<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1999
FILE NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
(Exact name of issuer as specified in its charter)
WASHINGTON
(State or other jurisdiction of incorporation or organization)
923 POWELL AVENUE SW
RENTON, WASHINGTON 98057
(425) 271-3550
(Address and telephone number of registrant's principal executives offices)
GREGORY B. ELDERKIN, VICE-PRESIDENT
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
923 POWELL AVENUE SW
RENTON, WASHINGTON 98057
(425) 271-3550
(Name, address, and telephone number of agent for service)
--------------------------
COPY TO:
JACK G. ORR, ESQ.
LAW OFFICES OF JACK G. ORR
3019 NORTH NARROWS PLACE
TACOMA, WASHINGTON 98407
(253) 756-9795
<TABLE>
<S> <C>
6162
(Primary Standard 91-1916172
industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE:
<TABLE>
<CAPTION>
PROPOSED MAXIMUM CALCULATION OF
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Investment Debentures Series I............. $25,000,000 $1 $25,000,000 $6,950
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
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<PAGE>
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
$25,000,000 INVESTMENT DEBENTURES, SERIES I
SFG Mortgage and Investment Company, Inc. (the "Company") is offering
Investment Debentures, Series I on the terms set forth in this Prospectus. The
Debentures are unsecured debt instruments, senior in liquidation to outstanding
equity securities of the Company, subordinate to collateralized debt of the
Company, if any (the amount of which is limited pursuant to the terms of a Trust
Indenture Agreement): on parity with unsecured accounts payable and accrued
liabilities of the Company (Except for certain payments due an affiliate of the
Company for management services and as an overhead allowance, which amounts are
subordinated to the payment of all amounts due under the Debentures during the
current period) and on parity with all other Debentures issued in this Offering
and possibly in subsequent offerings of Debentures by the Company. At September
30, 1998, the Company did not have any debt that will be senior to or in parity
with the Series I Debentures issued in this Offering.
A holder of the Investment Debentures, Series I of the Company may elect to
receive payment of interest due under the Debenture quarterly, without
compounding; or at the election of the Debenture holder, if interest is left
with the Company it will compound quarterly until maturity, with the entire
amount of principal and accrued interest due at the maturity date of the
Debenture or upon early redemption by a Debenture holder or prepayment by the
Company.
The Company reserves the right to change prospectively, by way of a
supplement to this Prospectus, the interest rates, maturity, and minimum
investment amounts on unsold Debentures. The current provisions are set forth
below. See "DESCRIPTION OF DEBENTURES."
<TABLE>
<CAPTION>
ANNUAL INTEREST
AMOUNT OF INVESTMENT TERM TO MATURITY RATE
- -------------------- ---------------- -------------------
<S> <C> <C>
$2,000-$9,999 60 Months 7.0%
$10,000-$24,999 60 Months 8.0%
$25,000-$99,999 60 Months 8.35%
$100,000-$249,999 60 Months 8.65%
$250,000-$999,999 60 Months 9.0%
$1,000,000+ 60 Months Negotiable
</TABLE>
There is no trading market for the Debentures and none is expected to be
established in the future. See "RISK FACTORS." This offering of Debentures is
subject to withdrawal or cancellation by the Company without notice.
------------------------
FOR A DISCUSSION OF MATERIAL RISKS ASSOCIATED WITH THE DEBENTURES OFFERED
HEREBY, SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY PRICING
SUPPLEMENT THERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO ISSUER
PRICE TO PUBLIC AND COMMISSIONS(1) OR OTHER PERSONS(2)
<S> <C> <C> <C>
Per Debenture.......................... 100% 0% 100%
Total.................................. $25,000,000 None $25,000,000
</TABLE>
1.1 No securities sales commissions will be paid from the offering proceeds
received from sale of the Notes. The Principal Distributor will receive, on
an annual basis from the Company's gross operating income, the following:
(i) an amount equal to one-quarter percent (0.25%) of the principal amount
of the outstanding Debentures for its services as the Principal Distributor
and (ii) an amount equal to one and one quarter percent (1.25%) of the
principal amount of outstanding Debentures as a securities sales commission,
some or all of which may be reallowed to the Selected Dealers participating
in the offer and sale of the Debentures.
