans, is not guaranteed by
the Company, matures on September 30, 2001 and bears interest at a
premium over the LIBOR rate. The Mortgage Credit Facility has been in
place since 1992 and has been renewed on various terms and conditions
on an annual basis.
In March 1999, a subsidiary of Mortgage (the "Subsidiary") entered into
an unsecured revolving credit agreement (the "Subsidiary Credit
Agreement") with two banks providing up to a maximum of $10,000 of
borrowings subject to a borrowing base. The Subsidiary was organized to
loan money to joint ventures in which the Company is a joint venture
partner. The Subsidiary Credit Agreement is guaranteed by the Company
and a joint venture partner, matures on May 31, 2001 and bears interest
at a premium over the base rate announced by the agent bank or a
premium over the LIBOR rate.
(4) INCOME TAXES
In connection with the Internal Revenue Service (the "IRS") examination
of the Company's 1993 and 1992 federal income tax returns, the IRS
disallowed certain previously reserved deductions taken by the Company
in its 1993 tax return. In March 1998, the Company was informed that
its appeal of the IRS decision to disallow these deductions had been
resolved in favor of the Company. As a result of the favorable ruling,
the Company reduced its deferred tax liability and recognized an income
tax benefit in the first quarter of 1998 totaling $7,474 related to
these deductions. The decrease in the deferred tax liability increased
basic and diluted earnings per common share in the nine-month period
ended September 30, 1998 by $.60 per share and $.55 per share,
respectively.
<PAGE> 13
(5) INTEREST
A summary of housing interest for the three and nine month periods
ended September 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
Three Month Period
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Capitalized at beginning of period $ 76,216 $ 66,155
Capitalized 16,068 11,874
Previously capitalized interest
included in interest expense (11,755) (10,474)
Other (42) (74)
--------- ---------
Capitalized at end of period $ 80,487 $ 67,481
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Month Period
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Capitalized at beginning of period $ 68,750 $ 62,950
Capitalized 44,360 34,454
Previously capitalized interest
included in interest expense (33,974) (29,822)
Other 1,351 (101)
--------- ---------
Capitalized at end of period $ 80,487 $ 67,481
========= =========
</TABLE>
<TABLE>
<CAPTION>
Financial services interest expense for the three and nine month
periods ended September 30, 1999 and 1998, which is included in
"General, Administrative and Other Expenses" in the accompanying
consolidated condensed statements of operations follows:
1999 1998
--------- ---------
<S> <C> <C>
Three month period $ 459 $ 453
Nine month period $ 1,018 $ 1,290
</TABLE>
<PAGE> 14
(6) EARNINGS PER SHARE
Basic earnings per share includes the weighted average number of common
shares outstanding for the periods. Diluted earnings per share includes
(i) the assumed exercise of stock options and (ii) the dilutive effect
of the Class B warrants through their exercise and expiration in June
1998. The following table summarizes the basic earnings and diluted
earnings per share computations for the three and nine month periods
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Three Month Period
Basic earnings per share:
Income before extraordinary loss .... $ 19,544 $ 14,088
Extraordinary loss .................. - -
----------- -----------
Net income .......................... $ 19,544 $ 14,088
=========== ===========
Weighted average number of common shares 13,410,288 13,672,997
=========== ===========
Earnings per share -
Income before extraordinary loss ... $ 1.46 $ 1.03
Extraordinary loss ................. $ - $ -
Net income ......................... $ 1.46 $ 1.03
Diluted earnings per share:
Income before extraordinary loss ... $ 19,544 $ 14,088
Extraordinary loss ................. - -
----------- -----------
Net income, assuming dilution ...... $ 19,544 $ 14,088
=========== ===========
Weighted average number of common shares 13,410,288 13,672,997
Incremental shares from assumed
conversions -
Contingent common shares ............. 3,505 111,999
Stock options ........................ 262,553 308,650
Adjusted weighted average number of
common shares ........................ 13,676,346 14,093,646
=========== ===========
Earnings per share -
Income before extraordinary loss ..... $ 1.43 $ 1.00
Extraordinary loss ................... $ - $ -
Net income ........................... $ 1.43 $ 1.00
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Nine Month Period
Basic earnings per share:
Income before extraordinary loss ....... $ 51,592 $ 47,083
Extraordinary loss ..................... - (3,026)
----------- -----------
Net income ............................. $ 51,592 $ 44,057
=========== ===========
Weighted average number of common shares 13,381,177 12,517,187
=========== ===========
Earnings per share -
Income before extraordinary loss ..... $ 3.86 $ 3.76
Extraordinary loss ................... $ - $ (.24)
Net income ........................... $ 3.86 $ 3.52
Diluted earnings per share:
Income before extraordinary loss ..... $ 51,592 $ 47,083
Extraordinary loss ................... - (3,026)
----------- -----------
Net income, assuming dilution ........ $ 51,592 $ 44,057
=========== ===========
Weighted average number of common shares 13,381,177 12,517,187
Incremental shares from assumed
conversions-
Contingent common shares ............. 46,217 44,493
Stock options ........................ 293,539 385,671
Class B warrants ..................... - 572,783
----------- -----------
Adjusted weighted average number of
common shares ........................ 13,720,933 13,520,134
=========== ===========
Earnings per share -
Income before extraordinary loss ..... $ 3.76 $ 3.48
Extraordinary loss ................... $ - $ (.22)
Net income ........................... $ 3.76 $ 3.26
</TABLE>
(7) TREASURY STOCK
As of December 31, 1998, the Company had remaining Board of Directors
authorization to repurchase up to 409,157 shares of outstanding common
stock, in the aggregate, from time to time in the open market and/or in
private transactions. During the nine month period ending September 30,
1999, the Company repurchased 213,400 shares of common stock for an
aggregate purchase price of $7,420. The cost of the repurchased shares
has been included in "Treasury Stock" in the accompanying consolidated
condensed balance sheets.
<PAGE> 16
Also during the nine month period ended September 30, 1999, 122,058
shares of treasury stock were reissued under several of the Company's
stock plans. When the treasury shares were reissued, any differences
between the repurchase and reissuance prices were either charged or
credited to "Capital in Excess of Par Value" in the accompanying
consolidated condensed balance sheets.
(8) RESTRICTED STOCK PLAN
In April 1999, the Company issued to officers and other key employees
105,000 restricted shares of its treasury stock under the Company's
1998 Key Employee Restricted Stock Plan ("Restricted Stock Plan"). The
market value of the shares issued ($4,175) has been charged to
stockholders' equity as "Unearned Compensation on Restricted Stock" and
is being amortized to expense over the term of the Restricted Stock
Plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
U.S. Home had record performance for the three and nine month periods ended
September 30, 1999. For the three month period, total revenues increased 24%
to $473.5 million from $382.0 million last year, net income increased 39% to
$19.5 million compared to $14.1 million last year and diluted earnings per
share increased 43% to $1.43 per share from $1.00 per share last year. For
the nine month period, total revenues increased 23% to $1.33 billion from
$1.08 billion last year, net income increased 30% to $51.6 million from
$39.6 million last year and diluted earnings per share increased 15% to $3.76
per share compared to $3.26 per share last year (the 1998 nine month net
income and earnings per share exclude a tax benefit and an extraordinary
loss).
<PAGE> 17
Housing
The following table sets forth certain financial information for the periods
indicated (dollars in thousands, except average sales price):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Revenues -
Single-family homes ... $ 458,807 $ 370,479 $1,286,814 $1,049,710
Land and other ........ 3,869 2,679 18,312 10,274
---------- ---------- ---------- ----------
Total ............... $ 462,676 $ 373,158 $1,305,126 $1,059,984
========== ========== ========== ==========
Single-family homes -
Gross margin amount ... $ 85,156 $ 68,514 $ 235,336 $ 194,620
Gross margin percentage 18.6% 18.5% 18.3% 18.5%
Units delivered
U.S. Home ........... 2,365 2,078 6,793 6,030
Joint ventures ...... 60 - 94 -
---------- ---------- ---------- ----------
Total ............. 2,425 2,078 6,887 6,030
========== ========== ========== ==========
Average sales price
U.S. Home ........... 194,000 178,300 189,400 174,100
Joint ventures ...... 119,100 - 101,600 -
Total U.S. Home and
joint ventures..... 192,100 178,300 188,200 174,100
New orders taken
U.S. Home ........... 1,995 1,930 7,545 7,737
Joint ventures ...... 106 25 299 25
---------- ---------- ---------- ----------
Total ............. 2,101 1,955 7,844 7,762
========== ========== ========== ==========
<PAGE> 18
Backlog at end of period:
Aggregate sales value
U.S. Home ............ 1,097,142 962,939
Joint ventures ....... 32,711 5,940
---------- ----------
Total .............. $1,129,853 $ 968,879
========== ==========
Units
U.S. Home .......... 5,179 5,142
Joint ventures ..... 272 25
---------- ----------
Total ............. 5,451 5,167
========== ==========
Selling, general and
administrative expenses
as a percentage of
housing revenues 9.7% 9.7% 9.8% 9.8%
Interest -
Paid or accrued ........ $ 16,068 $ 11,874 $ 44,360 $ 34,454
Percentage capitalized . 100.0% 100.0% 100.0% 100.0%
Previously capitalized
interest included in
interest expense ..... $ 11,755 $ 10,474 $ 33,974 $ 29,822
Percentage of housing
revenues 2.5% 2.8% 2.6% 2.8%
Revenues and Sales -
Revenues from sales of single-family homes for the three and nine month periods
ended September 30, 1999 increased 24% and 23% compared to the three and nine
month periods ended September 30, 1998. The increases resulted primarily from
14% and 13% increases in the number of housing units delivered by the Company
and 9% increases in both periods in the average sales price. The average sales
price is impacted by product mix, geographical mix and changing prices on
units delivered.
Including joint venture communities, new orders taken for the three and nine
month periods ended September 30, 1999 increased 7.5% and 1.1%, respectively
compared to the same periods in 1998. As of September 30, 1999, the Company
was selling in more than 240 communities, compared to 230 communities as of
June 30, 1999. Until the third quarter, the community count had been flat
this year as the number of communities selling out ahead of schedule outpaced
efforts to open new communities.
Gross Margins -
The single-family homes gross margin percentage for the three month period
ended September 30, 1999 improved 10 basis points from the same period in 1998
and 40 basis points from the three month period ended June 30, 1999.
<PAGE> 19
The gross margin percentage for the nine month period ended September 30, 1999
reflects a 20 basis point decline compared to the same period in 1998. The
Company's margins in the first quarter of 1999 were negatively affected by
increased costs caused by construction and land development delays and a
tight labor market. The Company's margins have improved during the year due to
product mix and price increases.
Backlog -
The aggregate dollar amount of sales backlog at September 30, 1999 increased
17% compared to September 30, 1998. The increase in the value of the backlog
reflects the increase in the number of units under contract and the increase
in the average sales price to $207,300 from $187,500 last year. Substantially
all of the Company's backlog units at September 30, 1999, net of
cancellations, are expected to result in revenues prior to September 30, 2000.
Selling, General and Administrative Expenses -
Selling, general and administrative expenses as a percentage of housing
revenues for the three and nine month periods ended September 30, 1999 were
unchanged at 9.7% and 9.8%, respectively, as compared to the same periods
in 1998. Actual selling, general and administrative expenses for the
three and nine month periods ended September 30, 1999 increased $8.9 million
and $23.8 million when compared to the same periods in 1998. These increases
were primarily due to increases in volume-related expenses ($3.0 million and
$8.2 million for the three and nine month periods, respectively) resulting
from increased deliveries in 1999 when compared to 1998 and increased payroll
costs and marketing center expenses resulting from increased activities.
Interest -
Interest paid or accrued for the three and nine month periods ended September
30, 1999 increased approximately 35% and 29% compared to the same periods in
1998. These increases in 1999 were primarily due to an increase in the average
outstanding debt which was primarily incurred in connection with the increases
in single-family housing inventories resulting from increased activities.
The Company capitalizes interest cost into housing inventories and charges the
previously capitalized interest to interest expense when the related
inventories are delivered. The amount of interest capitalized and previously
capitalized interest expensed in any period is a function of the amount of
housing assets, land sales and the number of housing units delivered, average
outstanding debt levels and average interest rates. Previously capitalized
interest amounts charged to interest expense in the three and nine month
periods ended September 30, 1999 increased 12% and 14%, respectively, as
compared to the same periods in 1998. These increases were attributable
primarily to increases in the number of housing units delivered.
<PAGE> 20
Financial Services
Revenues -
Revenues for the financial services segment for the periods indicated were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Home Mortgage Corporation and
Subsidiary ("Mortgage") $ 9,375 $ 7,644 $24,986 $20,830
Other financial services operations 1,415 1,174 3,901 3,214
------- ------- ------- -------
$10,790 $ 8,818 $28,887 $24,044
======= ======= ======= =======
</TABLE>
The increase in Mortgage's revenues for the three and nine month periods ended
September 30, 1999 when compared to the three and nine month periods ended
September 30, 1998 was primarily due to the increase in mortgage loan
originations and the increase in income from the sale of mortgage loans and
servicing rights.
Mortgage's "capture rate" for providing financing to buyers of homes delivered
by the Company was 81% and 83% for the three and nine month periods ended
September 30, 1999 compared to 85% and 83% for the same periods in 1998. Since
a certain percentage of buyers typically elect to use other sources of
financing, the Company believes Mortgage's capture rate is near the maximum
capture rate.
Other
Corporate General and Administrative-
Corporate general and administrative includes the operations of the Company's
corporate office. As a percentage of total revenues, such expenses were .6%
and .8% for the three and nine month periods ended September 30, 1999 and .9%
for both the three and nine month periods ended September 30, 1998. Actual
corporate general and administrative expenses for the three and nine month
periods ended September 30, 1999 were $2.9 million and $10.0 million, compared
to $3.4 million and $9.9 million for the three and nine month periods ended
September 30, 1998.
<PAGE> 21
Income Taxes -
In connection with the Internal Revenue Service (the "IRS") examination of
the Company's 1993 and 1992 federal income tax returns, the IRS disallowed
certain previously reserved deductions taken by the Company in its 1993 tax
return. In March 1998, the Company was informed that its appeal of the IRS
decision to disallow these deductions had been resolved in favor of the
Company. As a result of the favorable ruling, the Company reduced its
deferred tax liability and recognized an income tax benefit in the first
quarter of 1998 totaling $7.5 million related to these deductions. The
decrease in the deferred tax liability increased basic and diluted earnings
per common share in the nine month period ended September 30, 1998 by $.60
per share and $.55 per share, respectively.
Financial Condition and Liquidity
Housing
The Company is significantly affected by the cyclical nature of the
homebuilding industry, which is sensitive to fluctuations in economic activity
and interest rates and the level of consumer confidence. Sales of new homes
are also affected by market conditions for rental properties and by the
condition of the resale market for used homes, including foreclosed homes. For
example, an oversupply of resale units depresses prices and reduces the
margins available on sales of new homes. The sale of new homes and
profitability from sales are heavily influenced by the level and expected
direction of interest rates. Increases in interest rates tend to have a
depressing effect on the market for new homes in view of increased monthly
mortgage costs to potential homebuyers.
The Company's most significant needs for capital resources are land and
finished lot purchases, land development and housing construction. The
Company's ability to generate cash adequate to meet these needs is principally
achieved from the sale of homes and the margins thereon, the utilization of
Company-owned lots and borrowings under its financing facilities, including
the Company's principal unsecured revolving credit agreement (the "Credit
Facility").
Access to quality land and lot locations is an integral part of the Company's
success. Typically, in order to secure the rights to quality locations and
provide sufficient lead-time for development, the Company must acquire land
rights well in advance of when orders for housing units are expected to occur.
Primarily in its affordable and move-up home communities, the Company attempts
to minimize its exposure to the cyclical nature of the housing market and its
use of working capital by employing rolling lot options, which enable the
Company to initially pay a small portion of the total lot cost and then
purchase the lots on a scheduled basis. However, with the increase in the
number of retirement and active adult communities, the use of rolling lot
options as a percentage of the Company's total finished lot needs has and
is expected to continue to decrease since the majority of the finished lots
for these communities are developed on land owned by the Company. The
retirement and active adult communities are generally long-term projects
<PAGE> 22
and require greater investments by the Company than are required for its
affordable and move-up home communities. These communities generally include
more units than the affordable and move-up communities and generally have more
extensive amenities, including golf courses and clubhouses, which require
substantial capital investment. The increases in land inventories in 1999
from 1998 were primarily the result of increased activities, including an
increase in the Company's retirement and active adult communities.
The Company has financed, and expects to continue to finance, its working
capital needs from operations and borrowings, including those made under the
Credit Facility. The Credit Facility (and previous credit facilities) has
enabled the Company to meet peak operating needs. In August 1997, the Company
entered into an interest rate swap agreement which has effectively fixed the
interest rate on $50 million of its Credit Facility borrowings until August
2000. See Note 3 of Notes to Consolidated Condensed Financial Statements.
In February 1999, the Company sold $125 million principal amount of its 8.875%
senior subordinated notes due 2009 ("the 2009 Senior Subordinated Notes").
The net proceeds were used to repay part of the balance outstanding under the
Credit Facility and for general corporate purposes. See Note 3 of Notes to
Consolidated Condensed Financial Statements.
In April 1999, the Company acquired Lundgren Bros. Construction, Inc.
("Lundgren"), a privately held homebuilder in the Minneapolis/St. Paul
area. This acquisition was consistent with the Company's strategic objective
of enhancing its leadership position in each of its existing markets through
geographic and price point diversification. The acquisition significantly
expanded the Company's product offering in the Minneapolis/St. Paul area.
Lundgren offers customers upscale homes in neighborhoods developed for the
more affluent homeowner.
The net cash provided or used by the operating, investing and financing
activities of the housing operations for the nine month periods ended
September 30, 1999 and 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net cash provided (used) by:
Operating activities $(131,512) $(170,553)
Investing activities (8,159) (7,900)
Financing activities 109,799 175,495
--------- ---------
Net decrease in cash $ (29,872) $ (2,958)
========== =========
</TABLE>
<PAGE> 23
Housing operations are, at any time, affected by a number of factors,
including the number of housing units under construction and housing units
delivered. Housing operating activities for 1999 used less cash than 1998
primarily due to the timing of payments related to the operating activities.
Cash flow from housing financing activities for 1999 provided cash, reflecting
the sale of the Company's 2009 Senior Subordinated Notes, and net borrowings
under the Credit Facility, offset by the repayment of notes and mortgages.
Cash flow from housing financing activities for 1998 provided cash reflecting
the sale of the Company's 7.75% senior notes due 2005 offset by purchases of
the Company's 9.75% senior notes due 2003 and the repayment of amounts
outstanding under the Credit Facility.
The Company believes that cash flow from operations and amounts available
under the Credit Facility will be sufficient to meet its working capital
obligations and other needs. However, should the Company require capital in
excess of that which is currently available, there can be no assurance
that it will be available.
Financial Services
Mortgage's activities represent a substantial portion of the financial
services activities. As loan originations by Mortgage are primarily from
homes sold by the Company's home building operations, Mortgage's financial
condition and liquidity are to a significant extent dependent upon the
financial condition of the Company.
Financial services operating activities are affected primarily by the volume
of Mortgage's loan originations and the timing of the sale of mortgage loans
and related servicing rights to third party investors. Loans and servicing
rights are generally sold to investors within 30 days after homes are
delivered. In this regard, cash flow from financial services operating
activities for 1999 used more cash compared to 1998 primarily due to an
increase in advances to a joint venture in which the Company is a joint
venture partner (see Note 3) and the timing of payments related to Mortgage's
origination activities.
The Company finances its financial services operations primarily from
short-term debt which is repaid with internally generated funds, such as from
the origination and sale of residential mortgage loans and related servicing
rights. As more fully discussed in Note 3 of Notes to Consolidated Condensed
Financial Statements, the short-term debt consists of an $80 million secured
revolving line of credit (the "Mortgage Credit Facility") that has been in
place since 1992 and matures on September 30, 2001. While the Mortgage
Credit Facility contains numerous covenants, including a debt to tangible
net worth ratio and a minimum tangible net worth requirement, these
covenants are not anticipated to significantly limit Mortgage's operations.
The Company does not guarantee any of its financial services subsidiaries'
debt, except with respect to an unsecured credit agreement of a subsidiary of
Mortgage. See Note 3 of Notes to Consolidated Condensed Financial Statements.
The Company believes that internally generated funds and the Mortgage Credit
Facility will be sufficient to provide for Mortgage's working capital needs.
<PAGE> 24
Other
Year 2000 Issue
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as the year 1900. This could cause many computer
applications to fail completely or create erroneous results unless corrective
measures are taken.
The Company's year 2000 remediation program has been in place since 1995 and
the costs of the program, which have not been significant, have been expensed
as incurred. The Company does not expect the remaining costs of the program
to have a material effect on the Company's results of operations. A committee
has been appointed to oversee the Company's year 2000 efforts and to keep
Company management and the Company's Board of Directors informed of these
efforts.