1.2 Organizational and offering expenses (other than sales commissions),
estimated at $60,000, will be paid by Capital Management Group, Inc., an
affiliate of the Company. See "Plan of Distribution" and "Use of Proceeds."
The Debentures are being offered for sale on a continuous, best efforts
basis. There is no minimum number of securities that must be sold. The offering
is subject to NASD Rule 2720. See "PLAN OF DISTRIBUTION." No offering will be
made pursuant to this Prospectus subsequent to , 1999.
PACIFIC WEST SECURITIES, INC.
The date of this Prospectus is , 1998.
<PAGE>
INSIDE FRONT COVER OF PROSPECTUS
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
AND ANY PRICING SUPPLEMENT. NEITHER THE DELIVERY OF THIS PROSPECTUS AND ANY
PRICING SUPPLEMENT NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION THEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE THEREOF. THIS PROSPECTUS AND ANY PRICING SUPPLEMENT SHALL
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
DEBENTURES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
2
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DEALER PROSPECTUS DELIVERY OBLIGATION
Until (insert date) all dealers effecting transactions in the Debentures,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. (the "Commission"), a Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the Debentures offered
hereby. Prior to the effective date of the Registration Statement the Company
was not subject to the information requirements of the Securities Exchange Ac t
of 1934, as amended, (the "Exchange Act"). At the time of the effectiveness of
the Registration Statement the Company became a "reporting company" and is
required to file reports pursuant to the provisions of the Exchange Act. This
Prospectus does not contain all of the information set forth in the Registration
Statement, as permitted by the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and exhibits thereto for
further information with respect to the Company and the Debentures to which this
Prospectus relates. Copies of the Registration Statement and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission in Washington, D.C. at
450 Fifth Street, N.W., Washington, DC 20549 and at certain of its regional
offices which are located in the New York Regional Office, Seven World Trade
Center, Suite 1300, New York, NY 10048, and the Chicago Regional Office,
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. In
addition, the Commission maintains a World Wide Web site that contains reports,
proxy statements and other information regarding registrants such as the Issuer,
that filed electronically with the Commission at the following Internet address:
(http:www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including persons to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any and all of the information that has been referenced in this
Prospectus other than exhibits to such documents. Requests for such copies
should be directed to Corporate Secretary, SFG Mortgage and Investment Company,
Inc., PO Box 860, Renton, WA 98057, telephone number (425) 271-3550.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Delivery Requirements........................................................................... 3
Available Information...................................................................................... 3
Prospectus Summary......................................................................................... 5
Risk Factors............................................................................................... 11
Use of Proceeds............................................................................................ 15
Business................................................................................................... 16
Deed of Trust and Mortgage Financing in General............................................................ 22
Management................................................................................................. 27
Principal Shareholders..................................................................................... 29
Schedule of Managed Funds.................................................................................. 29
Capitalization............................................................................................. 31
Plan of Distribution....................................................................................... 31
Description of Debentures.................................................................................. 31
Debenture Holder's Prepayment Rights....................................................................... 34
Reinvestment of Interest Payments.......................................................................... 34
Indemnification............................................................................................ 34
Legal Matters.............................................................................................. 35
Experts.................................................................................................... 35
</TABLE>
4
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE
READ IN CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. THIS OFFERING INVOLVES CERTAIN CONSIDERATIONS TO PROSPECTIVE
INVESTORS WHICH ARE SET FORTH IN "DESCRIPTION OF DEBENTURES" & "RISK FACTORS."
THE SFG GROUP OF COMPANIES
The Company was established and incorporated in the State of Washington in
September 1998. Its principal executive offices are located at 923 Powell Avenue
SW, Renton, WA 98057. Its mailing address is P.O. Box 860, Renton, WA 98057, and
its telephone number is (425)271-3550. The Company has several affiliates, some
of which will provide services to and receive compensation from the Company.
Seattle Funding Group, Ltd., ("SFG Ltd."), provides real estate Receivable
origination services to the Company and the Affiliated Group. SFG Data Services,
Inc. ("SFG Data"), another affiliate of the Company, services the real estate
Receivables for the Company and the Affiliated Group. The Company has entered
into a Management Agreement with Capital Management Group, Inc., a Washington
corporation ("CMGI"), under which CMGI provides a variety of management services
to the Company, including administrative services, maintaining shareholder
transfer records, maintaining the financial books and records of the Company,
preparing reports to the Shareholders, and assisting the Company's accountants
in the preparation of financial reports and tax returns. CMGI is the general
partner of two Washington limited partnerships and the supervisory managing
agent of two Washington limited liability companies, all of which were organized
to provide to service the need for non conventional mortgage financing. These
affiliates of the Company have raised in excess of $28,000,000 in capital
through the sale of limited partnership interests and through the issuance of
redeemable secured promissory notes. CMGI is also the Managing Member of SFG
Equity Fund, L.L.C., a limited liability company which engages in mortgage
lending and real estate investment and has raised over $1,950,000 in equity.
Where reference herein is intended to include the Company and its affiliates,
they are jointly referred to as the "Affiliated Group." Where reference herein
is intended to refer to SFG Mortgage and Investment Company, Inc., it is
referred to individually as "the Company."
The Company was formed to engage in the business of making direct, non
conventional equity loans and to invest in real estate and promissory notes
secured by real estate. The proceeds from sale of the Debentures will be used by
the Company to establish a fund from which loans, secured by real property, will
be made to borrowers that meet the Company's lending guidelines and to acquire
real estate and secured notes for investment. The borrowers will generally be
persons or businesses that have been unable to secure loans in a timely manner
from conventional lending institutions due to the increased restrictions and
constraints imposed on borrowers by such institutions. Such borrowers are
expected to be willing to pay interest rates in excess of conventional mortgage
interest rates for a variety of reasons, including: a desire on the part of the
borrower to secure a loan quickly; because the property being used to
collateralize the loan does not fall within the guidelines conventional mortgage
lenders require, or because the borrower is a "non-conforming" borrowing entity
such as a corporation, trust, estate and partnership. The loans will have
shorter terms, generally five to ten years, than conventional mortgage loans.
All loans made by the Company will be secured by deeds of trust or mortgages on
real property with a total loan to value ratios that will generally not exceed
65% of the total value of the subject property and in no event will exceed 75%
of the total value of the subject property. The Company's real estate investment
activities are expected to concentrate on properties acquired from sellers who
are facing foreclosure and/or properties which, in management's opinion, are
being offered below the market. The Company expects to acquire properties and
hold them for both long-term investment and short term investment and resale.
The Company's objective is to obtain income and/or capital appreciation
through its lending and investing activities. The Company intends to do this
primarily through medium- and long-term, and in some cases short-term,
investments associated with real estate, including its mortgage lending
activities. The Company's objective is to make or acquire mortgage loans and to
identify and invest in real properties
5
<PAGE>
that provide the opportunity for the Company to preserve and protect its capital
investment and provide the Company with a return on that investment commensurate
with the risk involved.
In order to enhance the Company's ability to take advantage of opportunities
to invest in Receivables and/or real estate, the Company may from time to time
leverage its assets under limited conditions. The Trust Indenture under which
the Debentures will be issued permits the Company to borrow funds and use the
Company's assets as security for such borrowings. The amount of borrowings may
not exceed thirty-five percent (35%) of the total principal amount due under the
issued and outstanding Debentures at the time such borrowings are secured. The
Company expects that such borrowings would be used to enhance the operations of
the Company and its expected return on investment, primarily in two methods. The
Company believes that an operating line of credit can be used to fund the
acquisition of Receivables and/or real property acquisitions or development
pending the receipt by the Company of term financing or additional capital
investment. The Company also believes that by borrowing funds under a term
lending arrangement, generally expected to be secured by its real estate assets,
it can leverage the equity it has in those assets to acquire other assets which
are expected to provide a return to the Company in excess of the cost of the
borrowed funds. In order to secure these borrowings the Company may agree to
pledge some or all of its assets and/or subordinate payment of the Debentures to
payments due to the lenders. The Trustee is required to take all actions
reasonably necessary to assist the Company in securing such borrowings within
the guidelines established in the Trust Indenture, including executing
collateral assignment agreements and subordination agreements as may be required
by a lender.
The Affiliated Group is engaged, primarily in the Pacific Northwest, in the
business of acquiring, holding, selling, originating and servicing receivables
(hereinafter "Receivables"). These Receivables include real estate contracts and
promissory notes collateralized by first position liens on residential,
commercial and undeveloped or partially developed real estate. On a limited
basis, the Affiliated Group also invests in Receivables consisting of real
estate contracts and promissory notes collateralized by junior position liens.