The Company utilizes proprietary integrated computer systems that provide its
administrative and operating groups the financial and operating information
needed to support current operations and future growth. The Company
implemented a program in 1995 to identify and remediate the computer systems
that would be affected by the year 2000 issue and, in 1998, expanded the
program to include other operating systems and equipment affected by the two
digit date field.
All of the Company's major computer systems, including its mortgage banking
operations' systems, are year 2000 compliant. The Company is testing these
systems, as well as other operating systems and equipment, and the Company
believes these systems and equipment will remain compliant.
The Company is currently evaluating all major supplier/contractor
relationships and believes there are no significant risks associated with
year 2000 issues impacting its operations. The Company is also assessing
the year 2000 issues with other third-parties on which it relies, including
banking institutions, title companies and government agencies and has been
informed by its primary banking institution, its primary title company and
two major government agencies (Government National Mortgage Association and
Federal National Mortgage Association) that they are year 2000 compliant.
While other third-parties have informed the Company they are year 2000
compliant and others have stated they will be compliant by the end of 1999,
there can be no assurance that the systems of third-parties on which the
Company relies will be compliant in a timely manner.
The Company could be impacted by computer system failures at government
agencies on which the Company is dependent for utilities, zoning, building
permits and related items. In addition, there could be isolated instances of
subcontractors experiencing construction delays due to their inability to
secure building materials on a timely basis. However, the most likely
worst-case scenario would include isolated instances of construction delays
caused by the Company's inability to secure building permits, zoning and
utilities as well as closing delays caused by the inability of the Company
to obtain certificates of occupancy or home buyers to obtain financing.
<PAGE> 25
The Company believes that, based upon its assessment of the year 2000 issue,
certain subcontractors, vendors and government agencies may encounter year
2000 problems that impact the Company and that may require it to take
alternate or additional steps. As information is received and evaluated,
the Company will determine whether contingency plans are necessary. Should
one or more of the significant third parties fail to achieve year 2000
compliance, the Company's business and its results of operations could be
adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included under "Item 7A. Quantitative and Qualitative
Disclosures About Market Risks" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 is incorporated herein by
reference.
Other than the use of proceeds from the sale in February 1999 of $125 million
principal amount of its 2009 Senior Subordinated Notes to repay part of the
balance outstanding under the Credit Facility, there have been no material
changes in the Company's market risk during the nine months ended
September 30, 1999.
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Additional Operating Data -
The following table provides information (expressed in number of
housing units) with respect to new orders taken, deliveries to
purchasers of single-family homes and backlog by state for the
three and nine month periods ended September 30, 1999 and 1998:
States New Orders Deliveries
------ ----------- -------------
Three Month Period - 1999 1998 1999 1998
----- ----- ----- -----
Arizona 243 303 369 260
California 125 196 157 190
Colorado 282 341 316 349
Florida 512 472 682 572
Maryland/Virginia 136 82 147 110
Minnesota 159 104 210 128
Nevada 56 55 62 93
New Jersey 187 94 78 103
Ohio/Indiana (3) 4 27 22 33
Texas 291 256 322 240
----- ----- ----- -----
1,995 1,930 2,365 2,078
Joint Venture Activity (1) 106 25 60 -
----- ----- ----- -----
2,101 1,955 2,425 2,078
===== ===== ===== =====
States New Orders Deliveries Backlog
------ ------------ -------------- ------------
Nine Month Period - 1999 1998 1999 1998 1999 1998
----- ----- ----- ----- ----- -----
Arizona 979 1,018 1,020 740 552 596
California 522 760 608 484 335 501
Colorado 1,220 1,211 868 1,041 951 756
Florida 2,014 2,123 1,862 1,839 1,484 1,610
Maryland/Virginia 539 401 425 259 302 246
Minnesota 605 399 542 325 385 248
Nevada 213 251 204 245 116 114
New Jersey 370 383 239 296 269 247
Ohio/Indiana (3) 54 120 61 85 42 67
Texas 1,029 1,071 964 716 743 757
----- ----- ----- ----- ----- -----
7,545 7,737 6,793 6,030 5,179 5,142
Joint Venture Activity (2) 299 25 94 - 272 25
----- ----- ----- ----- ----- -----
7,844 7,762 6,887 6,030 5,451 5,167
===== ===== ===== ===== ===== =====
<PAGE> 27
(1) Includes 1999 unit data for two 50% owned retirement joint
ventures in Michigan and North Carolina of 24 new orders and 21
deliveries and a 50% owned affordable home joint venture in
Texas of 82 new orders and 39 deliveries. 1998 unit data
consists of 25 new orders for the 50% owned retirement joint
venture in Michigan.
(2) Includes 1999 unit data for two 50% owned retirement joint
ventures in Michigan and North Carolina of 69 new orders, 28
deliveries and 76 backlog and a 50% owned affordable home joint
venture in Texas of 230 new orders, 66 deliveries and 196
backlog. 1998 unit data consists of 25 new orders and 25 backlog
for the 50% owned retirement joint venture in Michigan.
(3) In 1997, theCompany made the decision to discontinue its Indiana
operations.
Cautionary Disclosure Regarding Forward-Looking Statements -
Certain statements contained herein, in the Company's press releases,
oral communications and other filings with the Securities and Exchange
Commission that are not historical facts are, or may be considered to
be, forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Such matters involve risks
and uncertainties, including general economic conditions, fluctuations
in interest rates, the impact of competitive products and prices, the
supply of raw materials and prices, levels of consumer confidence and
other risks referred to under the caption "Item 5. Other Information -
Cautionary Disclosure Regarding Forward-Looking Statements" in the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999, and the disclosure set forth under such caption is
incorporated herein by reference.
<PAGE> 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Warehousing Credit and Security Agreement
(single family mortgage loans), dated
as of October 1, 1999 between U.S. Home
Mortgage Corporation and Residential
Funding Corporation.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company
during July, August or September 1999.
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. HOME CORPORATION
Date: November 10, 1999 /s/ Isaac Heimbinder
_____________________________________
Isaac Heimbinder
President, Co-Chief Executive Officer
and Chief Operating Officer
Date: November 10, 1999 /s/ Chester P. Sadowski
_____________________________________
Chester P. Sadowski
Senior Vice President - Controller
and Chief Accounting Officer
<PAGE> 30
INDEX OF EXHIBITS
Sequential
Exhibit Numbered
Number Page
- ------ -----------
10.1 Warehousing Credit and Security Agreement
(single family mortgage loans), dated
as of October 1, 1999 between U.S. Home
Mortgage Corporation and Residential
Funding Corporation. 31
27 Financial Data Schedule 103
<PAGE> 31
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
WAREHOUSING CREDIT AND SECURITY AGREEMENT
(SINGLE FAMILY MORTGAGE LOANS)
BETWEEN
U.S. HOME MORTGAGE CORPORATION,
a Florida corporation
AND
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
Dated as of October 1, 1999
<PAGE> 32
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 14
2. THE CREDIT 14
2.1 The Commitment 14
2.2 Procedures for Obtaining Advances 15
2.3 Note 17
2.4 Interest 17
2.5 Principal Payments 19
2.6 Expiration of Commitment 23
2.7 Method of Making Payments 23
2.8 Commitment Fees and Usage Fees 23
2.9 Warehousing Fees 24
2.10 Miscellaneous Charges 24
2.11 Interest Limitation 25
2.12 Increased Costs; Capital Requirements 25
3. COLLATERAL 26
3.1 Grant of Security Interest 26
3.2 Release of Security Interest in Collateral 28
3.3 Delivery of Additional Collateral or
Mandatory Prepayment 30
3.4 Release of Collateral 30
3.5 Collection and Servicing Rights 31
3.6 Return of Collateral at End of Commitment 31
<PAGE> 33
4. CONDITIONS PRECEDENT 31
4.1 Effectiveness of this Agreement 31
4.2 Each Advance 33
5. REPRESENTATIONS AND WARRANTIES 34
5.1 Organization; Good Standing; Subsidiaries 35
5.2 Authorization and Enforceability 35
5.3 Approvals 36
5.4 Financial Condition 36
5.5 Litigation 36
5.6 Compliance with Laws 36
5.7 Regulation U 37
5.8 Investment Company Act 37
5.9 Payment of Taxes 37
5.10 Agreements 37
5.11 Title to Properties 38
5.12 ERISA 38
5.13 Eligibility 38
5.14 Place of Business 39
5.15 Special Representations Concerning
Collateral 39
5.16 Servicing 42
5.17 Special Representations Concerning
Construction Advances 42
5.18 No Adverse Selection 43
5.19 Year 2000 Compliance 43
<PAGE> 34
6. AFFIRMATIVE COVENANTS. 43
6.1 Payment of Note. 43
6.2 Financial Statements and Other Reports 43
6.3 Maintenance of Existence; Conduct
of Business 46
6.4 Compliance with Applicable Laws 46
6.5 Inspection of Properties and Books 46
6.6 Notice 47
6.7 Payment of Debt, Taxes, etc 47
6.8 Insurance 48
6.9 Closing Instructions 48
6.10 Subordination of Certain Indebtedness 48
6.11 Other Loan Obligations 48
6.12 Use of Proceeds of Advances 49
6.13 Special Affirmative Covenants
Concerning Collateral 49
6.14 Special Affirmative Covenants Concerning
Construction Advances 50
7. NEGATIVE COVENANTS 50
7.1 Contingent Liabilities 51
7.2 Sale or Pledge of Servicing Contracts 51
7.3 Merger; Sale of Assets; Acquisitions 51
7.4 Deferral of Subordinated Debt 51
7.5 Loss of Eligibility 51
7.6 Debt to Tangible Net Worth Ratio 51
7.7 Minimum Tangible Net Worth 51
7.8 Acquisition of Recourse Servicing Contracts 52
7.9 Gestation Facilities 52
7.10 Special Negative Covenants Concerning
Collateral 52
<PAGE> 35
8. DEFAULTS; REMEDIES 52
8.1 Events of Default 52
8.2 Remedies 56
8.3 Application of Proceeds 60
8.4 Lender Appointed Attorney-in-Fact 60
8.5 Right of Set-Off 60
9. NOTICES 61
10. REIMBURSEMENT OF EXPENSES; INDEMNITY 61
11. FINANCIAL INFORMATION 62
12. MISCELLANEOUS 62
12.1 Terms Binding Upon Successors;
Survival of Representations 62
12.2 Assignment 63
12.3 Amendments 63
12.4 Governing Law 63
12.5 Participations 63
12.6 Relationship of the Parties 63
12.7 Severability 64
12.8 Operational Reviews 64
12.9 Consent to Credit References 64
12.10 Consent to Jurisdiction 64
12.11 Counterparts 65
12.12 Entire Agreement 65
12.13 Waiver of Jury Trial 65
<PAGE> 36
EXHIBITS
--------
Exhibit A Promissory Note
Exhibit B [INTENTIONALLY OMITTED]
Exhibit C-SF Request for Advance Against Single Family
Mortgage Loans
Exhibit C-SF/CONSTRUCTION Request for Advance Against
Construction/Perm Mortgage Loans
Exhibit D-SF Procedures and Documentation for
Warehousing Single Family Mortgage
Loans
Exhibit D-SF/CONSTRUCTION Procedures and Documentation for
Warehousing Construction/Perm Mortgage Loans
Exhibit D-UNI Procedures and Documentation for
Warehousing Unimproved Mortgage Loans
Exhibit E Schedule of Servicing Contracts
Exhibit F Subordination of Debt Agreement
Exhibit G Subsidiaries
Exhibit H Legal Opinion
Exhibit I-SF Officer's Certificate
Exhibit J Schedule of Existing Warehouse Lines
Exhibit K-1 Funding Bank Agreement (Wire)
Exhibit K-2 Funding Bank Agreement (Checks)
Exhibit L Commitment Summary Report
Exhibit M Terms Applicable to Advances Against
Eligible Loans
Exhibit N RFConnects Pledge Agreement
<PAGE> 37
THIS SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY
AGREEMENT, dated as of October 1, 1999 between U.S. HOME MORTGAGE CORPORATION,
a Florida corporation, (the "Company"), having its principal office at 311
Park Place Boulevard, P.O. Box 4929, Clearwater, Florida 33759 and RESIDENTIAL
FUNDING CORPORATION, a Delaware corporation (the "Lender"), having its
principal office at 8400 Normandale Lake Blvd., Suite 600, Minneapolis,
Minnesota 55437.
WHEREAS, the Company and the Lender have entered into a First Amended
and Restated Warehousing Credit and Security Agreement dated August 31, 1995,
as amended by the First Amendment to First Amended and Restated Warehousing
Credit and Security Agreement dated as of December 27, 1995, the Second
Amendment to First Amended and Restated Warehousing Credit and Security
Agreement dated as of August 29, 1996, the Third Amendment to First Amended
and Restated Warehousing Credit and Security Agreement dated as of
January 2, 1997, the Fourth Amendment to First Amended and Restated
Warehousing Credit and Security Agreement dated as of June 25, 1997, the
Fifth Amendment to First Amended and Restated Warehousing Credit and Security
Agreement dated as of August 28, 1997, the Sixth Amendment to First Amended
and Restated Warehousing Credit and Security Agreement dated as of March 30,
1998, the Seventh Amendment to First Amended and Restated Warehousing Credit
and Security Agreement dated as of July 17, 1998, and the Eighth Amendment to
First Amended and Restated Warehousing Credit and Security Agreement dated as
of April 9, 1999, (as so amended, the "Existing Credit Agreement");
WHEREAS, the Company and the Lender desire to amend and restate the
Existing Credit Agreement and to set forth herein the terms and conditions
upon which the Lender shall continue to provide warehouse financing to the
Company;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. Capitalized terms defined below or
elsewhere in this Agreement (including the Exhibits hereto) shall have the
following meanings:
"Adjusted Servicing Portfolio" means, for any Person, the
Servicing Portfolio of such Person, but excluding the principal balance of
Mortgage Loans included in the Servicing Portfolio at such date (a) which are
past due for principal or interest for 60 days or more, (b) with respect to
which such Person is obligated to repurchase or indemnify the holder of the
Mortgage Loans as a result of defaults on the Mortgage Loans at any time
during the term of such Mortgage Loans, (c) for which the Servicing Contracts
are not owned by such Person free and clear of all Liens (other than in
favor of the Lender), or (d) which are serviced by the Company for others
under subservicing arrangements.
<PAGE> 38
"Adjusted Tangible Net Worth" means with respect to any
Person at any date, the Tangible Net Worth of such Person at such date,
excluding capitalized excess servicing fees and capitalized servicing rights,
plus 1% of the Adjusted Servicing Portfolio, and plus deferred taxes
arising from capitalized excess servicing fees and capitalized servicing
rights.
"Advance" means a disbursement by the ender under the
Commitment pursuant to Section 2.1 of this Agreement.
"Advance Request" has the meaning set forth in Section 2.2
(a) hereof.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
"Agency Security" means a Mortgage-backed Security issued
or guarantied by Fannie Mae, Freddie Mac or Ginnie Mae.
"Agreement" means this Second Amended and Restated
Warehousing Credit and Security Agreement (Single Family Mortgage Loans),
either as originally executed or as it may from time to time be supplemented,
modified or amended.
"Approved Custodian" means a pool custodian or other Person
which is deemed acceptable to the Lender from time to time in its sole
discretion to hold a Mortgage Loan for inclusion in a Mortgage Pool or to hold
a Mortgage Loan as agent for an Investor who has issued a Purchase Commitment
for such Mortgage Loan.
"As Completed Appraised Value" means, with respect to a
Construction/Perm Mortgage Loan, the value given by a state certified
appraiser prior to the beginning of any construction to the real property and
improvements thereto to be financed by such Construction/Perm Mortgage
Loan (i) as of the completion of construction and (ii) based on the Total
Costs and plans and specifications for such real property and improvements.
"Business Day" means any day excluding Saturday or Sunday
and excluding any day on which national banking associations are closed for
business.
"Buydown" has the meaning set forth in Section 2.5(h)
hereof.
"Calendar Quarter" shall mean the 3 month period beginning
on any January 1, April 1, July 1 or October 1.
"Cash Collateral Account" means a demand deposit account
maintained at the Funding Bank in the name of the Lender and designated for
receipt of the proceeds of the sale or other disposition of the Collateral.
"Check Disbursement Account" means a demand deposit account
maintained at the Funding Bank in the name of the Company and under the
control of the Lender for the clearing of checks written by the Company to
fund Advances.
<PAGE> 39
"Closing Date" means April 15, 1992.
"Collateral" has the meaning set forth in Section 3.1
hereof.
"Collateral Documents" means, with respect to each Mortgage
Loan: (a) the Mortgage Note, the Mortgage, and all other documents executed in
connection with or otherwise relating to the Mortgage Loan, (b) as applicable,
the original lender's ALTA Policy of Title Insurance or its equivalent,
documents evidencing the FHA Commitment to Insure or the VA Guaranty, the
appraisal, Private Mortgage Insurance, the Regulation Z Statement,
certificates of casualty or hazard insurance, credit information on the
maker(s) of the Mortgage Note, the HUD-1 or corresponding purchase advice,
and (c) any other documents that are customarily desired for inspection or
transfer incidental to the purchase of any Mortgage Note by an Investor
or which are customarily executed by the seller of a Mortgage Note to an
Investor.
"Collateral Value" means (a) with respect to any Eligible
Loan as of the date of determination, the lesser of (i) the amount of any
Advance made against such Eligible Loan under Section 2.1(c) hereof or (ii)
the Fair Market Value of such Eligible Loan; (b) in the event Pledged
Mortgages have been exchanged for Agency Securities, the lesser of (i) the
amount of any Advances outstanding against the Eligible Loans backing such
Agency Securities or (ii) the Fair Market Value of such Pledged Securities;
and (c) with respect to cash, the amount of such cash.
"Commitment" has the meaning set forth in Section 2.1(a)
hereof.
"Commitment Amount" means $80,000,000.
"Commitment Fee" means a fee payable by the Company in
consideration of the Lender's issuance of the Commitment. The amount of the
Commitment Fee, if any, is set forth in Section 2.8(a) hereof.
"Committed Purchase Price" means for an Eligible Loan the
product of the Mortgage Note Amount multiplied by (a) the price (expressed as
a percentage) as set forth in a Purchase Commitment for such Eligible Loan or
(b) in the event such Eligible Loan is to be used to back an Agency Security,
the price (expressed as a percentage) as set forth in a Purchase Commitment
for such Agency Security.
"Company" has the meaning set forth in the first paragraph
of this Agreement.
"Construction Advance" means an Advance made against a
Construction/Perm Mortgage Loan.
"Construction/Perm Mortgage Loan" means a First Mortgage
Loan in a principal amount not to exceed $600,000, made for financing the
purchase of real property and the construction of improvements on such real
property by the Parent, and which is converted to a Permanent Mortgage Loan
at the completion of the improvements.
<PAGE> 40
"Cost Breakdown" means a list of the costs and expenses to
be financed by Advances under a Construction/Perm Mortgage Loan, including,
without limitation, real property acquisition costs, hard and soft
construction costs, architectural fees and any other costs and expenses
budgeted to construct and complete the improvements.
"Credit Score" means a mortgagor's overall consumer credit
rating, represented by a single numeric credit score calculated using the
Fair, Isaac consumer credit scoring system, provided by a credit repository
acceptable to the Lender and the Investor that issued the Purchase Commitment
covering the related Mortgage Loan.
"Debt" means, with respect to any Person at any date, (a)
all indebtedness or other obligations of such Person which, in accordance with
GAAP, would be included in determining total liabilities as shown on the
liabilities side of a balance sheet of such Person at such date, and (b) all
indebtedness or other obligations of such Person for borrowed money or for the
deferred purchase price of property or services; provided that for purposes of
this Agreement, there shall be excluded from Debt at any date Subordinated
Debt not due within one year of such date and deferred taxes arising from
capitalized excess servicing fees and capitalized servicing rights.
"Default" means the occurrence of any event or existence of
any condition which, but for the giving of Notice, the lapse of time, or both,
would constitute an Event of Default.
"Depository Benefit" shall mean the compensation received by
the Lender, directly or indirectly, as a result of the Company's maintenance
of Eligible Balances with a Designated Bank.
"Designated Bank" means any bank(s) designated from time to
time by the Lender as a Designated Bank, but only for as long as the Lender
has an agreement under which the Lender can receive a Depository Benefit.
"Designated Bank Charges" means any fees, interest or other
charges that would otherwise be payable to a Designated Bank in connection
with Eligible Balances maintained at a Designated Bank, including Federal
Deposit Insurance Corporation insurance premiums, service charges and such
other charges as may be imposed by governmental authorities from time to time.
"Effective Date" means October 8, 1999.
"Electronic Advance Request" means an electronic
transmission through RFConnects Delivery containing the same information as
Exhibit C-SF to this Agreement, together with the RFConnects Pledge
Agreement, duly executed by the Company, and a list of the Mortgage Loans
(including mortgagor's name, loan number and loan amount) to be funded
with the Advance sent to the Lender by facsimile.