The Receivables collateralized by real estate are typically non conventional in
that they were originated by lenders who specialize in making loans to persons
who, for a variety of reasons, are unable to obtain financing from conventional
lenders in a timely manner or who are "non-conforming" borrowing entities such
as corporations, trusts, estates and partnerships.
The Company has no employees and is not expected to have employees for the
foreseeable future. At November 30, 1998, the Affiliated Group had 15 full-time
equivalent employees. No personnel are represented by any labor organization and
the Affiliated Group considers relations with its employees to be satisfactory.
The Company's principal offices are located in a commercial building near
downtown Renton, Washington at which the Company and the Affiliated Group shares
space with Capital Management Group, Inc.
DEFINITION OF TERMS
For ease of reading, the following is a compilation of several of the
defined terms which appear regularly within this document.
AFFILIATED GROUP: This term refers to the combined businesses consisting of
the Company and all of its affiliates including CMGI, SFG, SFG Data and the SFG
Funds.
CAPITAL MANAGEMENT GROUP, INC. OR CMGI: Capital Management Group, Inc., an
affiliate of the Company, which will provide management and administrative
services to the Company.
COMPANY: This term refers to the issuer of the Debentures, SFG Mortgage and
Investment Company, Inc., exclusive of its affiliates.
6
<PAGE>
DEBENTURES: When this term is capitalized, it refers to the Investment
Debentures being offered herein. When this term is not capitalized, it refers to
debentures generally.
RECEIVABLES: Investments in cash flows, consisting of obligations
collateralized by real estate and other investments.
SFG OR SEATTLE FUNDING GROUP: Seattle Funding Group, Ltd., an affiliate of
the Company.
SFG DATA: SFG Data Services, Inc., an affiliate of the Company.
SFG FUNDS: SFG Income Limited Partnership (hereinafter SFG Fund I), SFG
Funds II, III, and IV and SFG Equity Fund, affiliates of the Company.
THE OFFERING
<TABLE>
<S> <C>
OFFERING.......................... This Debenture offering consists of $25,000,000 in
principal of Investment Debentures, Series I, issued at
minimum investment amounts, terms, and rates set forth
on the cover page of this Prospectus. There is no
minimum amount of Debentures which must be sold.
Debentures are issued in book entry form. See
"DESCRIPTION OF DEBENTURES."
DEBENTURES........................ The Debentures are unsecured indebtedness of The
Company. Each of the Debentures will have a 5-year term
and provided, that the term of the Debenture may be
renewed for another five-year term by the Company upon
written notice to the Debenture holder, unless the
Debenture holder, after receiving such written provides
written notice to the Company of their intention not to
renew such Debenture. See, "AUTOMATIC RENEWAL OF
DEBENTURES," below. Prior to the commencement of this
offering the Company did not have any debentures or
other similar debt obligations issued and outstanding.
Prior to the initiation of this offering, the Company
did not have any issued or outstanding debenture debt.
Prior to this offering the Company had no outstanding
debentures or other debt. The Affiliated Companies had
no outstanding debenture debt and $18,237,732.72
(principal and accrued interest) of outstanding debt in
the form of secured promissory notes as of September 30,
1998. See "CAPITALIZATION."
USE OF PROCEEDS................... The proceeds of this Debenture offering will provide
funds (in descending order of priority) for Receivable
investments, (which will include providing a pool of
funds from which the Company will make or purchase non
conventional mortgage loans, including loans from
affiliates), real estate acquisition and/or development,
and for general corporate purposes. See "USE OF
PROCEEDS."
PRINCIPAL AND INTEREST PAYMENTS... The Debentures will bear interest at the stated rate,
which interest will be calculated on a 365-day year, and
will be payable quarterly without compounding. The
principal amount due under the Debentures, together with
any accrued but unpaid interest, will be due and payable
in full at the end of the term of each of the
Debentures. Debenture holders have the option of
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
electing to purchase their Debenture with a reinvestment
option whereby the Company will retain all or fifty
percent of the interest payable under terms of the
Debenture and credit the principal amount due the holder
with the amount of such retained interest, thus
compounding the interest due on a quarterly basis. The
minimum investment amounts, terms and interest rates on
unissued Debentures offered hereby may be changed from
time to time by the Company, by way of a supplement to
this Prospectus. Any such change shall not affect the
rate of interest of any Debentures issued prior to the
change. See "DESCRIPTION OF DEBENTURES--Payment of
Principal and Interest. "
EARLY REDEMPTION OF DEBENTURES.... Each of the Debentures is subject to a limited right of
prepayment at the Debenture holder's option beginning on
the first anniversary of the date a Debenture was
issued. The Company will be obligated to redeem any
Debenture upon ninety (90) days written notice to the
Company from the Debenture holder following the first
anniversary. The redemption amount shall be equal to the
principal amount due under the Debenture, together with
all accrued and unpaid interest. Provided, that the
Company may from time to time, charge a redemption
processing fee which in no event will exceed the lesser
of $500.00 or 3% of the principal amount redeemed per
Debenture. Initially, the Company does not intend to
charge such fees. The Company may elect to limit, in its
discretion the amount of Debentures redeemed to a
maximum of twelve and one-half percent (12.5%) of the
then outstanding total principal balance of Debentures
in any ninety (90) day period, if in the Company's
opinion, the redemption of Debentures during that period
of time would compromise the Company's ability to pay
its obligations (including principal and interest
payments on the remaining debentures in the ordinary
course of business). At the end of the term of any such
suspension period, redemptions will be processed and
paid in the order first received in proper form by the
Company.
CALL OF DEBENTURES BY COMPANY..... The Debentures are callable at the Company's option
beginning on the first anniversary on the date each
Debenture was issued. On or after such dates the
Debenture will be subject to prepayment at the option of
the Company, in whole or in part, at the prices set
forth below, plus accrued and unpaid interest thereon,
if any, to the date of prepayment:
</TABLE>
<TABLE>
<S> <C>
Between First and Second 100.50% of
Anniversary...................... Principal
Between Second and Third 100.25% of
Anniversary...................... Principal
100.00% of
Thereafter......................... Principal
</TABLE>
<TABLE>
<S> <C>
AUTOMATIC RENEWAL OF DEBENTURES... The Company may elect to renew some or all of the
</TABLE>
8
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<TABLE>
<S> <C>
Debentures at their respective maturity dates by
providing written notice to holders of the Debenture
holders no less than six (6) months prior to the
maturity date. Any holder of a Debenture desiring
payment instead of renewal must, within sixty (60) days
after receiving notice of the Company's intention to
renew the Debenture, decline renewal by written notice
to the Company. If renewal is declined then the Company
will be obligated to pay all principal and interest
under the Debenture as such amounts become due.
</TABLE>
9
<PAGE>
SUMMARY FINANCIAL DATA
The financial data shown below as of November 9, 1998 have been derived
from, and should be read in conjunction with, the Company's financial statements
and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 9, 1998
----------------
<S> <C>
STATEMENTS OF INCOME DATA:
Revenues...................................................................................... $ 0
Expenses...................................................................................... 0
Gross Profit.................................................................................. 0
Operating Income (loss)....................................................................... 0
Net Income (loss)............................................................................. 0
PER COMMON SHARE DATA(2):
Net Income (loss) per share................................................................... $ 0
Weighted average number of shares outstanding(2).............................................. 40,000
BALANCE SHEET DATA:
Working capital............................................................................... $ 40,000
Total assets.................................................................................. 40,000
Total Liabilities............................................................................. 0
Shareholders equity........................................................................... 40,000
</TABLE>
- ------------------------
(1) The Company was recently formed and has not engaged in any operations, other
than organizing and qualifying this Debenture offering. It has not generated
any revenues and all expenses incurred in connection with the organization
and qualification of the offering have been paid by CMGI, an affiliate of
the Company, pursuant to the Management Agreement between the Company and
CMGI.
(2) The Company issued 40,000 shares of its common stock at a price of $1.00 per
share shortly after it was incorporated.
10
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RISK FACTORS
Investment in the Debentures offered hereby involves a certain degree of
risk. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Affiliated Group and this
offering before making an investment decision. This Prospectus contains
forward-looking statements which involve risks and uncertainties. Actual events
or results may differ as a result of various factors, including without
limitation, the risk factors set forth below and the matters set forth in the
Prospectus generally.