<PAGE> 41
"Eligible Balances" means all funds of or maintained by the
Company and its Subsidiaries in accounts at a Designated Bank, less balances
to support float, reserve requirements, and such other reductions as may be
imposed by governmental authorities from time to time.
"Eligible Loan" means a Single Family Mortgage Loan secured
by a Mortgage on real property located in one of the states of the United
States or the District of Columbia that is designated as such on Exhibit M
attached hereto and made a part hereof.
"Eligible Mortgage Pool" means a Mortgage Pool for which (a)
an Approved Custodian has issued its initial certification (on the basis of
which an Agency Security is to be issued), (b) there exists a Purchase
Commitment covering such Agency Security, and (c) such Agency Security will be
delivered to the Lender.
"ERISA" means the Employee Retirement Income Security Act of
1974 and all rules and regulations promulgated thereunder, as amended from
time to time and any successor statute.
"Event of Default" means any of the conditions or events set
forth in Section 8.1 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
"Existing Credit Agreement" has the meaning set forth in the
first recital hereto.
"Extension Fee" means a fee payable by the Company in
consideration of the Lender's extension of the Commitment, pursuant to this
Agreement. The amount of the Extension Fee is set forth in Section 10 hereof.
"Fair Market Value" means at any date with respect to any
Mortgage Loan covered by a valid Purchase Commitment, the Committed Purchase
Price, or in the absence of a valid Purchase Commitment for a Mortgage Loan or
the related Agency Security (if such Mortgage Loan is to be used to back an
Agency Security), the market price (expressed as a percentage of the
outstanding principal balance) for 30-day mandatory future delivery of such
Mortgage Loan or Agency Security published by Bloomberg L.P. or, if not so
published, the average bid price (expressed as a percentage of the
outstanding principal balance) quoted in writing to the Lender as of the
computation date by any 2 nationally recognized dealers selected by the
Lender who at the time are making a market in similar Mortgage Loans or
Securities, multiplied, in the case of Mortgage Loans, by the outstanding
principal balance thereof and, in the case of Agency Securities, by the
product of the pool factor of such Agency Security times the face amount of
such Agency Security.
<PAGE> 42
"Fannie Mae" means Fannie Mae, a corporation created under
the laws of the United States, and any successor thereto.
"FHA" means the Federal Housing Administration and any
successor thereto.
"FICA" means the Federal Insurance Contributions Act.
"FIRREA" means the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.
"First Mortgage" means a Mortgage which constitutes a first
Lien on the property covered thereby.
"First Mortgage Loan" means a Mortgage Loan secured by a
First Mortgage.
"FmHA" means the Farmers Home Administration and any
successor thereto.
"FmHA Mortgage Loan" means a Mortgage Loan secured by a
First Mortgage and with respect to which ninety percent (90%) of the principal
amount of each Mortgage Loan is guaranteed by FmHA.
"Freddie Mac" means Freddie Mac, a corporation created under
the laws of the United States, and any successor thereto.
"Funding Bank" means The First National Bank of Chicago or
any other bank designated from time to time by the Lender.
"Funding Bank Agreement" means the letter agreement
substantially in the form of Exhibit K hereto.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"Gestation Agreement" means an agreement under which the
Company agrees to sell or finance (a) a Pledged Mortgage prior to the date
of purchase by an Investor, or (b) a Mortgage Pool prior to the date an Agency
Security backed by such Mortgage Pool is issued.
"Ginnie Mae" means the Government National Mortgage
Association, an agency of the United States government, and any successor
thereto.
<PAGE> 43
"Hedging Arrangements" means, with respect to any Person,
any agreements or other arrangement (including, without limitation, interest
rate swap agreements, interest rate cap agreements and forward sale
agreements) entered into by such Person to protect itself against changes in
interest rates or the market value of assets.
"HUD" means the Department of Housing and Urban Development
and any successor thereto.
"HUD 203(K) Mortgage Loan" means an FHA insured closed-end
First Mortgage Loan secured by a First Mortgage, of which a portion will be
used for the purpose of rehabilitating and/or repairing the related single
family property, and which satisfies the definition of "rehabilitation loan"
under 24 C.F.R. Section 203.50(a).
"Indemnified Liabilities" has the meaning set forth in
Article 10 hereof.
"Internal Revenue Code" means the Internal Revenue Code of
1986, or any subsequent federal income tax law or laws, as any of the
foregoing have been or may from time to time be amended.
"Investor" means Fannie Mae, Freddie Mac or a financially
responsible private institution which is deemed acceptable by the Lender from
time to time in its sole discretion with respect to a particular category
of Pledged Mortgages.
"Lender" has the meaning set forth in the first paragraph of
this Agreement.
"LIBOR" means, for each calendar week, the rate of interest
per annum which is equal to the arithmetic mean of the U.S. Dollar London
Interbank Offered Rates for 1 month periods of certain U.S. banks as of 11:00
a.m. London time on the first Business Day of each week on which the London
Interbank market is open, as published by Bloomberg L.P. If such U.S. dollar
LIBOR rates are not so offered or published for any period, then during such
period LIBOR shall mean the London Interbank Offered Rate for 1 month periods
published on the first Business Day of each week on which the London Interbank
market is open, in the Wall Street Journal in its regular column entitled
"Money Rates."
"Lien" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan Documents" means this Agreement, the Note, any
agreement of the Company relating to Subordinated Debt, and each other
document, instrument or agreement executed by the Company in connection
herewith or therewith, as any of the same may be amended, restated, renewed
or replaced from time to time.
<PAGE> 44
"Manufactured Home" means a structure that is built on a
permanent chassis (steel frame) with the wheel assembly necessary for
transportation in one or more sections to a permanent site or semi-permanent
site and which has been built in compliance with the National Manufactured
Housing Construction and Safety Standards established by HUD.
"Margin Stock" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time.
"Maturity Date" shall mean the earlier of: (a) the close of
business on September 30, 2001, as such date may be extended from time to
time in writing by the Lender, in its sole discretion, on which date the
Commitment shall expire of its own term and without the necessity of action
by the Lender, and (b) the date the Advances become due and payable pursuant
to Section 8.2
below.
"Miscellaneous Charges" has the meaning set forth in Section
2.10 hereof.
"Mortgage" means a mortgage or deed of trust on real
property and any improvements thereon (including, without limitation, real
property to which a Manufactured Home has been affixed in a manner such that
the Lien of a mortgage or deed of trust would attach to such manufactured
home under applicable real property law).
"Mortgage-backed Securities" means securities that are
secured or otherwise backed by Mortgage Loans.
"Mortgage Loan" means any loan evidenced by a Mortgage Note
and secured by a Mortgage.
"Mortgage Note" means a promissory note secured by a
Mortgage.
"Mortgage Note Amount" means, as of the date of
determination, the then outstanding unpaid principal amount of a Mortgage
Note (or other note evidencing an Eligible Loan) (whether or not an additional
amount is available to be drawn thereunder).
"Mortgage Pool" means a pool of one or more Pledged
Mortgages on the basis of which there is to be issued a Mortgage-backed
Security.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a) (3) of ERISA which is maintained for employees of
the Company or a Subsidiary of the Company.
"Note(s)" has the meaning set forth in Section 2.3 hereof.
"Notices" has the meaning set forth in Article 9 hereof.
<PAGE> 45
"Obligations" means any and all indebtedness, obligations
and liabilities of the Company to the Lender (whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly owed
with others, direct or indirect, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or extinguished
and later increased, created or incurred), arising out of or related to the
Loan Documents.
"Officer's Certificate" means a certificate executed on
behalf of the Company by its chief financial officer or its treasurer or by
such other officer as may be designated herein and substantially in the
form of Exhibit I-SF attached hereto.
"Operating Account" means a demand deposit account
maintained at the Funding Bank in the name of the Company and designated for
funding that portion of each Eligible Loan not funded by an Advance made
against such Eligible Loan and for returning any excess payment from an
Investor for a Pledged Mortgage or Pledged Security.
"Parent" shall mean U.S. Home Corporation.
"Participant" has the meaning set forth in Section 12.5
hereof.
"Permanent Mortgage Loan" means a Construction/Permanent
Mortgage Loan after the construction or rehabilitation on the premises related
to such Mortgage Loan has been completed and such Mortgage Loan has been
converted to an amortizing Mortgage Loan by the modification or replacement of
the Mortgage Note.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.
"Plans" has the meaning set forth in Section 5.12 hereof.
"Pledged Mortgages" has the meaning set forth in Section 3.1
(a) hereof.
"Pledged Securities" has the meaning set forth in Section
3.1 (b) hereof.
"Purchase Commitment" means a written commitment, in form
and substance satisfactory to the Lender, issued in favor of the Company by
an Investor pursuant to which that Investor commits to purchase Mortgage Loans
or Mortgage-backed Securities.
<PAGE> 46
"Release Amount" has the meaning set forth in Section 3.2(g)
hereof.
"RFC" means Residential Funding Corporation, a Delaware
corporation, and any successor thereto.
"RFConnects Delivery" means the Lender's proprietary service
to support the electronic exchange of information between the Lender and the
Company, including, but not limited to, Advance Requests, shipping requests,
payoff requests, activity reports and exception reports.
"RFConnects Pledge Agreement means a pledge agreement in the
form of Exhibit N to the Agreement.
"Second Mortgage" means a Mortgage which constitutes a
second Lien on the property covered thereby.
"Second Mortgage Loan" means a Mortgage Loan secured by a
Second Mortgage.
"Servicing Contract" means, with respect to any Person, the
arrangement, whether or not in writing, pursuant to which such Person has the
right to service Mortgage Loans.
"Servicing Portfolio" means, as to any Person, the unpaid
principal balance of Mortgage Loans serviced by such Person under Servicing
Contracts.
"Single Family Mortgage Loan" means a Mortgage Loan secured
by a Mortgage covering improved real property containing one to four family
residences.
"Statement Date" means the date of the most recent financial
statements of the Company (and, if applicable, its Subsidiaries, on a
consolidated basis) delivered to the Lender under the terms of this Agreement.
"Sublimit" means the aggregate amount of Advances (expressed
as a dollar amount or as a percentage of the Commitment Amount) that is
permitted to be outstanding at any one time against a specific type of
Eligible Loan.
"Subordinated Debt" means (a) all indebtedness of the
Company for borrowed money which is effectively subordinated in right of
payment to all other present and future Obligations either (i) pursuant to
a Subordination of Debt Agreement in the form of Exhibit F hereto or (ii)
otherwise on terms acceptable to the Lender, and (b) solely for purposes of
Section 7.4 hereof, all indebtedness of the Company which is required to be
subordinated by Section 4.1(b) or Section 6.10 hereof.
<PAGE> 47
"Subsidiary" means any corporation, association or other
business entity in which more than 50% of the total voting power or shares of
stock entitled to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more of the other Subsidiaries of that Person or a
combination thereof.
"Tangible Net Worth" means with respect to any Person at any
date, the excess of the total assets of such Person over total liabilities of
such Person on such date, each to be determined in accordance with GAAP
consistent with those applied in the preparation of the most recently audited
financial statements delivered to the Lender pursuant to the Existing Credit
Agreement, plus that portion of Subordinated Debt not due within 1 year of
such date; provided that, for purposes of calculating Tangible Net Worth,
there shall be excluded from total assets advances or loans to shareholders,
officers, employees or Affiliates, investments in Affiliates, assets pledged
to secure any liabilities not included in the Debt of such Person, intangible
assets, those other assets which would be deemed by HUD to be non-acceptable
in calculating adjusted net worth in accordance with its requirements in
effect as of such date, as such requirements appear in the "Audit Guide for
Audit of Approved Non-Supervised Mortgagees," and other assets deemed
unacceptable by the Lender in its sole discretion.
"Title I Mortgage Loan" means an FHA co-insured closed-end
First Mortgage Loan or Second Mortgage Loan which is underwritten in
accordance with HUD underwriting standards for the Title I Property
Improvement Program as set forth in and which is reported for insurance under
the Mortgage Insurance Program authorized and administered under Title I of
the National Housing Act of 1934, as amended and the regulations promulgated
thereunder.
"Total Costs" means the total of the costs and expenses
listed on the Cost Breakdown.
"Trust Receipt" means a trust receipt in a form approved by
and pursuant to which the Lender may deliver any document relating to the
Collateral to the Company for correction or completion.
"Unimproved Advance" means an Advance made against an
Unimproved Mortgage Loan.
"Unimproved Mortgage Loan" means a Mortgage Loan secured by
a First Mortgage on unimproved real property intended for commercial or
residential development and used by the mortgagor to finance the acquisition
of such real property.
"Usage Fee" has the meaning set forth in Section 2.8(b)
hereof.
"Used Portion" has the meaning set forth in Section 2.8(b)
hereof.
<PAGE> 48
"VA" means the U.S. Department of Veterans Affairs and any
successor thereto.
"Warehousing Fee" has the meaning set forth in Section 2.9
hereof.
"Warehouse Period" means, for any Eligible Loan, the maximum
number of days an Advance against that type of Eligible Loan is permitted to
remain outstanding as set forth on Exhibit M attached to this Agreement.
"Warehousing Promissory Note" means the promissory note
evidencing the Company's Obligations with respect to Advances made against
Eligible Loans, in the form of Exhibit A-1 attached hereto.
"Weighted Average Purchase Commitment Price" shall mean the
weighted average of the Committed Purchase Prices of the unfilled Purchase
Commitments (expressed as a percentage) for Mortgage Loans or Mortgage-backed
Securities of the same type, interest rate and term.
"Wet Settlement Advance" means with respect to any Advance,
the time from the date the Advance is made until the date of the Lender's
receipt of the Collateral Documents as provided in Section 2.2(b) and the
Exhibit referenced therein.
"Wire Disbursement Account" means a demand deposit account
maintained at the Funding Bank in the name of the Lender for the clearing of
wire transfers requested by the Company to fund Advances.
"Year 2000 Problem" means the risk that computer
applications may not be able to properly perform date-sensitive functions
after December 31, 1999.
1.2 Other Definitional Provisions.
1.2(a) Accounting terms not otherwise defined herein
shall have the meanings given the terms under GAAP.
1.2(b) Defined terms may be used in the singular or
the plural, as the context requires.
1.2(c) All references to time of day shall mean
the then applicable time in Chicago, Illinois, unless expressly provided to the
contrary.
<PAGE> 49
2. THE CREDIT.
2.1 The Commitment.
2.1(a) Subject to the terms and conditions of this
Agreement and provided no Default or Event of Default has occurred and is
continuing, the Lender agrees from time to time during the period from the
Closing Date to, but not including, the Maturity Date, to make Advances to the
Company, provided the total aggregate principal amount outstanding at any one
time of all such Advances shall not exceed the Commitment Amount. The
obligation of the Lender to make Advances hereunder up to the Commitment Amount
is hereinafter referred to as the "Commitment." Within the Commitment, the
Company may borrow, repay and reborrow. Effective as of the date of this
Agreement, all outstanding loans made pursuant to the Existing Credit
Agreement shall for all purposes be deemed to be Advances made under this
Agreement. All previous Advances and new Advances under this Agreement
shall constitute a single indebtedness, and all of the Collateral shall be
security for the Note and for the performance of all the Obligations.
2.1(b Advances shall be used by the Company solely
for the purpose of funding the acquisition or origination of Eligible Loans and
shall be made at the request of the Company, in the manner hereinafter provided
in Section 2.2 hereof, against the pledge of such Eligible Loans as Collateral
therefor. The limitations on the use of Advances set forth on Exhibit M
attached hereto and made a part hereof shall be applicable. In addition,
the following limitations on the use of Advances shall be applicable:
(1) No Advance, other than a Construction/Permanent Advance
or an Unimproved Advance, shall be made against any Mortgage Loan which
was closed more than 90 days prior to the date of the requested Advance.
(2) No Advance shall be made against a Mortgage Loan other
than a Mortgage Loan secured by a Mortgage on real property located in one of
the states of the United States or the District of Columbia.
(3) No Advance shall be made against an Unimproved Mortgage
Loan unless all payments which were due and payable under the related
Unimproved Mortgage Loan on or prior to the date of such Advance have been
made.
(4) No Advance shall be made against an Unimproved Mortgage
Loan secured by property intended for commercial development, if the Mortgage
Note Amount exceeds 80% of the fair market value of such property as
determined by the Lender in its reasonable judgement.
<PAGE> 50
2.1(c) No Advance shall exceed the following amount
applicable to the type of Eligible Loan at the time it is pledged to secure an
Advance hereunder:
(1) For an Eligible Loan pledged hereunder,
the amount set forth on Exhibit M attached hereto and made a part hereof.
2.2 Procedures for Obtaining Advances.
2.2(a) To obtain an Advance, the Company must
comply with the conditions set forth in Sections 4.1 and 4.2 of this Agreement,
the procedures set forth in this Section 2.2(a), and the procedures and
documentation required under the Exhibit D for the type of Mortgage Loan
against which the Company is requesting the Advance. The Company will request
an Advance either by delivering to Lender a completed and signed advance
request in the applicable form of Exhibit C or, if applicable, by sending
to Lender an Electronic Advance Request, together with a list of Mortgage
Loans for which the request is being made and a completed and signed
RFConnects Pledge Agreement sent by facsimile (each an "Advance Request"),
each no later than 1 Business Day prior to the Business Day the requested
Advance is to be made. The current forms of each Exhibit C and Exhibit D
referred to above are attached to this Agreement. The Lender is entitled,
upon not less than 3 Business Days' prior Notice to the Company, to modify
any of those Exhibits or the form of Electronic Advance Request to conform
to current legal requirements or Lender's lending practices. Exhibits and
Electronic Advance Requests so modified automatically become a part of this
Agreement.
2.2(b) In the case of a Wet Settlement Advance, the
Company shall follow the procedures and, at or prior to the Lender's making of
such Wet Settlement Advance, shall deliver to the Lender the documents set
forth in the applicable Exhibit D hereto. In the case of a Mortgage Loan
financed through a Wet Settlement Advance, the Company shall cause all
Collateral Documents required to be delivered to the Lender pursuant to the
applicable Exhibit D within 7 Business Days after the date of the Wet
Settlement Advance relating thereto.
2.2(c) Before funding, the Lender shall have a
reasonable time (1 Business Day under ordinary circumstances) to examine such
Advance Request and the Collateral Documents to be delivered prior to such
requested Advance, as set forth in the applicable Exhibit hereto, and may
reject such of them as do not meet the requirements of this Agreement or of
the related Purchase Commitment. The Lender shall have no obligation to
make a Wet Settlement Advance directly to the Parent against a Mortgage
Loan unless the Lender has received satisfactory evidence from the title
company closing the Mortgage Loan that such Mortgage Loan is closed and
funded.
<PAGE> 51
2.2(d) The Company shall hold in trust for the
Lender, and the Company shall deliver to the Lender promptly upon request, or
if the recorded Collateral Documents have not yet been returned from the
recording office, immediately upon receipt by the Company of such recorded
Collateral Documents, and the Pledged Mortgage is not being held by an
Investor for purchase or has not been redeemed from pledge, the following:
(1) the originals of the Collateral Documents for which copies are required to
be delivered to the Lender pursuant to the applicable Exhibit D, (2) the
original lender's ALTA Policy of Title Insurance or an equivalent thereto,
and (3) any other documents relating to a Pledged Mortgage which the Lender
may request, including, without limitation, documentation evidencing the
FHA Commitment to Insure or the FmHA Guaranty or VA Guaranty of any Pledged
Mortgage which is either FHA insured, FmHA guaranteed or VA guaranteed, the
appraisal, Private Mortgage Insurance Certificate, if applicable, the
Regulation Z Statement, certificates of casualty or hazard insurance, credit
information on the maker of each such Mortgage Note, a copy of a HUD-1 or
corresponding purchase advice and other documents of all kinds which are
customarily desired for inspection or transfer incidental to the purchase of
any Mortgage Note by an Investor and any additional documents which
are customarily executed by the seller of a Mortgage Note to an Investor.
2.2(e) To make an Advance, the Lender shall cause
the Funding Bank to credit either the Wire Disbursement Account or the Check
Disbursement Account upon compliance by the Company with the terms of the Loan
Documents. The Lender shall determine in its sole discretion the method by
which Advances and other amounts on deposit in the Wire Disbursement Account
are disbursed by the Funding Bank to or for the account of the Company.
2.2(f) If, pursuant to the authorization given by
the Company in the Funding Bank Agreement, for the purpose of funding a
Mortgage Loan against which the Lender has made an Advance in accordance with
a Request for Advance (i) the Lender debits the Company's Operating Account at
the Funding Bank to the extent necessary to cover a wire to be initiated by
the Lender, or (ii) the Lender directs the Funding Bank to honor a check
drawn by the Company on its Check Disbursement Account at the Funding Bank,
and such debit or direction results in an overdraft, the Lender may make an
additional Advance to fund such overdraft.
2.3 Note. The Company's Obligations shall be evidenced by the
promissory note (the "Note") dated as of the date hereof substantially in the
form of Exhibit A attached hereto. The term "Note" shall include all
extensions, renewals and modifications of the Note and all substitutions
therefor. All terms and provisions of the Note are hereby incorporated herein.