1. GENERAL RISKS ASSOCIATED WITH LENDING ACTIVITIES.: The Company's
lending activities will be subject to certain risks generally incident to
mortgage lending activities. Such risks include fluctuating interest rates and
property values, unfavorable economic conditions, and changes in government
rules and regulations, as well as the availability of funds from other lenders
at more favorable terms than offered by the Company. While the Company believes
that its non-conventional lending activities will generally not be impacted by
any such adverse circumstances or conditions as much as more conventional
mortgage lenders, their continued existence for a period of time could adversely
affect the Company's lending activities.
2. RISKS ASSOCIATED WITH NON-CONVENTIONAL LENDING ACTIVITIES:. The Company
will be making loans to borrowers who, for a variety of reasons, have elected to
borrow funds at terms less favorable than are available from conventional
lending institutions. Such borrowers are generally expected to be considered
higher risks for default. While the Company will seek to qualify such borrowers
and will require real property to collateralize its loans, it is possible that
the Company could experience a higher than average default rate on its loans. In
such event the Company will incur additional costs, including legal expenses, to
collect such loans and in some instances may have to foreclose on the collateral
in order to effect payment of a defaulted loan. Such activities could reduce the
overall profitability of the Company, and in some instances could reduce the
Company's capital base. Recently there have been several "sub-prime lenders"
that have experienced financial difficulties, including the filing of bankruptcy
petitions. While this is further indication that the lending and investment
activities in which the Company will engage are higher risk than conventional
lending, the Company believes that it has structured it operations in a manner
which reduces the overall risk to investors. Among the operational factors which
it believes will reduce such risks are that (i) the loan origination activities
will be conducted by an affiliate of the Company and not by the Company itself,
meaning that the Company will not bear the costs and overhead associated with
such business activities, (ii) the Company will use apply loan-to-value ratios
to its loans that are generally lower than those used by most "sub-prime"
lenders, and (iii) the Company will acquire and hold its loans for investment
and will not be dependant upon resale of loans to generate revenues to fund the
Company's operations, including the repayment of Debentures.
3. LACK OF DIVERSIFICATION: All of the assets of the Company will be
committed to the Company's lending and Receivables and real estate investing
activities. The Company will not be engaged in any other activity. Accordingly,
since the Company will not have any other operations nor investments which would
spread the risk of its lending activities, repayment of the principal and
interest due under the Debentures will be dependent, among other things, upon
the success of the Company in identifying qualified borrowers and obtaining
adequate collateral to secure the loans made by the Company and in selecting,
maintaining and successfully selling its real estate investments at a profit.
4. VALUATIONS OF COLLATERAL CANNOT BE ASSURED. Although the Company will
seek to verify through the services of an independent appraiser or other real
estate professional that the property collateralizing its loans will have a
market value equal to or in excess of the loan principal in the event of a
default, the Company generally does not obtain a formal MAI appraisal. There can
be no assurance that the properties will have such value or that even if they do
when a loan or loans are made, that in the event of default the Company will be
able to realize such value upon a liquidation of the collateral to satisfy the
loan obligation. In such event, the Company could incur a loss of capital if a
borrower defaults and the
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Company is unable to liquidate the property for an amount equal to or in excess
of the borrower's obligation to the Company.
5. JUNIOR POSITION MORTGAGES AND DEEDS OF TRUST AND LOANS SECURED BY
UNDEVELOPED PROPERTY: The Company expects that from time to time it will make
loans which will not be secured by a first position deed of trust or mortgage,
but rather a deed of trust or mortgage which is in a junior position behind
another lien(s), including deeds of trust or mortgages. The Company also expects
that from time to time it will make loans which will be secured by property
which has not been developed at all or is only partially developed. Each of
these types of loans will present a higher risk to the Company. In the case of a
loan secured by a junior position mortgage or deed of trust, if the borrower
defaults in payment of an obligation which is in a superior position to that of
the Company, the Company may need to take steps to protect its security interest
in the property. Such steps could include curing the default of the obligation
that is in the superior position and/or paying such obligation if full in order
to keep the Company's interest in the property from being foreclosed upon. In
the case of undeveloped property, the Company may incur additional expenses to
retain its collateral interest in the property, such as the payment of real
estate taxes, LID assessments or other liens. These circumstances could also
reduce the overall return the Company experiences from its portfolio of loans.