<PAGE> 52
2.4 Interest.
2.4(a) Except as otherwise provided in Section 2.4
(e) hereof, the unpaid amount of each Advance against an Eligible Loan shall
bear interest, from the date the Advance until paid in full, at the rate(s)
per annum set forth on Exhibit M attached hereto and made a part hereof.
2.4(b) The Company is entitled to receive a benefit
in the form of an "Earnings Credit" on the portion of the Eligible Balances
maintained in time deposit accounts with a Designated Bank, and the Company is
entitled to receive a benefit in the form of an "Earnings Allowance" on the
portion of the Eligible Balances maintained in demand deposit accounts with a
Designated Bank. Any Earnings Allowance shall be used first and any Earnings
Credit shall be used second as a credit against accrued Designated Bank
Charges, any other Miscellaneous Charges and fees, including, but not limited
to Commitment Fees, Usage Fees and Warehousing Fees, and may be used,
at the Lender's option, to reduce accrued interest. Any Earnings Allowance
not used during the month in which the benefit was received shall be
accumulated for use and must be used within 6 months of the month in which the
benefit was received. Any Earnings Credit not used during the month in which
the benefit was received shall be used to provide a cash benefit to the
Company. The Lender's determination of the Earnings Credit and the Earnings
Allowance for any month shall be determined by the Lender in its sole
discretion and shall be conclusive and binding absent manifest error. In no
event shall the benefit received by the Company exceed the Depository Benefit.
Either party hereto may terminate the benefits
provided for in this Section effective immediately upon Notice to the other
party, if the terminating party shall have determined (which determination
shall be conclusive and binding absent manifest error) at any time that any
applicable law, rule, regulation, order or decree or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by such party
with any request or directive (whether or not having the force of law) of any
such authority, shall make it unlawful or impossible for such party to
continue to offer or receive the benefits provided for in this Section.
2.4(c) Interest shall be computed on the basis of a
360-day year and applied to the actual number of days elapsed in each interest
calculation period and shall be payable monthly in arrears, on the first day
of each month, commencing with the first month following the Closing Date and
on the Maturity Date.
2.4(d) If, for any reason, no interest is due on
an Advance, the Company agrees to pay to the Lender an administrative fee
equal to one day of interest on such Advance at the rate of interest
applicable to such Advance, as in effect on the date of such Advance.
Administrative and other fees shall be due and payable in the same manner as
interest is due and payable hereunder.
<PAGE> 53
2.4(e) Upon Notice to the Company, after the
occurrence and during the continuation of an Event of Default, the unpaid
amount of each Advance shall bear interest until paid in full at a per annum
rate of interest (the "Default Rate") equal to 4% in excess of the rate of
interest otherwise applicable to the Advance or, if no rate is applicable,
the highest rate then applicable to any outstanding Advances.
2.4(f) The floating rates of interest provided for
in this Agreement will be adjusted as of the effective date of each change in
the applicable index. The Lender's determination of such rates as of any date
of determination shall be conclusive and binding, absent manifest error.
2.5 Principal Payments.
2.5(a) The outstanding principal amount of all
Advances shall be payable in full on the Maturity Date.
2.5(b) The Company shall have the right to prepay
the outstanding Advances in whole or in part, from time to time, without
premium or penalty.
2.5(c) The Company shall pay the Lender, without
the necessity of prior demand or notice from the Lender, and the Company
authorizes the Lender to cause the Funding Bank to charge the Company's
Operating Account for, the amount of any outstanding Advance against a
specific Pledged Mortgage, upon the earliest occurrence of any of the
following events:
(1) One (1) Business Day elapses from
the date an Advance was made and the Pledged Mortgage which was to have been
funded by such Advance is not closed and funded.
(2) Ten (10) Business Days elapse from
the date a Collateral Document was delivered to the Company for correction or
completion under a Trust Receipt, if such Collateral Document has not been
returned to the Lender.
(3) On the date on which a Pledged
Mortgage is determined to have been originated based on untrue, incomplete or
inaccurate information, whether or not the Company had knowledge of such
misrepresentation or incorrect information or on the date on which the Company
knows, or has reason to know, or receives notice from the Lender, that one or
more of the representations and warranties set forth in Section 5.15 were
inaccurate or incomplete in any material respect on any date when made or
deemed made.
(4) On the date the Pledged Mortgage is
defaulted and remains in default for a period of 60 days or more.
(5) If the outstanding Advances against
Pledged Mortgages of a specific Mortgage Loan type, other than an Unimproved
Mortgage Loan, exceed the aggregate Purchase Commitments for such Mortgage
Loan type.
<PAGE> 54
(6) For a Mortgage Loan covered by a
Purchase Commitment at the time pledged hereunder, 3 Business Days after the
mandatory delivery date of the related Purchase Commitment and the specific
Pledged Mortgage or the Pledged Security backed thereby was not delivered
under the Purchase Commitment prior to such mandatory delivery date, or the
Purchase Commitment is terminated; unless in each case, such Pledged Mortgage
or Pledged Security is eligible for delivery to an Investor under a comparable
Purchase Commitment acceptable to the Lender.
(7) Upon sale or other disposition of
the Pledged Mortgage or, if a Pledged Mortgage is included in an Eligible
Mortgage Pool, upon sale or other disposition of the related Agency Security.
(8) For a Construction/Perm Mortgage
Loan, a lien is filed against the premises and not removed within 15 days of
the filing, or an inspection report indicates that the improvements to the
premises encumbered by the Pledged Mortgage are not being constructed in
accordance with the approved plans and specifications.
2.5(d) Upon Notice to the Company by the Lender,
the Company shall pay to the Lender, and the Company authorizes the Lender to
cause the Funding Bank to charge the Company's Operating Account for, the
amount of any outstanding Advance against a specific Pledged Mortgage upon
the earliest occurrence of any of the following events:
(1) For any Pledged Mortgage, the
Warehouse Period elapses.
(2) On the date the payment of a Lien
prior to a Pledged Mortgage is delinquent for a period of 60 days.
(3) Forty-five (45) days elapse from the
date the Pledged Mortgage was delivered to an Investor or an Approved
Custodian for examination and purchase or inclusion in a Mortgage Pool,
without the purchase being made or an Eligible Mortgage Pool being initially
certified, or upon rejection of the Pledged Mortgage as unsatisfactory by
an Investor or an Approved Custodian.
(4) Seven (7) Business Days elapse from
the date a Wet Settlement Advance was made without receipt by the Lender of
all Collateral Documents relating to such Pledged Mortgage, or such
Collateral Documents, upon examination by the Lender, are found not to be
in compliance with the requirements of this Agreement or the related Purchase
Commitment.
(5) With respect to any Pledged
Mortgage, any of the items described in Section 2.2(d), upon examination by
the Lender, are found not to be in compliance with the requirements of
this Agreement or the related Purchase Commitment.
2.5(e) The outstanding amount of any Advance made
pursuant to Section 2.2(f) shall be payable in full within 1 Business Day
after the date of such Advance.
<PAGE> 55
2.5(f) In addition to the payments required
pursuant to Sections 2.5(d) and 2.5(e), if the principal amount of any Pledged
Mortgage is prepaid in whole or in part while an Advance is outstanding
against such Pledged Mortgage, the Company shall be obligated to pay to
the Lender, without the necessity of prior demand or notice from the Lender,
and the Company authorizes the Lender to cause the Funding Bank to charge
the Company's Operating Account for the amount of such prepayment, to be
applied to such Advance.
2.5(g) The proceeds of the sale or other
disposition of Pledged Mortgages and Pledged Securities shall be paid directly
by the Investor to the Cash Collateral Account. The Company shall give Notice
to the Lender (telephonically, to be followed by written notice) of the
Pledged Mortgages or Pledged Securities for which proceeds have been received.
Upon receipt of such Notice the Advances against such Pledged Mortgages or
Pledged Securities shall be repaid from such proceeds and such Pledged
Mortgages or Pledged Securities shall be considered to have been redeemed
from pledge. The Lender is entitled to rely upon the Company's affirmation
that deposits in the Cash Collateral Account represent payment from
Investors for the purchase of Pledged Mortgages or Pledged Securities as
specified by the Company. In the event that the payment from an Investor for
the purchase of Pledged Mortgages or Pledged Securities is less than the
outstanding Advances against such Pledged Mortgages or the Mortgage Loans
backing Pledged Securities, the Lender is authorized to cause the Funding
Bank to charge the Company's Operating Account for an amount equal to such
deficiency. Provided no Default or Event of Default exists, the Lender shall
return any excess payment from an Investor for Pledged Mortgages or Pledged
Securities to the Company.
2.5(h) The Company may, from time to time, prepay a
portion of the Advances pursuant to this Section 2.5(h) (any such prepayment
is hereafter referred to as a "Buydown"). A Buydown shall not, except as set
forth below, be deemed a prepayment of any particular Advances, and shall not
entitle the Company to the release of any Collateral. If a Default or an Event
of Default has occurred and is continuing, the Lender shall be entitled to
retain as additional Collateral any portion of the Buydown which has been
funded by the Company. Any portion of the Buydown which has been funded to
the Company by its Parent and/or Affiliates shall be refunded to and at
the direction of the Company. All or any portion of a Buydown may be
reborrowed hereunder, provided no Default or Event of Default has occurred
and is continuing, upon written notice to the Lender no later than 9:30
a.m. on the Business Day that the Company desires to reborrow such amount.
The Lender shall use its best efforts to apply each Buydown to reduce the
interest on Advances in the following order: first, Unimproved Advances;
second, Construction Advances; third, Subprime Advances; and fourth, Prime
Advances (as defined on Exhibit M hereto); provided, however, that no portion
of any Buydown may be or remain applied to Unimproved Advances unless,
after giving effect to such application, the outstanding principal
balance of the Unimproved Advances (net of the portion of the Buydown applied
thereto) would be greater than or equal to $2,500,000. In the event the
Lender receives a payment of Advances that would, as a result of the Buydown,
reduce the outstanding principal balance of the Unimproved Advances to an
amount less than $2,500,000, or the outstanding principal balance of the other
Advances to an amount less than zero, unless an Event of Default shall have
occurred and be continuing, the Buydowns, or a portion thereof equal to such
excess, shall be re-advanced to the Company.
<PAGE> 56
2.6 Expiration of Commitment. The Commitment shall expire
on the Maturity Date.
2.7 Method of Making Payments.
2.7(a) Except as otherwise specifically provided
herein, all payments hereunder shall be made to the Lender not later than the
close of business on the date when due unless such date is a non-Business
Day, in which case, such payment shall be due on the first Business Day
thereafter, and shall be made in lawful money of the United States of
America in immediately available funds transferred via wire to accounts
designated by the Lender from time to time.
2.7(b) After the occurrence and during the
continuance of an Event of Default, and without the necessity of prior demand
or notice from the Lender, the Company authorizes the Lender to cause the
Funding Bank to charge the Company's Operating Account for any Obligations
due and owing the Lender.
2.8 Commitment Fees and Usage Fees.
2.8(a) The Company agrees to pay to the Lender a
Commitment Fee in the amount of 1/10% per annum of $15,000,000, which
Commitment Fee shall be paid quarterly in advance and shall be computed on the
basis of a 365-day year and applied to the actual number of days elapsed in
each Calendar Quarter. On the Closing Date, the Company shall pay the prorated
portion of the quarterly Commitment Fee due from the Closing Date to the
last day of the current Calendar Quarter. Thereafter, the Company shall make
quarterly payments of the Commitment Fee on thefirst day of each Calendar
Quarter. If the scheduled Maturity Date is other than the last day of a
Calendar Quarter, the Company shall pay the prorated portion of the quarterly
Commitment Fee due from the beginning of the then current Calendar Quarter to
and including the Maturity Date. For the purposes hereof, Calendar Quarters
shall be defined as the 3 month periods beginning on each April 1, July 1,
October 1 and January 1. The Company shall not be entitled to a reduction in
the amount of the Commitment Fee, in the event the Commitment Amount is
reduced or in the event that the Commitment is terminated at the request of
the Company or as a result of an Event of Default.
If the Commitment terminates at the request of the Company or as a result of an
Event of Default, the unpaid balance of the Commitment Fee through the scheduled
Maturity Date shall be due and payable in full on the date of such termination.
2.8(b) At the end of each Calendar Quarter during
the term hereof, the Lender shall determine the average usage of the portion
of the Commitment during such Calendar Quarter in excess of $15,000,000 by
calculating the arithmetic daily average of the Advances (net of Buydown)
outstanding during such Calendar Quarter. To the extent the quarterly average
usage (the "Used Portion") exceeds $15,000,000, the Company shall pay in
arrears, within 30 days after the end of each calendar quarter, a fee (the
"Usage Fee"), equal to 1/10% per annum on the total amount by which the Used
Portion of the Commitment exceeded $15,000,000 during such Calendar Quarter.
<PAGE> 57
If the scheduled Maturity Date is other than the first day of a Calendar
Quarter, the Company shall pay the prorated portion of the Usage Fee due from
the beginning of the then current Calendar Quarter to and including the
scheduled Maturity Date. In the absence of manifest error, the calculation
by the Lender of the amount of any Usage Fee shall be conclusive.
2.9 Warehousing Fees. The Company agrees, at the time of
each Advance, to pay to the Lender a Warehousing Fee in the amount of (i)
$10.00 for each Mortgage Loan, other than an Unimproved Mortgage Loan,
pledged as Collateral for such Advance, and (ii) $100.00 for each Unimproved
Mortgage Loan pledged as Collateral for such Advance. Notwithstanding the
foregoing, if the arithmetic daily average of the Advances (net of Buydown)
outstanding in any month exceeds $15,000,000, no Warehousing Fee shall be
payable for such month. Warehousing Fees are due when incurred, but shall
not be delinquent if paid within fifteen (15) days after receipt of an
invoice or an account analysis statement from the Lender.
2.10 Miscellaneous Charges. The Company agrees to reimburse
the Lender for miscellaneous charges and expenses (collectively,
"Miscellaneous Charges") incurred by or on behalf of the Lender in connection
with the handling and administration of Advances, and to reimburse the Lender
for Miscellaneous Charges incurred by or on behalf of the Lender in connection
with the handling and administration of the Collateral. For the purposes
hereof, Miscellaneous Charges shall include, but not be limited to,
costs for UCC, tax lien and judgment searches conducted by the Lender,
filing fees, charges for wire transfers, check processing charges, charges
for security delivery fees, charges for overnight delivery of Collateral to
Investors, the Funding Bank's service fees and overdraft charges and
Designated Bank Charges. Miscellaneous Charges are due when incurred, but
shall not be delinquent if paid within 15 days after receipt of an invoice or
an account analysis statement from the Lender.
2.11 Interest Limitation. All agreements between the Company
and the Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of this Agreement or
the Note or otherwise, shall the amount paid or agreed to be paid to the Lender
for the use, forbearance, loaning or retention of the Advances secured by this
Agreement exceed the maximum permissible under applicable law. If from any
circumstances whatsoever, fulfillment of any provisions hereof or of the Note,
or any other document securing this Agreement at any time given shall involve
transcending the limit of validity prescribed by law, then, the obligation to
be fulfilled shall automatically be reduced to the limit of such validity, and
if from any circumstances the Lende should ever receive as interest an amount
which would exceed the highest lawful rate of interest, such amount which
would be in excess of interest shall be applied to the reduction of the
principal balance secured by the Note and not to the payment of interest
thereunder. This provision shall control every other provision of all
agreements between the Company and Lender and shall also b e binding
upon and available to any subsequent holder of the Note.
<PAGE> 58
2.12 Increased Costs; Capital Requirements. In the event any
applicable law, order, regulation or directive issued by any governmental or
monetary uthority, or any change therein or in the governmental or judicial
interpretation or application thereof, or compliance by the Lender with any
request or directive (whether or not having the force of law) by any
governmental or monetary authority:
2.12(a) Does or shall subject the Lender to any
tax of any kind whatsoever with respect to this Agreement or any Advances made
hereunder, or change the basis of taxation on payments to the Lender of
principal, fees, interest or any other amount payable hereunder (except for
change in the rate of tax on the overall gross or net income of the Lender by
the jurisdiction in which the Lender's principal office is located);
2.12(b) Does or shall impose, modify or hold
applicable any reserve, capital requirement, special deposit, compulsory loan
or similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of the Lender
which are not otherwise included in the determination of the interest rate as
calculated hereunder; and the result of any of the foregoing is to increase
the cost to the Lender of making, renewing or maintaining any Advance or to
reduce any amount receivable in respect thereof or to reduce the rate of
return on the capital of the Lender or any Person controlling the Lender
as it relates to credit facilities in the nature of that evidenced by this
Agreement, then, in any such case, the Company shall promptly pay any
additional amounts necessary to compensate the Lender for such additional
cost or reduced amounts receivable or reduced rate of return as determined
by the Lender with respect to this Agreement or Advances made hereunder.
If the Lender becomes entitled to claim any additional amounts pursuant to
this Section, it shall notify the Company of the event by reason of which it
has become so entitled and the Company shall pay such amount within 15 days
thereafter. A certificate as to any additional amount payable pursuant to the
foregoing sentence containing the calculation thereof in reasonable detail
submitted by the Lender to the Company shall be conclusive in the absence of
manifest error. The obligations of the Company under this Section shall
survive the payment of all other Obligations and the termination of this
Agreement.
3. COLLATERAL.
3.1 Grant of Security Interest. As security for the payment
of the Note and for the performance of all of the Company's Obligations, the
Company hereby assigns and transfers to the Lender all right, title and
interest in and to and grants a security interest to the Lender in the
following described property (the "Collateral"):
<PAGE> 59
3.1(a) All Mortgage Loans, including all Mortgage
Notes and Mortgages evidencing or securing such Mortgage Loans, which from
time to time are delivered or caused to be delivered to the Lender
(including delivery to a third party on behalf of the Lender), come into the
possession, custody or control of the Lender for the purpose of assignment or
pledge or in respect of which an Advance has been made by the Lender
hereunder, including without limitation all Mortgage Loans in respect of
which Wet Settlement Advances have been made by the Lender (the "Pledged
Mortgages").
3.1(b) All Mortgage-backed Securities which are
from time to time created in whole or in part on the basis of the Pledged
Mortgages or are delivered or caused to be delivered to, or are otherwise in
the possession of the Lender or its agent, bailee or custodian as assignee,
or pledged to the Lender, or for such purpose are registered by book-entry
in the name of the Lender (including delivery to or registration in the name
of a third party on behalf of the Lender) hereunder or in respect of which
from time to time an Advance has been made by the Lender hereunder
(the "Pledged Securities").
3.1(c) All private mortgage insurance and all
commitments issued by the FHA, FmHA or VA to insure or guarantee any Mortgage
Loans included in the Pledged Mortgages; all Purchase Commitments held by the
Company covering the Pledged Mortgages or the Pledged Securities and all
proceeds resulting from the sale thereof to Investors pursuant thereto; and
all personal property, contract rights, servicing and servicing fees and
income or other proceeds, amounts and payments payable to the Company as
compensation or reimbursement, accounts, payments, intangibles and other
general intangibles of whatsoever kind relating to the Pledged Mortgages, the
Pledged Securities, said FHA commitments, FmHA commitments or VA commitments
and the Purchase Commitments, and all other documents or instruments
relating to the Pledged Mortgages and the Pledged Securities, including,
without limitation, any interest of the Company in any fire, casualty or
hazard insurance policies and any awards made by any public body or
decreed by any court of competent jurisdiction for a taking or for
degradation of value in any eminent domain proceeding as the same relate to
the Pledged Mortgages.
3.1(d) All right, title and interest of the
Company in and to all escrow accounts, documents, instruments, files, surveys,
certificates, correspondence, appraisals, computer programs, tapes, discs,
cards, accounting records (including all information, records, tapes, data,
programs, discs and cards necessary or helpful in the administration or
servicing of the Collateral) and other information and data of the Company
relating to the Collateral.
3.1(e) All right, title and interest of the
Company in and to any Hedging Arrangements entered into to protect the Company
against changes in the value of Pledged Mortgages or Pledged Securities,
including, without limitation, all rights to payment arising under such
Hedging Arrangements.
<PAGE> 60
3.1(f) All now existing or hereafter acquired cash
delivered to or otherwise in the possession of the Lender, the Funding Bank,
or the Lender's agent, bailee or custodian or designated on the books and
records of the Company as assigned and pledged to the Lender.
3.1(g) All cash and non-cash proceeds of the
Collateral, including all dividends, distributions and other rights in
connection with, and all additions to, modifications of and replacements for,
the Collateral, and all products and proceeds of the Collateral, together with
whatever is receivable or received when the Collateral or proceeds thereof are
sold, collected, exchanged or otherwise disposed of, whether such disposition
is voluntary or involuntary, including, without limitation, all rights to
payment with respect to any cause of action affecting or relating to the
Collateral or proceeds thereof.
3.1(h) All right, title and interest of the
Company in and to all building loan agreements, construction contracts,
plans and specifications, building permits, governmental approvals and
licenses, lender's policies of title insurance, "all risk" builder's
insurance or workers' compensation insurance as the same relate to the Pledged
Mortgages.