The Company will seek to minimize these risks by having no more than twenty
percent (20%) of its loan portfolio in junior position loans and no more than
twenty percent (20%) of its loan portfolio secured by undeveloped property at
any point in time. Further, no loan which is to be secured by a junior position
deed of trust or mortgage or by undeveloped or partially developed property may
have a loan to value ratio, including the Company's loan, which exceeds 65%.
6. RISKS OF REAL ESTATE INVESTMENT: Certain of the investments of the
Company are expected to involve real estate. The Company will be subject to the
risks inherent in the ownership of real estate, including fluctuations in
property values, occupancy rates and operating expenses and variations in rental
schedules. These factors in turn may be adversely affected by general and local
economic conditions, by the supply of and demand for various types of real
estate projects, by zoning laws, by changes in federal income tax laws, by
reduced employment in areas of Company investments, by competing properties, and
by real property tax rates. Certain expenditures associated with real estate
equity investments (principally mortgage payments, real estate taxes and
maintenance costs) are not necessarily decreased by events adversely affecting
the Company ' s income from such investments. Thus, the cost of operating a
property may exceed the income earned thereon, and the Company may have to
advance funds in order to protect its interest. Because the Company's ability to
achieve profits will depend in part on factors beyond the Company's control, no
assurances of profitable operation can be made.
6. LEVERAGE: The Company may leverage some or all of the real estate in
which it invests using recourse or nonrecourse debt. In order to reduce the
risks associated with the use of leverage, under the Trust Indenture the Company
the total amount of the Company's borrowings may not exceed thirty five percent
(35%) of the principal amount due under the issued and outstanding Debentures at
any time. Even with such limitation, while the use of leverage can result in an
increase in returns on the Company's investments, if the Company were to default
in payment of such debt, it could result in a loss of the Company's equity in
some or all of the assets. In order to secure a loan or loans, the Company may
be required by a lender to pledge some or all of its assets as collateral.
Further, in the event of a default, a lender could elect, in lieu of foreclosure
on assets securing the loan, to pursue other remedies such as obtaining a
judgment against the Company after which the lender could then pursue other
assets of the Company in order to collect the amounts due. In addition, under
the terms of the Trust Indenture, the Company and the Trustee may agree to
subordinate payments due under the Debentures to the payments to one or more of
the lenders. Thus, in order to meet its obligations to a lender, the Company may
have to delay or discontinue payment to the Debenture holders, resulting in a
default in payment of some or all amounts due under the Debentures. Moreover,
should revenues be insufficient to service debt and pay taxes and other
operating costs, the Company will be required to utilize working capital, seek
additional
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funds, or suffer a foreclosure of the property collateralizing a loan or loans.
There can be no assurance that additional funds will be available, if needed,
or, if available, will be on terms acceptable to the Company.
7. UNINSURED RISKS: The Company intends to require adequate insurance
coverage for the properties in which it invests or it holds as collateral for
its loans. However, as with most if not all personal and business activities,
there may be circumstances that give rise to legal claims not covered or only
partially covered by insurance. A loss or judgment against a borrower, any
property held by the Company or possibly the Company itself not fully covered by
insurance would subject the Company to possible loss of the property or the
collateral for a loan and resultant adverse effects to investors in the Company.
8. INTEREST RATE FLUCTUATIONS: Changes in interest rates can have a
variety of effects on the Company's business. While the non-conventional
mortgage lending that the Company will be engaged in will generally be less
sensitive to interest rate fluctuations, changes in interest rates may impact
the volume of mortgage loan originations, the net interest income on mortgage
loans held for sale, the amount of gain or loss on the sale of mortgage loans,
and the level of competition in the marketplace. During periods of declining
interest rates the Company may experience a decline in mortgage loan
originations because its interest rates will generally not be reduced and the
difference between the interest rates for conventional mortgages and the rates
charged by the Company will increase. An increase or stabilization of interest
rates for an extended period of time may cause an increase in loan originations
as the difference between the conventional mortgage interest rate and the
Company's interest rates decreases. The potentially adverse impact from a
decline in interest rates whereby the Company is unable to continue to place all
of its mortgage pool or reduce its interest rates may cause the Company to begin
redeeming the Debentures and ultimately could affect its ability to meet its
interest payment obligation under the Debentures.