3.2 Release of Security Interest in Collateral.
3.2(a) Pledged Mortgages shall be released from the
Lender's security interest only against payment to the Lender of the Release
Amount in connection with such Pledged Mortgages.
3.2(b) If Pledged Mortgages are to be transferred
to a pool custodian or to Freddie Mac or Fannie Mae for inclusion in a
Mortgage Pool, the Lender's security interest in such Pledged Mortgages shall
be released only against payment to the Lender of the Release Amount in
connection with such Pledged Mortgages. If the Lender's security interest
in the Pledged Mortgages comprising the Mortgage Pool is not released prior
to the issuance of the Mortgage-backed Security, then the Mortgage-backed
Security, when issued, shall be a Pledged Security. The Lender's security
interest shall continue in such Pledged Mortgages and the Pledged Security.
The Lender shall b e entitled to possession of such Pledged Security in the
manner provided below.
3.2(c) If Pledged Mortgages are transferred to an
Approved Custodian and included in an Eligible Mortgage Pool, the Lender's
security interest in the Pledged Mortgages comprising the Eligible Mortgage
Pool shall be released upon the issuance of the Agency Security, which shall
be a Pledged Security. The Lender's security interest in such Pledged Security
shall be released only against payment to the Lender of the Release Amount in
connection with the Pledged Mortgages backing such Pledged Security. The
Lender shall be entitled to possession of such Pledged Security in the manner
provided below.
<PAGE> 61
3.2(d) The Lender shall have the exclusive right to
the possession of the Pledged Securities or, if the Pledged Securities are
issued in book-entry form or issued in certificated form and delivered to a
clearing corporation (as such term is defined in the Uniform Commercial Code
of Minnesota) or its nominee, the Lender shall have the right to have the
Pledged Securities registered in the name of a securities intermediary (as
such term is defined in the Uniform Commercial Code of Minnesota) in an account
containing only customer securities and credited to an account of the Lender.
The Lender shall have the right to cause delivery of the Pledged Securities
to be made to the Investor or the Pledged Securities credited to the account
of the Investor or the Investor's designee only against payment therefor.
The Company acknowledges that the Lender may enter into one or more standing
arrangements with other financial institutions with respect to Pledged
Securities issued in book entry form or issued in certificated form and
delivered to a clearing corporation, pursuant to which such Pledged Securities
are registered in the name of such financial institution, as agent or
securities intermediary for the Lender, and the Company agrees upon request
of the Lender to execute and deliver to such other financial institutions the
Company's written concurrence in any such standing arrangements.
3.2(e) Prior to the occurrence of an Event of
Default, the Company may redeem a Pledged Mortgage or Pledged Security from
the Lender's security interest by notifying the Lender of its intention to
redeem such Pledged Mortgage or Pledged Security from pledge and either (a)
paying, or causing an Investor to pay, to the Lender, for application to
prepayment of the principal balance of the Note, the Release Amount in
connection with such Pledged Mortgage or Pledged Security, or (b) delivering
substitute Collateral which, in addition to being acceptable to the Lender
in its sole discretion will, when included with the Collateral, result in
a Collateral Value of all Collateral held by the Lender which is at least
equal to the aggregate outstanding Advances.
3.2(f) Following the occurrence of a Default or
Event of Default, the Lender may, with no liability to the Company or any
Person, continue to release its security interest in any Pledged Mortgage or
Pledged Security against payment of the Release Amount in connection with such
Pledged Mortgage or Pledged Security.
3.2(g) The amount(the "Release Amount") to be paid
by the Company to obtain the release of the Lender's security interest in a
Pledged Mortgage shall be (i) prior to the occurrence of an Event of Default,
the principal amount of the Advances made against such Pledged Mortgage, and
(ii) from and after the occurrence and during the continuance of an Event of
Default, the Committed Purchase Price of such Pledged Mortgage or, if there is
no Purchase Commitment therefor, the amount paid to the Lender in a
commercially reasonable disposition thereof, or in connection with a
commercially reasonable disposition of the property securing an Unimproved
Mortgage Loan or other defaulted Pledged Mortgage.
<PAGE> 62
3.3 Delivery of Additional Collateral or Mandatory
Prepayment.
At any time that the aggregate Collateral Value of the Collateral
then pledged hereunder, other than Unimproved Mortgage Loans is less than the
aggregate amount of the Advances, other than Unimproved Advances, then
outstanding hereunder, the Lender may request, and the Company shall within 2
Business Days after Notice by the Lender (a) deliver to the Lender for
pledge hereunder additional Collateral, other than Unimproved Mortgage
Loans, with a Collateral Value sufficient to cover the difference between
the Collateral Value of the Collateral pledged and the aggregate amount of
Advances, other than Unimproved Advances, outstanding hereunder, and/or (b)
repay the Advances in an amount sufficient to reduce the aggregate balance
thereof outstanding to or below the Collateral Value of the Collateral pledged
hereunder.
3.4 Release of Collateral.
3.4(a) The Lender may deliver documents relating
to the Collateral to the Company for correction or completion pursuant to a
Trust Receipt.
3.4(b) Prior to the occurrence of a Default or
Event of Default, upon delivery by the Company to the Lender of shipping
instructions pursuant to Exhibit D-SF, the Lender will transmit Pledged
Mortgages or Pledged Securities and all related loan documents or pool
documents to the applicable Investor, Approved Custodian or other party.
3.4(c) Upon receipt of Notice from the Company
under Section 2.5(g) hereof, and repayment of the Release Amount with respect
to a Pledged Mortgage identified by the Company, any Collateral Documents
relating to the redeemed Pledged Mortgage or Mortgage Loan backing a Pledged
Security which have not been delivered to an Investor or Approved Custodian
shall be released by the Lender to the Company.
3.5 Collection and Servicing Rights. So long as no Event
of Default shall have occurred and be continuing, the Company shall be
entitled to service and receive and collect directly all sums payable to the
Company in respect of the Collateral other than proceeds of any Purchase
Commitment or proceeds of the sale of any Collateral. Following the
occurrence of any Event of Default, the Lender or its designee shall
thereafter be entitled to service and receive and collect all sums payable
to the Company in respect of the Collateral, and in such case (a) the
Lender or its designee in its discretion may, in its own name, in the name
of the Company or otherwise, demand, sue for, collect or receive any money
or property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation to
do so, (b) the Company shall, if the Lender so requests, hold in trust for
the benefit of the Lender and forthwith pay to the Lender at its office
designated by Notice hereunder, all amounts thereafter received by the
Company upon or in respect of any of the Collateral, advising the Lender as to
the source of such funds, and (c) all amounts so received and collected by the
Lender shall be held by it as part of the Collateral.
<PAGE> 63
3.6 Return of Collateral at End of Commitment. If (a) the
Commitment shall have expired or been terminated, and (b) no Advances,
interest or other Obligations shall be outstanding and unpaid, the Lender
shall deliver or release its security interest and shall deliver all
Collateral in its possession to the Company at the Company's expense. The
receipt of the Company for any Collateral released or delivered to the
Company pursuant to any provision of this Agreement shall be a complete
and full acquittance for the Collateral so returned, and the Lender shall
thereafter be discharged from any liability or responsibility therefor.
4. CONDITIONS PRECEDENT.
4.1 Effectiveness of this Agreement. This Agreement shall not
become effective unless, in the sole discretion of the Lender, on or before the
Effective Date, the following conditions precedent are satisfied:
4.1(a) The Lender shall have received the following,
all of which must be satisfactory in form and content to the Lender, in its
sole discretion:
(1) The Note and this Agreement duly
executed by the Company.
(2) The Company's articles or certificate of
incorporation as certified by the Secretary
of State of the Company's incorporation,
bylaws certified by the corporate secretary
of t he Company, or a Certificate of the
Company stating that there has been no
change in either the articles or certificate
of incorporation or bylaws since those
delivered in connection with the Existing
Credit Agreement dated August 31, 1995, and
certificates of good standing dated no less
recently than 90 days prior to the date of
this Agreement.
(3) A resolution of the board of directors
of the Company, certified as of the date of
this Agreement by its corporate secretary,
authorizing the execution, delivery and
performance of this Agreement and the other
Loan Documents, and all other instruments or
documents to be delivered by the Company
pursuant to this Agreement.
<PAGE> 64
(4) A certificate of the Company's corporate
secretary as to the incumbency and
authenticity of the signatures of the
officers of the Company executing this
Agreement and the other Loan Documents and
each Advance Request and all other
instruments or documents to be delivered
pursuant hereto (the Lender being entitled
to rely thereon until a new such certificate
has been furnished to the Lender).
(5) A favorable written opinion of counsel
to the Company (or of separate counsel at
the option of the Company), dated as of the
date of this Agreement substantially in the
form of Exhibit H attached hereto, addressed
to the Lender.
(6) Uniform Commercial Code, tax lien and
judgment searches of the appropriate public
records for the Company, which searches
shall not have disclosed the existence of
any prior Lien on the Collateral other than
in favor of the Lender or as permitted
hereunder.
(7) Copies of the certificates, documents or
other written instruments which evidence the
Company's eligibility described in Section
5.13 hereof, all in form and substance
satisfactory to the Lender.
(8) Copies of the Company's errors and
omissions insurance policy or mortgage
impairment insurance policy and blanket bond
coverage policy, or certificates in lieu of
policies, all in form and content
satisfactory to the Lender, showing
compliance by the Company as of the date of
this Agreement with the related provisions
of Section 6.8 hereof.
(9) Executed financing statements in
recordable form covering the Collateral and
ready for filing in all jurisdictions
required by the Lender.
<PAGE> 65
(10) Payment of all principal and interest
for all Advances outstanding under the
Existing Credit Agreement that were made
against a pledge of collateral that does
not fit the definition of Eligible Loan in
this Agreement.
(11) Payment of any fees due on or before
the Effective Date, including, but not
limited to, Commitment Fees and document
production fees.
(12) Evidence that all accounts necessary
into which Advances will be funded have
been established at the Funding Bank and
receipt of a fully executed Funding Bank
Agreement.
4.1(b) All directors, officers and shareholders of
the Company, all Affiliates of the Company or of any Subsidiary of
the Company, to whom or to any of whom the Company shall be indebted as
of the date of this Agreement, shall have subordinated such indebtedness to
the Obligations, by executing a Subordination of Debt Agreement, in the form
of Exhibit F hereto; provided, however, that earned salaries and bonuses and
expense reimbursements owed to officers of the Company shall be excluded
from this requirement; and the Lender shall have received an executed
copy of any such Subordination of Debt Agreement, certified by the corporate
secretary of the Company to be true and complete and in full force and effect
as of the date of the Advance. This Section 4.1(b) shall not apply to
unsecured indebtedness of the Company to its corporate Affiliates for
funds lent to originate Mortgage Loans, or to unclaimed bondholder funds
held and administered by the Company for its Subsidiaries.
4.2 Each Advance. The obligation of the Lender to make the
initial and each subsequent Advance under this Agreement is subject to the
satisfaction, in the sole discretion of the Lender, as of the date of each
such Advance, of the following additional conditions precedent:
4.2(a) The Company shall have delivered to the Lender
the Advance Request, Collateral Documents, and documents relating to Wet
Settlement Advances, called for under, and shall have satisfied the procedures
set forth in, Section 2.2 hereof and the applicable Exhibits hereto described
in that Section, according to the type of the requested Advance. All items
delivered to the Lender shall be satisfactory to the Lender in form and
content, and the Lender may reject such of them as do not meet the
requirements of this Agreement or of the related Purchase Commitment.
<PAGE> 66
4.2(b) The Lender shall have received evidence
satisfactory to it as to the making and/or continuation of any book entry or
the due filing and recording in all appropriate offices of all financing
statements and other instruments as may be necessary to perfect the
security interest of the Lender in the Collateral under the Uniform
Commercial Code or other applicable law.
4.2(c) The representations and warranties of the
Company contained in Article 5 hereof shall be accurate and complete in all
material respects as if made on and as of the date of each Advance.
4.2(d) The Company shall have performed all
agreements to be performed by it hereunder, and after giving effect to the
requested Advance, there shall exist no Default or Event of Default hereunder.
4.2(e) The Company shall not have incurred any
material liabilities, direct or contingent, other than in the ordinary course
of its business, since the Statement Date.
4.2(f) The Lender shall have received from counsel
for the Company, if requested by the Lender in its sole discretion, an
updated opinion, in form and substance satisfactory to the Lender,
addressed to the Lender and dated as of the date of such Advance, covering
such of the matters as the Lender may reasonably request.
Delivery of an Advance Request by the Company shall be
deemed a representation by the Company that all conditions set forth in this
Section 4.2 shall have been satisfied as of the date of such Advance.
5. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to the Lender as
of the Effective Date and as of the date of each Advance Request and the
making of each Advance, that:
5.1 Organization; Good Standing; Subsidiaries. The Company
and each Subsidiary of the Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the full legal power and authority to own its property
and to carry on its business as currently conducted and is duly qualified as
a foreign corporation to do business and is in good standing in each
jurisdiction in which the transaction of its business makes such
qualification necessary, except in jurisdictions, if any, where a failure
to be in good standing has no material adverse effect on the business,
operations, assets or financial condition of the Company or any such
Subsidiary. For the purposes hereof, good standing shall include qualification
for any and all licenses and payment of any and all taxes required in the
jurisdiction of its incorporation and in each jurisdiction in which the
Company transacts business. The Company has no Subsidiaries except as set
<PAGE> 67
forth on Exhibit G hereto. Exhibit G sets forth with respect to each such
Subsidiary, its name, address, place of incorporation, each state in which it
is qualified as a foreign corporation, and the percentage ownership of its
capital stock by the Company.
5.2 Authorization and Enforceability. The Company has the
power and authority to execute, deliver and perform this Agreement, the Note
and all other Loan Documents to which the Company is party and to make the
borrowings hereunder. The execution, delivery and performance by the Company
of this Agreement, the Note and all other Loan Documents to which the Company
is party and the making of the borrowings hereunder and thereunder, have been
duly and validly authorized by all necessary corporate action on the party
of the Company (none of which actions has been modified or rescinded, and all
of which actions are in full force and effect) and do not and will not
conflict with or violate any provision of law, of any judgments binding upon
the Company, or of the articles of incorporation or by-laws of the Company,
conflict with or result in a breach of or constitute a default or require any
consent under, or result in the creation of any Lien upon any property or
assets of the Company other than the Lien on the Collateral granted hereunder,
or result in or require the acceleration of any indebtedness of the Company
pursuant to any agreement, instrument or indenture to which the Company is a
party or by which the Company or its property may be bound or affected. This
Agreement, the Note and all other Loan Documents contemplated hereby or
thereby constitute legal, valid, and binding obligations of the Company
enforceable in accordance with their respective terms, except as limited
by bankruptcy, insolvency or other such laws affecting the enforcement of
creditors' rights and by general principles of equity.
5.3 Approvals. The execution and delivery of this Agreement,
the Note and all other Loan Documents and the performance of the Company's
obligations hereunder and thereunder and the validity and enforceability
hereof and thereof do not require any license, consent, approval or other
action of any state or federal agency or governmental or regulatory authority
other than those which have been obtained and remain in full force and effect.
5.4 Financial Condition. The balance sheet of the Company
(and, if applicable, its Subsidiaries, on a consolidated basis) as of the
Statement Date, and the related statements of income and changes in
stockholders' equity for the fiscal period ended on the Statement Date,
heretofore furnished to the Lender, fairly present the financial condition of
the Company (and its Subsidiaries) as of the Statement Date and the results of
its operations for the fiscal period ended on the Statement Date. The Company
had, on the Statement Date, no known material liabilities, direct or indirect,
fixed or contingent, matured or unmatured, or liabilities for taxes, long-term
leases or unusual forward or long-term commitments not disclosed by, or
reserved against in, said balance sheet and related statements, and at the
present time there are no material unrealized or anticipated losses from any
loans, advances or other commitments of the Company except as heretofore
disclosed to the Lender in writing. Except as disclosed on the interim
financial statements, said financial statements were prepared in accordance
<PAGE> 68
with GAAP applied on a consistent basis throughout the periods involved.
Since the Statement Date, there has been no material adverse change in the
business, operations, assets or financial condition of the Company (and its
Subsidiaries), nor is the Company aware of any state of facts which (with
or without notice or lapse of time or both) would or could result in any such
material adverse change.
5.5 Litigation. There are no actions, claims, suits or
proceedings pending or, to the knowledge of the Company, threatened or
reasonably anticipated against or affecting the Company or any Subsidiary of
the Company in any court or before any arbitrator or before any government
commission, board, bureau or other administrative agency which, if adversely
determined, may reasonably be expected to result in any material and adverse
change in the business, operations, assets or financial condition of the
Company as a whole, or which would affect the validity or enforceability
of this Agreement, the Note or any other Loan Document.
5.6 Compliance with Laws. Neither the Company nor any
Subsidiary of the Company is in violation of any provision of any law, or of
any judgment, award, rule, regulation, order, decree, writ or injunction of
any court or public regulatory body or authority which might have a material
adverse effect on the business, operations, assets or financial condition of
the Company as a whole or which would affect the validity or
enforceability of this Agreement, the Note or any other Loan Document.
5.7 Regulation U. The Company is not engaged principally,
or as one of its important activities, in the business of extending credit
for the purpose of purchasing or carrying Margin Stock, and no part of the
proceeds of any Advances made hereunder will be used to purchase or carry
any Margin Stock or to extend credit to others for the purpose of purchasing
or carrying any Margin Stock.
5.8 Investment Company Act. The Company is not an
"investment company" or controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
5.9 Payment of Taxes. The Company, through the Parent, has
filed or caused to be filed all federal, state and local income, excise,
property and other tax returns with respect to the operations of the Company
and its Subsidiaries which are required to be filed except such taxes, if any,
as are being contested in good faith and for which adequate reserves have
been provided, all such returns are true and correct, and the Company,
through the Parent, has paid or caused to be paid all taxes as shown on such
returns or on any assessment, to the extent that such taxes have become due,
including, but not limited to, all FICA payments and withholding taxes, if
appropriate. The amounts reserved, if any, as a liability for income and
other taxes payable, in the financial statements described in Section 5.4
hereof are sufficient for payment of all unpaid federal, state and local
income, excise, property and other taxes, whether or not disputed, of
the Company and its Subsidiaries accrued for or applicable to the period
and on the dates of such financial statements and all years and periods prior
thereto and for which the Company and its Subsidiaries may be liable in its
<PAGE> 69
own right or as transferee of the assets of, or as successor to, any other
person or entity. The Company and its Subsidiaries are included in the
consolidated federal income tax return filed by the Parent. The Company's
income tax provisions, if any, are recorded on a separate entity basis and
are in accordance with a tax allocation agreement with the Parent. No tax
Liens have been filed and no material claims are being asserted with
respect to any such taxes, fees or charges.
5.10 Agreements. Neither the Company nor any Subsidiary of
the Company is a party to any agreement, instrument or indenture or subject to
any restriction materially and adversely affecting its business, operations,
assets or financial condition, except as disclosed in the financial statements
described in Section 5.4 hereof. Neither the Company nor any Subsidiary of
the Company is in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any agreement,
instrument, or indenture which default could have a material adverse effect on
the business, operations, properties or financial condition of the Company as
a whole. No holder of any indebtedness of the Company or of any of its
Subsidiaries has given notice of any asserted default thereunder, and
no liquidation or dissolution of the Company or of any of its Subsidiaries
and no receivership, insolvency, bankruptcy, reorganization or other similar
proceedings relative to the Company or of any of its Subsidiaries or any of
its properties is pending, or to the knowledge of the Company, threatened.
5.11 Title to Properties. The Company and each Subsidiary of
the Company has good, valid, insurable (in the case of real property) and
marketable title to all of its properties and assets (whether real or
personal, tangible or intangible) reflected on the financial statements
described in Section 5.4 hereof, except for such properties and assets as
have been disposed of since the date of such financial statements as no
longer used or useful in the conduct of its business or as have been disposed
of in the ordinary course of business, and all such properties and assets
are free and clear of all Liens except as disclosed in such financial
statements.
5.12 ERISA. All plans ("Plans") of a type described in
Section 3(3) of ERISA in respect of which the Company or any Subsidiary of
the Company is an "Employer," as defined in Section 3(5) of ERISA, are in
substantial compliance with ERISA, and none of such Plans is insolvent or in
reorganization, has an accumulated or waived funding deficiency within the
meaning of Section 412 of the Internal Revenue Code, and neither the Company
nor any Subsidiary of the Company has incurred any material liability
(including any material contingent liability) to or on account of any such
Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of ERISA; and no
proceedings have been instituted to terminate any such Plan, and no condition
exists which presents a material risk to the Company or a Subsidiary of the
Company of incurring a liability to or on account of any such Plan pursuant to
any of the foregoing Sections of ERISA. No Plan or trust forming a part
thereof has been terminated since September 1, 1974.
<PAGE> 70
5.13 Eligibility. The Company is approved and qualified and
in good standing as a lender or seller/servicer, as set forth below, and
meets all requirements applicable to its status as such:
5.13(a) Ginnie Mae approved seller/servicer of
Mortgage Loans and issuer of Mortgage-backed Securities guaranteed by Ginnie
Mae.
5.13(b) Fannie Mae approved seller/servicer of
Mortgage Loans, eligible to originate, purchase, hold, sell, and service
Mortgage Loans to be sold to Fannie Mae.
5.13(c) Freddie Mac approved seller/servicer of
Mortgage Loans, eligible to originate, purchase, hold, sell and service
Mortgage Loans to be sold to Freddie Mac.
5.13(d) Lender in good standing under the VA loan
guarantee program eligible to originate, purchase, hold, sell and service
VA-guaranteed Mortgage Loans.
5.13(e) HUD approved mortgagee, eligible to
originate, purchase, hold, sell and service FHA fully insured Mortgage Loans.
5.13(f) Lender in good standing under the FmHA loan
guarantee program eligible to originate, purchase, hold, sell and service
FmHA-guaranteed Mortgage Loans.
5.14 Place of Business. The principal place of business of
the Company is 311 Park Place Boulevard, P.O. Box 4929, Clearwater, Florida
33759.
5.15 Special Representations Concerning Collateral. The
Company hereby represents and warrants to the Lender, as of the date of this
Agreement and as of the date of each Advance Request and the making of each
Advance, that:
5.15(a) The Company is the legal and equitable owner and holder, free
and clear of all Liens (other than Liens granted hereunder), of the Pledged
Mortgages and the Pledged Securities. All Pledged Mortgages, Pledged
Securities and Purchase Commitments have been duly authorized and validly
issued to the Company, and all of the foregoing items of Collateral comply
with all of the requirements of this Agreement, and have been and will
continue to be validly pledged or assigned to the Lender, subject to no
other Liens.
5.15(b) The Company has, and will continue to have, the full right,
power and authority to pledge the Collateral pledged and to be pledged by
it hereunder.
<PAGE> 71
5.15(c) Any Mortgage Loan and any related document included in the
Pledged Mortgages (1) other than in the case of a Construction/Perm
Mortgage Loan or an Unimproved Mortgage Loan, has been duly executed and
delivered by the parties thereto at a closing held not more than 90 days
prior to the date of the Advance Request for such Mortgage Loan, (2) has
been made in compliance with all requirements of the Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, the federal Truth-In-Lending
Act and all other applicable laws and regulations, (3) is and will continue
to be valid and enforceable in accordance with its terms, without defense
or offset, (4) has not been modified or amended except in writing, which
writing is part of the Collateral Documents, nor any requirements thereof
waived, (5) other than in the case of an Unimproved Mortgage Loan, has been
evaluated or appraised in accordance with Title XI of FIRREA, and (6)
complies and will continue to comply with the terms of this Agreement and,
if applicable, with the related Purchase Commitment held by the Company.
Each Mortgage Loan, other than in the case of a Construction/Perm Mortgage
Loan, has been fully advanced in the face amount thereof, and each First
Mortgage is a first Lien on the premises described therein, and has or will
have a title insurance policy, in American Land Title Association form or
equivalent thereof, from a recognized title insurance company, insuring the
priority of the Lien of the Mortgage and meeting the usual requirements of
Investors purchasing such Mortgage Loans.
5.15(d) No default has occurred and is continuing for more than (i) in
the case of an Unimproved Mortgage Loan included in the Pledged Mortgages,
30 days, or (ii) in the case of any other Mortgage Loan included in the
Pledged Mortgages, 60 days, without the Advance against such Pledged
Mortgage having been repaid in accordance with Section 2.5(c)(3), 2.5(c)(4)
hereof, provided, however, that with respect to Pledged Mortgages which
have already been pledged as Collateral hereunder, if any default has
occurred, the Company will promptly notify the Lender.
5.15(e) The Company has complied and will continue to comply with all
laws, rules and regulations in respect of the FHA insurance, FmHA guaranty
or VA guaranty of each Mortgage Loan included in the Pledged Mortgages
designated by the Company as an FHA insured, FmHA guaranteed Mortgage Loan
or VA guaranteed Mortgage Loan, and such insurance or guarantee is and will
continue to be in full force and effect. All such FHA insured, FmHA
guaranteed Mortgage Loans and VA guaranteed Mortgage Loans comply and will
continue to comply in all respects with all applicable requirements for
purchase under the Fannie Mae standard form of selling contract for FHA
insured, FmHA guaranteed loans and VA guaranteed loans and any supplement
thereto then in effect.
5.15(f) All fire and casualty policies covering the premises
encumbered by each Mortgage included in the Pledged Mortgages (1) name and
will continue to name the Company and its successors and assigns as the
insured under a standard mortgagee clause, (2) are and will continue to be
in full force and effect, and (3) afford and will continue to afford
insurance against fire and such other risks as are usually insured against
in the broad form of extended coverage insurance from time to time
available.
<PAGE> 72
5.15(g) Pledged Mortgages secured by premises located in a special
flood hazard area designated as such by the Director of the Federal
Emergency Management Agency are and shall continue to be covered by special
flood insurance under the National Flood Insurance Program.
5.15(h) Each Pledged Mortgage, against which an Advance is made on the
basis of a Purchase Commitment, meets all requirements of such Purchase
Commitment. The Company shall assure that Pledged Mortgages which are
intended to be used in the formation of Mortgage-backed Securities shall
comply or, prior to the formation of any such Mortgage-backed Security,
shall comply with the requirements of the governmental instrumentality,
department, agency or other Person issuing or guaranteeing such
Mortgage-backed Security.
5.15(i) ForPledged Mortgages which will be used to back Ginnie Mae
Mortgage-backed Securities, the Company has received from Ginnie Mae a
Confirmation Notice or Confirmation Notices for Request Additional
Commitment Authority and for Request Pool Numbers, and there remains
available thereunder a commitment on the part of Ginnie Mae sufficient to
permit the issuance of Ginnie Mae Mortgage-backed Securities in an amount
at least equal to the amount of such Pledged Mortgages designated by the
Company as the Mortgage Loans to be used to back such Ginnie Mae
Mortgage-backed Securities; each such Confirmation Notice is in full force
and effect; each of such Pledged Mortgages has been assigned by the Company
to one of such Pool Numbers and a portion of the available Ginnie Mae
Commitment has been allocated thereto by the Company, in an amount at least
equal to such Pledged Mortgages; and each such assignment and allocation
has been reflected in the books and records of the Company.
5.15(j) No Pledged Mortgage securing an Advance is secured by a Lien
on a Manufactured Home.
5.16 Servicing. Attached hereto as Exhibit E is a true and
complete list of the Company's Servicing Portfolio. All of the Company's
Servicing Contracts are in full force and effect and, except as otherwise
indicated, are unencumbered by Liens. No default or event which, with notice
or lapse of time or both, would become a default, exists under any such
Servicing Contract.
5.17 Special Representations Concerning Construction
Advances. The Company hereby represents and warrants to the Lender, as of the
date of this Agreement and as of the date of each Advance Request, that:
5.17(a) Each Construction/Perm Mortgage Loan included in the Pledged
Mortgages (1) has an American Land Title Association Lender's construction
loan policy or equivalent thereto with mechanics' lien coverage, (2) has an
Assignment of Plan and Specifications, and an Assignment of General
Construction Contract, that inure to the benefit of the Company's
successors and assigns, (3) has "all risk" builder's insurance and workers'
compensation insurance that name and will continue to name the Company and
its successors and assigns as the insured under a standard mortgagee
<PAGE> 73
clause, (4) has a certification of no hazardous materials, (5) has a survey
prepared and certified by a duly registered surveyor showing no
encroachments of the improvements or the proposed improvements to be
constructed on the premises encumbered by the Pledged Mortgage on to other
lands or easements or restrictions, unless such encroachments have been
insured over or are acceptable to the Investor, (6) has building permits
and all necessary licenses and approvals for the construction of the
improvements on the premises encumbered by the Pledged Mortgage, (7) has a
"as completed" appraisal giving an As Completed Appraised Value, (8) has a
fixed price General Contract issued by a licensed contractor, and (9) has
all necessary utilities available to the premises encumbered by the Pledged
Mortgage.
5.17(b) Prior to the initial Construction Advance against a
Pledged Mortgage, the Company shall have received (1) a Cost Breakdown
and (2) a draw schedule.
5.17(c) Prior to each Construction Advance, the Company shall
have received (1) a report of the stage of completion of the
improvements as set forth in the construction accounting system of the
Parent confirming completion of the work for which the Construction
Advance is being requested and (2) a title insurance updated
endorsement for such Construction Advance if the title insurance
policy has a "pending disbursements clause" requiring an endorsement
to the title insurance policy to insure each Construction Advance
after the closing of the Construction/Perm Mortgage Loan.
5.17(d) Prior to the final Construction Advance, the Company
shall have received (1) a final appraiser inspection report confirming
completion of all work in accordance with the plans and specifications
and (2) a final "as built" survey.
5.17(e) If applicable, within 15 days after the final
Construction Advance the Company shall receive any Mortgage Note
modification or modified Mortgage Note delivered in connection with a
Construction/Perm Mortgage Loan and a title insurance policy update
endorsement for modification of such Mortgage Loan to a Permanent
Mortgage Loan.
5.18 No Adverse Selection. The Company has not selected
the Collateral in a manner so as to affect adversely the Lender's interests.
5.19 Year 2000 Compliance. The Company has conducted a
comprehensive review and assessment of the Company's computer applications and
made inquiry of the Company's key suppliers, vendors, customers, and Investors
with respect to the "Year 2000 Problem" and, based on that review and inquiry,
the Company does not believe the Year 2000 Problem will result in a material
adverse change in the Company's business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.
<PAGE> 74
6. AFFIRMATIVE COVENANTS.
The Company hereby covenants and agrees that, so long as the
Commitment is outstanding or there remain any Obligations to be paid or
performed under this Agreement or under any other Loan Document, the Company
shall:
6.1 Payment of Note. Punctually pay or cause to be paid all
Obligations payable hereunder and under the Note in accordance with the terms
hereof and thereof.
6.2 Financial Statements and Other Reports. Deliver to
the Lender:
6.2(a) As soon as available and in any event within 30 days after
the end of each calendar month of the Company, statements of income
and changes in stockholders' equity of the Company (and, if
applicable, its Subsidiaries, on a consolidated basis) for the
immediately preceding month and for the period from the beginning of
the fiscal year to the end of such calendar month, and the related
balance sheet as of the end of the immediately preceding month, all
in reasonable detail and certified as to the fairness of
presentation by the chief financial officer of the Company,
subject, however, to year-end audit adjustments.
6.2(b) As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, statements of
income, changes in stockholders' equity and cash flow of the
Company (and, if applicable, its Subsidiaries, on a consolidated
basis) for such year, and the related balance sheet as of the
end of such year (setting forth in comparative form the
corresponding figures for the preceding fiscal year), all in
reasonable detail and accompanied by an opinion (which opinion
shall not be qualified due to possible failure to take
all appropriate steps to successfully address Year 2000 Problem) in
form and substance satisfactory to the Lender and prepared by an
accounting firm reasonably satisfactory to the Lender, or other
independent certified public accountants of recognized standing
selected by the Company and acceptable to the Lender, as to said
financial statements and a certificate signed by the chief financial
officer of the Company stating that said financial statements fairly
present the financial condition and results of operations of the
Company (and, if applicable, its Subsidiaries) as of the end of, and
for, such year.
6.2(c) Together with each delivery of financial
statements required in this Section 6.2, an Officer's
Certificate substantially in the form of Exhibit I-SF hereto:
(1) setting forth in reasonable detail all calculations
necessary to show that the Company is in compliance with the
requirements of Sections 7.6, and 7.7, hereof as of the end of
such month or year (or, if the Company is not in compliance,
showing the extent of non-compliance and specifying the period
of non-compliance and what actions the Company has taken, is
<PAGE> 75
taking or proposes to take with respect thereto); (2)
certifying that the Company was, as of the end of the period,
in compliance and in good standing with applicable HUD, Ginnie
Mae, or Investor net worth requirements; (3) certifying that the
representation set forth in Section 5.19 hereof is true and
correct as of the date of such certificate or, if such
representation is not true and correct as of such date, specifying
the nature of the problem and what action the Company has taken,
is taking and proposes to take with request thereto, and (4) stating
that the signers have reviewed the terms of this Agreement and
have made, or caused to be made under their supervision, a
review in reasonable detail of the transactions and conditions
of the Company (and, if applicable, its Subsidiaries) during the
accounting period covered by such financial statements and
that such review has not disclosed the existence during or at
the end of such accounting period, and that the signers do not
have knowledge of the existence as of the date of the
Officer's Certificate, of any Default or Event of Default, or
if any Default or Event of Default existed or exists,
specifying the nature and period of the existence thereof and
what action the Company has taken, is taking and proposes to
take with respect thereto.
6.2(d) Weekly or more frequently as the Lender may
from time to time request, a commitment summary and pipeline
report substantially in the form of Exhibit L (the "Commitment
Summary Report") dated as of the close of business on the last
Business Day of each week and provided to the Lender by
facsimile by 10:00 a.m. on the next succeeding Business Day of
the following week, and the signed original thereof shall be
sent to the Lender by first class mail on such next succeeding
Business Day.
6.2(e) As soon as available and in any event within
30 days after the end of each calendar month, a consolidated
report (the "Servicing Portfolio Report") as of the end of the
calendar month detailing, as to all Mortgage Loans the
servicing rights to which are owned by the Company (specified
by investor type, recourse and non-recourse) regardless of
whether such Mortgage Loans are Pledged Mortgages and which
report shall indicate Mortgage Loans which (A) are current and
in good standing, (B) are more than 30, 60 or 90 days past
due, respectively, (C) are, for Mortgage Loans serviced with
recourse, more than three hundred 360 days past due, (D) are
the subject of pending bankruptcy or foreclosure proceedings,
or (E) have been converted (through foreclosure or other
proceedings in lieu thereof) by the Company into real estate
owned by the Company.
<PAGE> 76
6.2(f) Reports in respect of the Pledged Mortgages
and Pledged Securities in such detail and at such times as the
Lender in its discretion may reasonably request at any time or
from time to time.
6.2(g) Copies of all regular or periodic financial
and other reports, if any, which the Company shall file with
the Securities and Exchange Commission or any governmental
agency successor thereto, copies of any audits completed by
Ginnie Mae, Fannie Mae or Freddie Mac and copies of the
Mortgage Bankers' Financial Reporting Forms (Freddie Mac Form
1055/Fannie Mae Form 1002) which the Company is required to
have filed, as the Lender may reasonably request.
6.2(h) From time to time, with reasonable promptness,
such further information regarding the business, operations,
properties or financial condition of the Company as the Lender
may reasonably request.
6.2(i) With each Officer's Certificate, a monthly
status report on each Construction/Perm Mortgage Loan,
including, without limitation, the loan number, mortgagor
name(s), property address, general contractor name, completion
status (percent completed or staged draw no. and brief
description), estimated completion date, date of last on-site
inspection, and Pledged Mortgage payment status.
6.3 Maintenance of Existence; Conduct of Business. Preserve
and maintain its corporate existence in good standing and all of its rights,
privileges, licenses and franchises necessary or desirable in the normal
conduct of its business, including, without limitation, its eligibility as
lender, seller/servicer and issuer described under Section 5.13 hereof;
conduct its business in an orderly and efficient manner; maintain a net
worth of acceptable assets as required for maintaining the Company's
eligibility as lender, seller/servicer and issuer described under Section
5.13 hereof; not change the nature or character of its business; not engage
in any business in which it was not engaged on the date of this Agreement;
and not change its name, state of incorporation or principal place of business.
6.4 Compliance with Applicable Laws. Comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, a breach of which could materially adversely affect
its business, operations, assets, or financial condition, except where
contested in good faith and by appropriate proceedings.
<PAGE> 77
6.5 Inspection of Properties and Books. Permit authorized
representatives of the Lender or any Participant to discuss the business,
operations, assets and financial condition of the Company and its Subsidiaries
with its officers and employees and to examine its books of account and make
copies or extracts thereof, all at such reasonable times as the Lender or any
Participant may request. The Company will provide its accountants with a copy
of this Agreement promptly after the execution hereof and will instruct its
accountants to answer candidly any and all questions that the officers of the
Lender or any Participant or any authorized representatives of the Lender or
any Participant may address to them in reference to the financial condition or
affairs of the Company and its Subsidiaries. The Company may have its
representatives in attendance at any meetings between the officers or other
representatives of the Lender or any Participant and the Company accountants
held in accordance with this authorization.
6.6 Notice. Give prompt Notice to the Lender of (a) any
action, suit or proceeding instituted by or against the Company or any of its
Subsidiaries in any federal or state court or before any commission or other
regulatory body (federal, state or local, domestic or foreign) which action,
suit or proceeding has at issue in excess of $250,000, or any such proceedings
threatened against the Company or any of its Subsidiaries in a writing
containing the details thereof, (b) the filing, recording or assessment of any
federal, state or local tax Lien against the Company, or any of its assets or
any of its Subsidiaries, (c) the occurrence of any Event of Default hereunder
or the occurrence of any Default and continuation thereof for 5 days, (d)
the suspension, revocation or termination of the Company's eligibility,
in any respect, as approved lender, seller/servicer or issuer as described
under Section 5.13 hereof, (e) the transfer, loss or termination of any
Servicing Contract to which the Company is a party, or which is held for the
benefit of the Company, and the reason for such transfer, loss or termination,
if known to the Company, and (f) any other action, event or condition of
any nature which may lead to or result in a material adverse effect
upon the business, operations, assets, or financial condition of the
Company and its Subsidiaries or which, with or without notice or lapse of
time or both, would constitute a default under any other agreement, instrument
or indenture to which the Company or any of its Subsidiaries is a party or
to which the Company or any of its Subsidiaries, its properties, or assets
may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all
obligations and indebtedness of the Company, and cause to be paid and performed
all obligations and indebtedness of its Subsidiaries, promptly and in
accordance with the terms thereof and pay and discharge or cause to be paid
and discharged promptly all taxes, assessments and governmental charges or
levies imposed upon the Company or its Subsidiaries or upon their respective
income, receipts or properties before the same shall become past due, as
well as all lawful claims for labor, materials and supplies or otherwise
which, if unpaid, might become a Lien or charge upon such properties or any
part thereof; provided, however, that the Company and its Subsidiaries shall
not be required to pay taxes, assessments or governmental charges or levies
or claims for labor, materials or supplies for which the Company or its
Subsidiaries shall have obtained an adequate bond or adequate insurance
or which are being contested in good faith and by proper proceedings which
are being reasonably and diligently pursued and for which proper reserves have
been created.
<PAGE> 78
6.8 Insurance. Maintain (a) errors and omissions insurance
or mortgage impairment insurance and blanket bond coverage, with such companies
and in such amounts as satisfy prevailing requirements applicable to a lender,
seller/servicer and issuer described under Section 5.13 hereof, and (b)
liability insurance and fire and other hazard insurance on its properties,
with responsible insurance companies approved by the Lender, in such amounts
and against such risks as is customarily carried by similar businesses
operating in the same vicinity; and (c) within 30 days after Notice from the
Lender, obtain such additional insurance as the Lender shall reasonably
require, all at the sole expense of the Company. Copies of such policies
shall be furnished to the Lender without charge upon request of the Lender.
6.9 Closing Instructions. Indemnify and hold the Lender
harmless from and against any loss, including reasonable attorneys' fees and
costs, attributable to the failure of a title insurance company, agent or
approved attorney to comply with the disbursement or instruction letter or
letters of the Company relating to any Mortgage Loan. The Lender shall have
the right to pre-approve the closing instructions of the Company to the title
insurance company, agent or attorney in any case where the Mortgage Loan to be
created at settlement is intended to be warehoused by the Company to be
included as Collateral pursuant hereto.
6.10 Subordination of Certain Indebtedness. Cause any
indebtedness of the Company, incurred after the date of this Agreement, to any
shareholder, director or officer of the Company, or to any Affiliate of the
Company or of any Subsidiary of the Company, to be subordinated to all
Obligations by the execution of a Subordination of Debt Agreement in the form
of Exhibit F hereto and deliver to the Lender an executed copy of said
Agreement, certified by the corporate secretary of the Company to be true and
complete and in full force and effect.
6.11 Other Loan Obligations. Perform all material
obligations under the terms of each loan agreement, note, mortgage, security
agreement or debt instrument by which the Company is bound or to which any of
its property is subject, and promptly notify the Lender in writing of a
declared default under or the termination, cancellation, reduction or
nonrenewal of any of its other lines of credit or agreements with any other
lender. Exhibit J hereto is a true and complete list of all such lines of
credit or agreements as of the date hereof and the Company hereby agrees to
give the Lender at least 30 days Notice before entering into any additional
lines of credit or agreements.
6.12 Use of Proceeds of Advances. Use the proceeds of each
Advance solely for the purpose set forth in Section 2.1(b) for Advances of
that type.
<PAGE> 79
6.13 Special Affirmative Covenants Concerning Collateral.
6.13(a) Warrant and defend the right, title and interest of the
Lender in and to the Collateral against the claims and demands of all
Persons whomsoever.
6.13(b) Service or cause to be serviced all Mortgage
Loans in accordance with the standard requirements of the
issuers of Purchase Commitments covering the same and all
applicable FHA, FmHA and VA requirements, including without
limitation taking all actions necessary to enforce the
obligations of the obligors under such Mortgage Loans. The
Company shall service or cause to be serviced all Mortgage
Loans backing Pledged Securities in accordance with applicable
governmental requirements and requirements of issuers of
Purchase Commitments covering the same. The Company shall hold
all escrow funds collected in respect of Pledged Mortgages and
Mortgage Loans backing Pledged Securities in trust, without
commingling the same with non-custodial funds, and apply the
same for the purposes for which such funds were collected.
6.13(c) Execute and deliver to the Lender such Uniform
Commercial Code financing statements with respect to the
Collateral as the Lender may request. The Company shall also
execute and deliver to the Lender such further instruments of
sale, pledge or assignment or transfer, and such powers of
attorney, as required by the Lender, and shall do and perform
all matters and things necessary or desirable to be done or
observed, for the purpose of effectively creating, maintaining
and preserving the security and benefits intended to be
afforded the Lender under this Agreement. The Lender shall
have all the rights and remedies of a secured party under the
Uniform Commercial Code of Minnesota, or any other applicable
law, in addition to all rights provided for herein.
6.13(d) Notify the Lender within (i) 2 Business Days of
any default under, or of the termination of, any Purchase
Commitment relating to any Pledged Mortgage, Eligible Mortgage
Pool or Pledged Security (ii) 2 Business Days of any default
(after expiration of any grace period) under any Unimproved
Mortgage Loan.
6.13(e) Promptly comply in all respects with the terms
and conditions of all Purchase Commitments, and all
extensions, renewals and modifications or substitutions
thereof or thereto. The Company will cause to be delivered to
the Investor the Pledged Mortgages and Pledged Securities to
be sold under each Purchase Commitment not later than 3
Business Days prior to the mandatory delivery date thereof.
<PAGE> 80
6.13(f) Maintain, at its principal office or in a
regional office approved by the Lender, or in the office of a
computer service bureau engaged by the Company and approved by
the Lender, and, upon request, make available to the Lender
the originals, or copies in any case where the originals have
been delivered to the Lender or to an Investor, of its
Mortgage Notes and Mortgages included in Pledged Mortgages,
Mortgage-backed Securities delivered to the Lender as Pledged
Securities, Purchase Commitments, and all related Mortgage
Loan documents and instruments, and all files, surveys,
certificates, correspondence, appraisals, computer programs,
tapes, discs, cards, accounting records and other information
and data relating to the Collateral.
6.14 Special Affirmative Covenants Concerning
Construction Advances.
6.14(a) Use the proceeds of each Construction Advance
solely for the purposes of funding Total Costs for a
Construction/Perm Mortgage Loan.
6.14(b) Notify the Lender within 2 Business Days of the
following events: (1) upon knowledge of the Company,
construction ceasing for more than 15 days on the improvements
to the premises encumbered by a Pledged Mortgage, (2) a lien
filed against premises encumbered by a Pledged Mortgage and
not removed within 15 days of the filing, and (3) any damage
or destruction of the premises encumbered by a Pledged
Mortgage.
7. NEGATIVE COVENANTS.
The Company hereby covenants and agrees that, so long as the
Commitment is outstanding or there remain any Obligations to be paid or
performed, the Company shall not, either directly or indirectly, without the
prior written consent of the Lender:
7.1 Contingent Liabilities. Assume, guarantee, endorse, or
otherwise become contingently liable for the obligation of any Person except
by endorsement of negotiable instruments for deposit or collection in the
ordinary course of business and except for obligations resulting form
representations, warranties and covenants customarily made in connection with
non-recourse sales of Mortgage Loans.
7.2 Sale or Pledge of Servicing Contracts. Sell, pledge or
grant a security interest in any existing or future Servicing Contracts of the
Company other than to the Lender, except as otherwise expressly permitted in
this Agreement, or omit to take any action required to keep all such Servicing
Contracts in full force and effect; provided, however, that if no Default or
Event of Default has occurred and is continuing, servicing on individual
<PAGE> 81
Mortgage Loans may be sold concurrently with and incidental to the sale of
such Mortgage Loans (with servicing released) in the ordinary course of
the Company's business.
7.3 Merger; Sale of Assets; Acquisitions. Liquidate,
dissolve, consolidate or merge or sell any substantial part of its assets, or
acquire any substantial part of the assets of another, except the sale of
Mortgage Loans in the ordinary course of business.
7.4 Deferral of Subordinated Debt. Pay in advance of the
stated maturity thereof any Subordinated Debt of the Company or, if a Default
or Event of Default hereunder shall have occurred, make any payment of any
kind thereafter on such Subordinated Debt until all Obligations have been
paid and performed in full and any applicable preference period has expired.
7.5 Loss of Eligibility. Take any action that would cause
the Company to lose all or any part of its status as an eligible lender,
seller/servicer and issuer as described under Section 5.13 hereof.
7.6 Debt to Tangible Net Worth Ratio. Permit the ratio of
Debt (excluding, for this purpose only, Debt arising under the Hedging
Arrangements, to the extent of assets arising under the same Hedging
Arrangements) to Tangible Net Worth of the Company (and its Subsidiaries, on
a consolidated basis) at any time to exceed 10 to 1.
7.7 Minimum Tangible Net Worth. Permit Tangible Net Worth of
the Company (and its Subsidiaries, on a consolidated basis) at any time to be
less than $6,000,000.
7.8 Acquisition of Recourse Servicing Contracts. Acquire
Servicing Contracts under which the Company is obligated to repurchase or
indemnify the holder of the Mortgage Loans as a result of defaults on the
Mortgage Loans at any time during the term of such Mortgage Loans.
7.9 Gestation Facilities. Directly or indirectly sell or
finance Pledged Mortgages under any Gestation Agreements.
7.10 Special Negative Covenants Concerning Collateral.
7.10(a) The Company shall not amend or modify, or waive
any of the terms and conditions of, or settle or compromise
any claim in respect of, any Pledged Mortgages or Pledged
Securities.
7.10(b) The Company shall not sell, assign, transfer or
otherwise dispose of, or grant any option with respect to, or
pledge or otherwise encumber (except pursuant to this
Agreement or as permitted herein) any of the Collateral or any
interest therein.
<PAGE> 82
7.10(c) The Company shall not make any compromise,
adjustment or settlement in respect of any of the Collateral
or accept other than cash in payment or liquidation of the
Collateral.
8. DEFAULTS; REMEDIES.
8.1 Events of Default. The occurrence of any of the
following conditions or events shall be an event of default ("Event of
Default"):
8.1(a) Failure to pay the principal of any Advance when
due, whether at stated maturity, by acceleration, or
otherwise; or failure to pay any installment of interest
on any Advance or any other amount due under this
Agreement within 10 days after the due date; or failure
to pay, within any applicable grace period, any other
Obligations of the Company due the Lender; or
8.1(b) Failure of the Company or any of its Subsidiaries
to pay, or any default in the payment of any principal
or interest on, any other indebtedness in excess of
$250,000 or in the payment of any contingent obligation
within any period of grace provided and such default
shall not be waived or cured unless the Company shall be
diligently contesting such obligation in good faith and
such contesting shall not impair or affect any of the
Collateral or the Lender's security interest in the
Collateral; or breach or default with respect to any
other material term of any other indebtedness or of any
loan agreement, mortgage, indenture or other agreement
relating thereto, if the effect of such breach or
default is to cause, or to permit the holder or holders
thereof (or a trustee on behalf of such holder or
holders) to cause, indebtedness of the Company or its
Subsidiaries in the aggregate amount of $50,000 or more
to become or be declared due prior to its stated
maturity (upon the giving or receiving of notice, lapse
of time, both, or otherwise); or
8.1(c) Failure of the Company to perform or comply with
any term or condition applicable to it contained in
Sections 6.3, 6.12 and 6.13 or in any Section of Article
7 of this Agreement; or
<PAGE> 83
8.1(d) Any of the Company's representations or
warranties made or deemed made herein or in any other
Loan Document (other than the representations and
warranties set forth in Section 5.15 hereof), or in any
statement or certificate at any time given by the
Company in writing pursuant hereto or thereto shall be
inaccurate or incomplete in any material respect on the
date as of which made or deemed made; or
8.1(e) The Company shall default in the performance of
or compliance with any term contained in this Agreement
or any other Loan Document other than those referred to
above in Subsections 8.1(a), 8.1(c) or 8.1 (d) and such
default shall not have been remedied or waived within 30
days after the earliest of (i) receipt by the Company of
Notice from the Lender of such default, (ii) receipt by
the Lender of Notice from the Company of such default,
or (iii) the date the Company should have notified the
Lender of such default pursuant to Section 6.6(c); or
8.1(f) (1) A court having jurisdiction shall enter a
decree or order for relief in respect of the Company or
any Subsidiary of the Company in an involuntary case
under any applicable bankruptcy, insolvency or other
similar law in respect of the Company or any Subsidiary
of the Company now or hereafter in effect, which decree
or order is not stayed; the Company or any Subsidiary of
the Company shall consent to the entry of any such
decree or order; or a filing of a voluntary case under
any applicable bankruptcy, insolvency or other similar
law in respect of the Company or any Subsidiary of the
Company has occurred; or any other similar relief shall
be granted under any applicable federal or state law; or
(2) the filing of an involuntary case in respect of the
Company or any Subsidiary of the Company under any
applicable bankruptcy, insolvency or other similar law;
or a decree or order of a court having jurisdiction for
the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar
powers over the Company or any Subsidiary of the
Company, or over all or a substantial part of their
respective property, shall have been entered; or the
involuntary appointment of an interim or permanent
receiver, trustee or other custodian of the Company or
any Subsidiary of the Company for all or a substantial
part of their respective property; or the issuance of a
warrant of attachment, execution or similar process
<PAGE> 84
against any substantial part of the property of
the Company or any Subsidiary of the Company, and the
continuance of any such events in Subsection (2) above
for 60 days unless dismissed, bonded off or discharged;
or
8.1(g) The Company, any Subsidiary of the Company shall
consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a
substantial part of its property; the making by the
Company, any Subsidiary of the Company or the Parent of
any assignment for the benefit of creditors; or the
inability or failure of the Company, any Subsidiary of
the Company or the Parent, or the admission by the
Company, any Subsidiary of the Company in writing of its
inability, to pay its debts as such debts become due; or
8.1(h) Failure of the Company to perform any contractual
obligations which it may have to repurchase Mortgage
Loans, if such obligations in the aggregate exceed
$1,000,000; or
8.1(i) Any money judgment, writ or warrant of
attachment, or similar process involving in any case an
amount in excess of $250,000 shall be entered or filed
against the Company or any of its Subsidiaries or any of
their respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of 30 days
or in any event later than 5 days prior to the date of
any proposed sale thereunder; or
8.1(j) Any order, judgment or decree shall be entered
against the Company decreeing the dissolution or split
up of the Company and such order shall remain
undischarged or unstayed for a period in excess of 20
days; or
8.1(k) Any Plan maintained by the Company or any of its
Subsidiaries shall be terminated within the meaning of
Title IV of ERISA or a trustee shall be appointed by an
appropriate United States District Court to administer
any Plan, or the Pension Benefit Guaranty Corporation
(or any successor thereto) shall institute proceedings
to terminate any Plan or to appoint a trustee to
administer any Plan if as of the date thereof the
Company's liability or any such Subsidiary's liability
(after giving effect to the tax consequences thereof) to
the Pension Benefit Guaranty Corporation (or any
successor thereto) for unfunded guaranteed vested
benefits under the Plan exceeds the the current value of
<PAGE> 85
assets accumulated in such Plan by more than $25,000
(or in the case of a termination involving the Company
or any of its Subsidiaries as a "substantial employer"
(as defined in Section 4001(a)(2) of ERISA) the
withdrawing employer's proportionate share of such
excess shall exceed such amount); or
8.1(l) The Company or any of its Subsidiaries as
employer under a Multiemployer Plan shall have made a
complete or partial withdrawal from such Multiemployer
Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an
annual amount exceeding $25,000; or
8.1(m) The Company shall purport to disavow its
obligations hereunder or shall contest the validity or
enforceability hereof; or the Lender's security interest
on any portion of the Collateral shall become
unenforceable or otherwise impaired; provided that,
subject to the Lender's approval, no Event of Default
shall occur as a result of such impairment if all
Advances made against any such Collateral shall be paid
in full within 10 days of the date of such impairment;
or
8.1(n) The Parent shall cease owning, directly or
indirectly, all of the capital stock of the Company; or
8.1(o) Any Lien for any taxes, assessments or other
governmental charges (i) is filed against the Company or
any of its property, or is otherwise enforced against
the Company or any of its property, or (ii) obtains
priority that is equal or greater than the priority of
the Lender's security interest in any of the Collateral,
if the aggregate amount of unpaid taxes related to all
such tax Liens exceeds $100,000; or
8.1(p) A material adverse change occurs in the business
condition (financial or otherwise), operations,
properties or prospects of the Company, or in the
ability of the Company to repay the Obligations.
<PAGE> 86
8.2 Remedies.
8.2(a) Upon the occurrence of any Event of Default
described in Sections 8.1(f) or 8.1(g), the Commitment
shall be terminated and the unpaid principal amount of
and accrued interest on the Note and all other
Obligations shall automatically become due and payable,
without presentment, demand or other requirements of any
kind, all of which are hereby expressly waived by the
Company.
8.2(b) Upon the occurrence of any Event of Default,
other than those described in Sections 8.1(f) and
8.1(g), the Lender may, by Notice to the Company,
terminate the Commitment and/or declare all Obligations
to be immediately due and payable, whereupon the same
shall forthwith become due and payable, together with
all accrued interest thereon, and the obligation of the
Lender to make any Advances shall thereupon terminate.
8.2(c) Upon the occurrence of any Event of Default,
the Lender may also do any of the following:
(1) Foreclose upon or otherwise enforce its
security interest in and Lien on the Collateral
to secure all payments and performance of the
Obligations in any manner permitted by law or
provided for hereunder.
(2) Notify all obligors in respect of
Collateral that the Collateral has been
assigned to the Lender and that all payments
thereon are to be made directly to the Lender
or such other party as may be designated by the
Lender; settle, compromise, or release, in
whole or in part, any amounts owing on the
Collateral, any such obligor or any Investor or
any portion of the Collateral, on terms
acceptable to the Lender; enforce payment and
prosecute any action or proceeding with respect
to any and all Collateral; and where any such
Collateral is in default, foreclose on and
enforce security interests in such Collateral
by any available judicial procedure or without
judicial process and sell property acquired as
a result of any such foreclosure.
<PAGE> 87
(3) Act, or contract with a third party to act,
as servicer or subservicer of each item of
Collateral requiring servicing and perform all
obligations required in connection with
Servicing Contracts and Purchase Commitments,
such third party's fees to be paid by the
Company.
(4) Require the Company to assemble the
Collateral and/or books and records relating
thereto and make such available to the Lender
at a place to be designated by the Lender.
(5) Enter onto property where any Collateral or
books and records relating thereto are located
and take possession thereof with or without
judicial process; and obtain access to the
Company's data processing equipment, computer
hardware and software relating to the
Collateral and to use all of the foregoing and
the information contained therein in any manner
the Lender deems necessary for the purpose of
effectuating its rights under this Agreement
and any other Loan Document.
(6) Prior to the disposition of the Collateral,
prepare it for disposition in any manner and to
the extent the Lender deems appropriate.
(7) Exercise all rights and remedies of a
secured creditor under the Uniform Commercial
Code of Minnesota or other applicable law,
including, but not limited to, selling or
otherwise disposing of the Collateral, or any
part thereof, at one or more public or private
sales, whether or not such Collateral is
present at the place of sale, for cash or
credit or future delivery, on such terms and in
which manner as the Lender may determine,
including, without limitation, sale pursuant to
any applicable Purchase Commitment. If notice
is required under such applicable law, the
Lender will give the Company not less than 10
days' notice of any such public sale or of the
date after which any private sale may be held.
The Company agrees that 10 days' notice shall
be reasonable notice. The Lender may, without
notice or publication, adjourn any public or
<PAGE> 88
private sale or cause the same to be adjourned
from time to time by announcement at the time
and place fixed for the sale, and such sale may
be made at any time or place to which the same
may be so adjourned. In case of any sale of all
or any part of the Collateral on credit or for
future delivery, the Collateral so sold may be
retained by the Lender until the selling price
is paid by the purchaser thereof, but the
Lender shall not incur any liability in case of
the failure of such purchaser to take up and
pay for the Collateral so sold and, in case of
any such failure, such Collateral may again be
sold upon like notice. The Lender may, however,
instead of exercising the power of sale herein
conferred upon it, proceed by a suit or suits
at law or in equity to collect all amounts due
upon the Collateral or to foreclose the pledge
of and sell the Collateral or any portion
thereof under a judgment or decree of a court
or courts of competent jurisdiction, or both.
(8) Proceed against the Company on the Note.
(9) Make additiona Construction Advances to be
added to the Obligations of the Company,
without the request of the Company, for the
purposes of completing the improvements to be
funded by a Construction/Perm Mortgage Loan
pledged hereunder and employ inspectors to
provide inspection reports at the sole cost and
expense of the Company.
8.2(d) The Lender shall incur no liability as a result
of the sale or other disposition of the Collateral, or
any part thereof, at any public or private sale or
disposition. The Company hereby waives (to the extent
permitted by law) any claims it may have against the
Lender arising by reason of the fact that the price at
which the Collateral may have been sold at such private
sale was less than the price which might have been
obtained at a public sale or was less than the aggregate
amount of the outstanding Advances and the unpaid
interest accrued thereon, even if the Lender accepts the
first offer received and does not offer the Collateral
to more than one offeree. Any sale of Collateral
pursuant to the terms of a Purchase Commitment, or any
<PAGE> 89
other disposition of Collateral arranged by the Company,
whether before or after the occurrence of an Event of
Default, shall be deemed to have been made in a commercially
reasonable manner.
8.2(e) The Company acknowledges that Mortgage Loans and
Mortgage-backed Securities are collateral of a type
which is customarily sold on a recognized market. The
Company waives any right it may have to prior notice of
the sale of any Pledged Mortgage or Pledged Security,
and agrees that the Lender may purchase any Pledged
mortgages or Pledged Securities at a private sale of
such Collateral.
8.2(f) The Company specifically waives and releases
(to the extent permitted by law) any equity or right of
redemption, all rights of redemption, stay or appraisal
which the Company has or may have under any rule of law
or statute now existing or hereafter adopted, and any
right to require the Lender to (1) proceed against any
Person, (2) proceed against or exhaust any of the
Collateral or pursue its rights and remedies as against
the Collateral in any particular order, or (3) pursue
any other remedy in its power. The Lender shall not be
required to take any steps necessary to preserve any
rights of the Company against holders of mortgages prior
in lien to the Lien of any Mortgage included in the
Collateral or to preserve rights against prior parties.
8.2(g) The Lender may, but shall not be obligated to,
advance any sums or do any act or thing necessary to
uphold and enforce the Lien and priority of, or the
security intended to be afforded by, any Mortgage
included in the Collateral, including, without
limitation, payment of delinquent taxes or assessments
and insurance premiums. All advances, charges, costs and
expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by the Lender in
exercising any right, power or remedy conferred by this
Agreement, or in the enforcement hereof, together with
interest thereon, at the Default Rate, from the time of
payment until repaid, shall become a part of the
principal balance outstanding hereunder and under the
Note.
<PAGE> 90
8.2(h) No failure on the part of the Lender to exercise,
and no delay in exercising, any right, power or remedy
provided hereunder, at law or in equity shall operate as
a waiver thereof; nor shall any single or partial
exercise by the Lender of any right, power or remedy
provided hereunder, at law or in equity preclude any
other or further exercise thereof or the exercise of any
other right, power or remedy. Without intending to limit
the foregoing, all defenses based on the statute of
limitations are hereby waived by the Company to the
intent permitted by law. The remedies herein provided
are cumulative and are not exclusive of any remedies
provided at law or in equity.
8.2(i) The Lender is hereby granted a license or other
right to use, upon the occurrence of an Event of
Default, without charge, the Company's computer
programs, other programs, labels, copyrights, rights of
use of any name, Investor lists, trade names,
trademarks, service marks and advertising matter, or any
property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any
Collateral, and the Company's rights under all licenses
and all other agreements related to the foregoing shall
inure to the Lender's benefit until the Obligations are
paid in full.
8.3 Application of Proceeds. The proceeds of any sale,
disposition or other enforcement of the Lender's security interest in all or
any part of the Collateral shall be applied by the Lender to the Obligations
in such order as the Lender, in its sole and absolute discretion, shall
determine. From and after the indefensible payment to the Lender of all of the
Obligations, any remaining proceeds shall be paid to the Company, or to
its successors or assigns, or as a court of competent jurisdiction may direct,
of any surplus then remaining from such proceeds.
If the proceeds of any sale, disposition or other
enforcement are insufficient to cover the costs and expenses of the sale, and
the payment in full of all Obligations, the Company will remain liable for
any deficiency.
8.4 Lender Appointed Attorney-in-Fact. The Lender is hereby
appointed the attorney-in-fact of the Company, with full power of substitution,
for the purpose of carrying out the provisions hereof and taking any action and
executing any instruments which the Lender may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, the Lender shall have the right and power to give notices of
its security interest in the Collateral to any Person, either in the name
of the Company or in its own name, to endorse all Pledged Mortgages or Pledged
<PAGE> 91
Securities payable to the order of the Company, to change or cause to be
changed the book-entry registration or name of subscriber or Investor on any
Pledged Security, or to receive, endorse and collect all checks made
payable to the order of the Company representing any payment on account of
the principal of or interest on, or the proceeds of sale of, any of the
Pledged Mortgages or Pledged Securities and to give full discharge for the
same.
8.5 Right of Set-Off. If the Company shall default in the
payment of the Note, any interest accrued thereon, or any other sums which
may become payable hereunder when due, or in the performance of any of its
other obligations or liabilities under this Agreement, the Lender shall
have the right, at any time and from time to time, without notice, to set-off
and to appropriate or apply any and all property or indebtedness of any kind
at any time held or owing by the Lender to or for the credit or the account
of the Company against and on account of the Obligations of the Company under
the Note and this Agreement, irrespective of whether or not the Lender shall
have made any demand hereunder and whether or not said Obligations shall have
matured.
9. NOTICES.
All notices, demands, consents, requests and other
communications required or permitted to be given or made hereunder
(collectively, "Notices") shall, except as otherwise expressly provided
hereunder, be in writing and shall be delivered in person or telecopied or
mailed, first class or delivered by overnight courier, return receipt
requested, postage prepaid, addressed to the respective parties hereto at
their respective addresses hereinafter set forth or, as to any such party, at
such other address as may be designated by it in a Notice to the other.
All Notices shall be conclusively deemed to have been properly given or made
when duly delivered, in person, by telecopy or by overnight courier, or
if mailed, on the date of receipt as noted on the return receipt, addressed
as follows:
if to the Company: U.S. Home Mortgage Corporation
311 Park Place Boulevard
P. O. Box 4929
Clearwater, Florida 33759
Attention: Virginia Casagrande,
Vice President/Controller
Telecopier No.: (727) 791-3409
if to the Lender: Residential Funding Corporation
4800 Montgomery Lane, Suite 300
Bethesda, Maryland 20814
Attention: Jim Clapp, Director
Telecopier No.: (301) 215-6288
<PAGE> 92
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Company shall:(a) pay a documentation production fee of $1,000 in
connection with the preparation and negotiation of this Agreement; (b) pay an
Extension Fee of $24,000 in connection with the extension of the Maturity Date
pursuant to this Agreement; (c) pay such additional documentation production
fees as the Lender may require and all out-of-pocket costs and expenses of the
Lender, including, without limitation, reasonable fees, service charges and
disbursements of counsel (including allocated costs of internal counsel), in
connection with the amendment, enforcement and administration of this
Agreement, the Note, and other Loan Documents and the making and repayment of
the Advances and the payment of interest thereon; (d) indemnify, pay, and hold
harmless the Lender and any holder of the Note from and against, any and all
present and future stamp, documentary and other similar taxes with respect
to the foregoing matters and save the Lender and the holder or holders of the
Note harmless from and against any and all liabilities with respect to or
resulting from any delay or omission to pay such taxes; and (e) indemnify ,
pay and hold harmless the Lender and any of its officers, directors,
employees or agents and any subsequent holder of the Note (collectively
called the "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, judgments, suits, costs, expenses
and disbursements of any kind or nature whatsoever (including without
limitation, the reasonable fees and disbursements of counsel of the
Indemnitees (including allocated costs of internal counsel) in connection
with any investigative, administrative or judicial proceeding, whether
or not such Indemnitees shall be designated a party thereto) which may
be imposed upon, incurred by or asserted against such Indemnitees in any
manner relating to or arising out of this Agreement, the Note, or any
other Loan Document or any of the transactions contemplated hereby or
thereby (the "Indemnified Liabilities"); provided, however, that the Company
shall have no obligation hereunder with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of any such
Indemnitees. To the extent that the undertaking to indemnify, pay and
hold harmless as set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Company shall
contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them. The agreement of the
Company contained in this Subsection (e) shall survive the expiration or
termination of this Agreement and the payment in full of the Note. Attorneys'
fees and disbursements incurred in enforcing, or on appeal from, a judgment
pursuant hereto shall be recoverable separately from and in addition to any
other amount included in such judgment, and this clause is intended to be
severable from the other provisions of this Agreement and to survive and
not be merged into such judgment.
<PAGE> 93
11. FINANCIAL INFORMATION.
All financial statements and reports furnished to the Lender
hereunder shall be prepared in accordance with GAAP, applied on a basis
consistent with that applied in preparing the financial statements as at the
end of and for the last fiscal year ended (except to the extent otherwise
required to conform to good accounting practice).
12. MISCELLANEOUS.
12.1 Terms Binding Upon Successors; Survival of
Representations. The terms and provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. All representations, warranties, covenants and
agreements herein contained on the part of the Company shall survive the
making of any Advance and the execution of the Note, and shall be effective so
long as the Commitment is outstanding or there remain any Obligations to
be paid or performed.
12.2 Assignment. This Agreement cannot be assigned by the
Company. This Agreement and the Note, along with the Lender's security
interest in any or all of the Collateral, may, at any time, be transferred
or assigned, in whole or in part, by the Lender, and any assignee thereof may
enforce this Agreement, the Note and its security interest in the Collateral
so assigned.
12.3 Amendments. Except as otherwise provided in this
Agreement, this Agreement may not be amended, modified or supplemented unless
such amendment, modification or supplement is set forth in a writing
signed by the parties hereto.
12.4 Governing Law. This Agreement and the other Loan
Documents shall be governed by the laws of the State of Minnesota, without
reference to its principles of conflicts of laws.
12.5 Participations. The Lender may at any time sell,
assign or grant participations in, or otherwise transfer to any other Person
(a "Participant"), all or part of the Obligations. Without limitation of the
exclusive right of the Lender to collect and enforce such Obligations,
the Company agrees that each disposition will give rise to a debtor-creditor
relationship of the Company to the Participant, and the Company authorizes
each Participant, upon the occurrence of an Event of Default, to proceed
directly by right of setoff, banker's lien, or otherwise, against any
assets of the Company which may be in the hands of such Participant. The
Company authorizes the Lender to disclose to any prospective Participant
and any Participant any and all information in the Lender's possession
concerning the Company, this Agreement and the Collateral.
<PAGE> 94
12.6 Relationship of the Parties. This Agreement provides
for the making of Advances by the Lender, in its capacity as a lender, to
the Company, in its capacity as a borrower, and for the payment of interest,
repayment of principal by the Company to the Lender, and for the payment of
certain fees by the Company to the Lender. The relationship between
the Lender and the Company is limited to that of creditor/secured party, on
the one hand, and debtor, on the other hand. The provisions herein for
compliance with financial covenants and delivery of financial statements
are intended solely for the benefit of the Lender to protect its interests
as lender in assuring payments of interest and repayment of principal and
payment of certain fees, and nothing contained in this Agreement shall be
construed as permitting or obligating the Lender to act as a financial or
business advisor or consultant to the Company, as permitting or obligating
the Lender to control the Company or to conduct the Company's operations, as
creating any fiduciary obligation on the part of the Lender to the Company, or
as creating any joint venture, agency, or other relationship between the
parties hereto other than as explicitly and specifically stated in this
Agreement. The Company acknowledges that it has had the opportunity
to obtain the advice of experienced counsel of its own choosing in connection
with the negotiation and execution of this Agreement and to obtain the
advice of such counsel with respect to all matters contained herein. The
Company further acknowledges that it is experienced with respect to
financial and credit matters and has made its own independent decisions to
apply to the Lender for credit and to execute and deliver this Agreement.
12.7 Severability. If any provision of this Agreement shall
be declared to be illegal or unenforceable in any respect, such illegal or
unenforceable provision shall be and become absolutely null and void and of
no force and effect as though such provision were not in fact set forth
herein, but all other covenants, terms, conditions and provisions hereof
shall nevertheless continue to be valid and enforceable.
12.8 Operational Reviews. From time to time upon request,
the Company shall permit the Lender or its representative access to its
premises and records, for the purpose of conducting a review of the
Company's general mortgage business methods, policies, and procedures,
auditing loan files and reviewing financial and operational aspects of
the Company's business.
12.9 Consent to Credit References. The Company hereby
consents to the disclosure of information regarding the Company and its
relationships with the Lender to Persons making credit inquiries to the Lender.
This consent is revocable by the Company at any time upon Notice to the
Lender as provided in Section 9 hereof.
<PAGE> 95
12.10 Consent to Jurisdiction. The Company hereby agrees
that any action or proceeding under the Loan Documents, the Note or any
document delivered pursuant hereto may be commenced against it in any court
of competent jurisdiction within the State of Minnesota, by service of
process upon the Company by first class registered or certified mail,
return receipt requested, addressed to the Company at its address last known
to the Lender. The Company agrees that any such suit, action or proceeding
arising out of or relating to this Agreement or any other such document may
be instituted in the Hennepin County State District Court or in the United
States District Court for the District of Minnesota at the option of the
Lender; and the Company hereby waives any objection to the jurisdiction or
venue of any such court with respect to, or the convenience of any court as
a forum for, any such suit, action or proceeding. Nothing herein shall affect
the right of the Lender to accomplish service of process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against the Company in any other jurisdiction or court.
12.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute but one and the same instrument.
12.12 Entire Agreement. Subject to Section 4.1 of this
Agreement, as of the Effective Date, this Agreement amends, restates and
supercedes the Existing Agreement in its entirety. To the extent this
Agreement refers to the provisions of the Existing Agreement, they are
incorporated into this Agreement by reference, but will not have independent
effect. Any Default or Event of Default under the Existing Agreement that
occurred prior to the Effective Date will remain a Default or Event of
Default under this Agreement. This Agreement, the Note and the other Loan
Documents represent the final agreement among the parties hereto and
thereto with respect to the subject matter hereof and thereof, and may not
be contradicted by evidence of prior or contemporaneous oral agreements among
such parties. There are no oral agreements among the parties with respect to
the subject matter hereof and thereof.
12.13 WAIVER OF JURY TRIAL. THE COMPANY AND THE LENDER
EACH HEREBY (a) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY
ISSUE TRIABLE OF RIGHT BY A JURY, AND (b) FULLY WAIVES ANY RIGHT TO
TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT NOW EXISTS OR HEREAFTER
ARISES. THE LENDER AND THE COMPANY EACH GIVES THIS WAIVER OF RIGHT TO
JURY TRIAL KNOWINGLY AND VOLUNTARILY. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY THE COMPANY AND
THE LENDER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH
INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT OF A JURY TRIAL WOULD
<PAGE> 96
OTHERWISE ACCRUE. THE LENDER AND THE COMPANY ARE EACH HEREBY AUTHORIZED
AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION
OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE
EVIDENCE OF THIS WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, THE
COMPANY AND THE LENDER EACH HEREBY CERTIFIES THAT NO REPRESENTATIVE OR
AGENT OF THE OTHER PARTY, INCLUDING THE OTHER PARTY'S COUNSEL, HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF ITS REPRESENTATIVES OR
AGENTS THAT THE OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
U.S. HOME MORTGAGE CORPORATION,
a Florida corporation
By:
Its:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By:
Its: Director
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On , 1999 before me, a Notary Public, personally appeared
, the of U.S. HOME MORTGAGE CORPORATION, a
Florida corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public
(SEAL) My Commission Expires:
<PAGE> 97
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On , 1999 before me, a Notary Public, personally appeared , the
Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public
(SEAL) My Commission Expires:
<PAGE> 98
EXHIBIT A
PROMISSORY NOTE
$80,000,000 Date: October 1, 1999
FOR VALUE RECEIVED, the undersigned, U.S. HOME MORTGAGE CORPORATION, a
Florida corporation, (herein called the "Company"), hereby promises to pay to
the order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the
"Lender" or, together with its successors and assigns, the "Holder") whose
principal place of business is 8400 Normandale Lake Blvd., Suite 600,
Minneapolis, Minnesota 55437, or at such other place as the Holder may designate
from time to time, the principal sum of $80,000,000) or so much thereof as may
be outstanding from time to time pursuant to the Second Amended and Restated
Warehousing Credit and Security Agreement described below, and to pay interest
on said principal sum or such part thereof as shall remain unpaid from time to
time, from the date of each Advance until repaid in full, and all other fees
and charges due under the Agreement, at the rates and at the times set forth
in the Agreement. All payments hereunder shall be made in lawful money of
the United States and in immediately available funds.
This Note is given to evidence an actual warehouse line of credit in
the above amount and is the Note referred to in that certain Second Amended
and Restated Warehousing Credit and Security Agreement (the "Agreement") dated
the date hereof between the Company and the Lender, as the same may be amended
or supplemented from time to time, and is entitled to the benefits thereof.
Reference is hereby made to the Agreement (which is incorporated herein by
reference as fully and with the same effect as if set forth herein at length)
for a description of the Collateral, a statement of the covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and other matters contained therein. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given them in the
Agreement.
This Note is given in replacement for, and not in satisfaction of,
that certain Fourth Amended and Restated Warehousing Promissory Note dated
March 10, 1998 (the "Existing Note") and is issued by the Company to
evidence its Obligations under the Agreement. All amounts owed by the
Company under the Existing Note (including, without limitation, the unpaid
principal thereunder, interest accrued thereon and fees accrued under the
Agreement, whether or not yet due and owing) as of the date hereof, shall be
owed hereunder.
This Note may be prepaid in whole or in part at any time without
premium or penalty.
Should this Note be placed in the hands of attorneys for collection,
the Company agrees to pay, in addition to principal and interest, fees and
charges due under the Agreement, any and all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
<PAGE> 99
The Company hereby waives demand, notice, protest and presentment.
This Note shall be construed and enforced in accordance with the
laws of the State of Minnesota, without reference to its principles of
conflicts of law.
IN WITNESS WHEREOF, the Company has executed this Note as of the
day and year first above written.
U.S. HOME MORTGAGE CORPORATION,
a Florida corporation
By: /s/ Chester Sadowski
---------------------
Its: Vice President
STATE OF TEXAS )
) ss
COUNTY OF HARRIS)
On October 13, 1999, before me, a Notary Public, personally appeared
Chester P. Sadowski, the Vice President of U.S. HOME MORTGAGE CORPORATION, a
Florida corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Donna Monroe
---------------------------
Notary Public
(SEAL) My Commission Expires: 3/26/03
<PAGE> 100
EXHIBIT A
UCC FINANCING STATEMENT
DEBTOR: U.S. HOME MORTGAGE CORPORATION
SECURED PARTY: RESIDENTIAL FUNDING CORPORATION
All of Debtor's right, title and interest in the following (the
"Collateral"):
(a) All Mortgage Loans, including all Mortgage Notes and Mortgages
evidencing such Mortgage Loans which from time to time are delivered or caused
to be delivered to the Secured Party (including delivery to a third party on
behalf of the Secured Party), come into the possession, custody or control of
the Secured Party for the purpose of assignment or pledge or in respect of
which an Advance has been requested by the Debtor or made by the Secured
Party ("Pledged Mortgages").
(b) All Mortgage-backed Securities which are from time to time
created in whole or in part on the basis of the Pledged Mortgages and are
delivered or caused to be delivered to, or are otherwise in the possession
of the Secured Party, its agent, bailee or custodian as assignee or pledged
to the Secured Party, or for such purpose are registered by book-entry in
the name of, the Secured Party (including delivery to or registration in
the name of a third party on behalf of the Secured Party) or in respect of
which from time to time an Advance has been requested by the Debtor or made
by the Secured Party (the "Pledged Securities").
(c) All private mortgage insurance and all commitments issued by the
FHA, FmHA or VA to insure or guarantee any Mortgage Loans included in the
Pledged Mortgages; all guaranties related to Pledged Securities; all Purchase
Commitments held by the Debtor covering the Pledged Mortgages or the Pledged
Securities and all proceeds resulting from the sale thereof to investors
pursuant thereto; and all personal property, contract rights, servicing and
servicing fees and income or other proceeds, amounts and payments payable to
the Debtor as compensation or reimbursement, accounts, payments, intangibles
and all other general intangibles of whatsoever kind relating to the Pledged
Mortgages, the Pledged Securities, said FHA commitments, FmHA commitments or
VA commitments and the Purchase Commitments, and all other documents or
instruments relating to the Pledged Mortgages and the Pledged Securities,
including, without limitation, any interest of the Debtor in any fire,
casualty or hazard insurance policies and any awards made by any public
body or decreed by any court of competent jurisdiction for a taking or for
degradation of value in any eminent domain proceeding as the same relate
to the Pledged Mortgages.
(d) All right, title and interest of the Debtor in and to all escrow
accounts, documents, instruments, files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards,
accounting records (including all information, records, tapes, data,
programs, discs and cards necessary or helpful in the administration or
servicing of the Collateral) and other information and data of the Debtor
relating to the Collateral.
<PAGE> 101
(e) All right, title and interest of the Debtor in and to any Hedging
Arrangements entered into to protect the Debtor against changes in the value
of Pledged Mortgages or Pledged Securities, including, without limitation,
all rights to payment arising under such Hedging Arrangements.
(f) All now existing or hereafter acquired cash delivered to or
otherwise in the possession of the Secured Party, the Funding Bank, the
Secured Party's agent, bailee or custodian or designated on the books and
records of the Debtor as assigned or pledged to the Secured Party.
(g) All cash and non-cash proceeds of the Collateral, including all
dividends, distributions and other rights in connection with, and all
additions to, modifications of and replacements for, the Collateral, and all
products and proceeds of the Collateral, together with whatever is receivable
or received when the Collateral or proceeds thereof are sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary
or involuntary, including, without limitation, all rights to payment with
respect to any cause of action affecting or relating to the Collateral or
proceeds thereof.
(h) All right, title and interest of the Debtor in and to all
building loan agreements, construction contracts, plans and specifications,
building permits, governmental approvals and licenses, lender's policies
of title insurance, "all risk" builder's insurance or workers' compensation
insurance as the same relate to the Pledged Mortgages.
Capitalized terms defined herein shall have the following meanings:
"Advance" means a disbursement by the Secured Party to the Debtor,
including readvances of funds previously advanced to the Debtor and repaid to
the Secured Party.
"Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
"Agency Security" means a Mortgage-backed Security issued or
guarantied by Fannie Mae, Freddie Mac or Ginnie Mae.
"Fannie Mae" means Fannie Mae, a corporation created under the laws
of the United States, and any successor thereto.
"FHA" means the Federal Housing Administration, and any successor
thereto.
"FmHA" means the Farmers Home Administration, and any successor
thereto.
"Freddie Mac" means the Freddie Mac, a corporation created under
the laws of the United States, and any successor thereto.
<PAGE> 102
"Funding Bank" means any bank Secured Party designates as a funding
bank.
"Ginnie Mae" means Ginnie Mae, a corporation created under the laws
of the United States, and any successor thereto.
"Mortgage" means a mortgage or deed of trust on improved real
property.
"Mortgage-backed Securities" means Ginnie Mae, Fannie Mae or
Freddie Mac securities that are backed by Mortgage Loans.
"Mortgage Loan" means any loan evidenced by a Mortgage Note.
"Mortgage Note" means a note secured by a Mortgage.
"Parent" shall mean U.S. Home Corporation.
"Purchase Commitment" means a written commitment issued in favor of
the Debtor by an investor pursuant to which that investor commits to
purchase Mortgage Loans or Mortgage-backed Securities.
"VA" means the U.S. Department of Veterans Affairs and any successor
thereto.
THIS DOCUMENT WAS DRAFTED BY:
Residential Funding Corporation
8400 Normandale Lake Boulevard
Minneapolis, Minnesota 55437
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Consolidated Condensed Financial Statements As Of September 30, 1999 And
For The Nine Months Then Ended And Is Qualified In Its Entirety by
Reference To Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,169
<SECURITIES> 0
<RECEIVABLES> 140,962
<ALLOWANCES> 0
<INVENTORY> 1,219,442
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,612,633
<CURRENT-LIABILITIES> 0
<BONDS> 533,333
0
0
<COMMON> 137
<OTHER-SE> 559,646
<TOTAL-LIABILITY-AND-EQUITY> 1,612,633
<SALES> 0
<TOTAL-REVENUES> 1,334,013
<CGS> 1,063,316
<TOTAL-COSTS> 1,216,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,992
<INCOME-PRETAX> 82,546
<INCOME-TAX> 30,954
<INCOME-CONTINUING> 51,592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,592
<EPS-BASIC> 3.86
<EPS-DILUTED> 3.76
</TABLE>