9. HIGH COST MORTGAGE RULES: Effective October 1, 1995 the Department of
Housing and Urban Development adopted regulations regarding so called "high
cost" or "high rate" mortgages. These are mortgages which have higher interest
rates and/or higher loan fees than conventional mortgage loans. Some of the
loans which the Company will place will be subject to these regulations which
require certain additional disclosures to be made, a three day waiting period
after the disclosure is made and places certain limits on the terms of the
loans, including a minimum five year term and no prepayment penalties. Seattle
Funding Group, the originator of the Company's loans has instituted procedures
to meet, and has represented to the Company that it does meet, the requirements
and limitations imposed by these regulations. However, if it fails in this
regard, the Company may be liable to a borrower for certain damages. In such
event, the Company could experience a partial or complete loss of principal for
any loan which was not originated in compliance with these regulations.
10. RELIANCE ON MANAGEMENT AND THIRD PARTIES/ABSENCE OF OPERATING
HISTORY: All decisions with respect to the management of the Company will be
made by the Managers and Capital Management Group, Inc. ("CMGI"), an affiliate
of the Company. While managements of the Company and CMGI each have substantial
experience in non-conventional lending and/or real estate, the Company itself
has no operating history upon which investors may evaluate the Company's likely
performance. (See "MANAGEMENT.")
11. FEES PAYABLE TO AFFILIATE'S OF THE COMPANY REGARDLESS OF
PROFITABILITY: The Company will be obligated to pay to affiliates of the
Company certain fees for services that will be payable regardless of the
Company's profitability. The compensation to be paid to the Company's
affiliate's which is set forth under were not determined by arms-length
negotiations.
12. TRANSACTIONS WITH MANAGEMENT AND CONFLICTS OF INTEREST: The Managers
of the Company, directly or indirectly, are now and may again in the future
participate as a general or limited partners of other Companies that will engage
in lending activities. In addition, the Managers may be financially interested
in (as general partners, shareholders or otherwise) and devote substantial time
to, other businesses and activities that may compete with the Company.
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13. DEPENDENCE UPON LEVERAGE FINANCING: The Company's principal sources of
cash flow are expected to include the sale and securitization of Receivables,
collateralized borrowing, Receivable payments, the sale of debenture, and the
sale of real estate. To the extent the Company's cash flow is insufficient or
unavailable for the repayment of debentures which mature during the offering,
portions of the net proceeds of this Debenture offering may be used for such
purpose. At the commencement of this offering there are not Debentures that will
mature during the present fiscal year. The Company's ability to repay its other
outstanding obligations, including those created by the sale of the securities
described herein, may be contingent upon the success of future public offerings
of debentures and/or other securities. The amount of debentures and preferred
stock that may be issued and outstanding may be limited by the State of
Washington, pursuant to the Debenture Company Act. Also See "RISK
FACTORS--Government Regulations."
14. TERM INVESTMENT; ABSENCE OF A TRADING MARKET, LACK OF LIQUIDITY: The
Debentures offered hereby will be issued for specified terms and should not be
considered liquid investments. See "DESCRIPTION OF DEBENTURES." Investors should
be prepared to hold the Debentures until maturity. The Debentures are not traded
on any stock exchange and there is no independent public market for the
Debentures. At present, management does not anticipate applying for a listing
for such public trading.
15. LACK OF INDENTURE RESTRICTIONS AND ABILITY TO INCUR ADDITIONAL
INDEBTEDNESS: The Debentures are issued pursuant to an Indenture which, while
it does not restrict the Company's ability or to incur certain debt, does
restrict the Company's ability to issue additional Debentures, nor does it
require the Company to maintain any specified financial ratios, minimum net
worth or minimum working capital. Debenture holders should not rely on the terms
of the Indenture for protection of their investments, but should look rather to
the creditworthiness of the Company and its ability to satisfy its obligations.
Debentures will not be guaranteed or insured by any governmental agency. There
is no sinking fund for the retirement of Debentures. The Debentures are senior
in liquidation to all outstanding equity securities of The Company. Debentures
are subordinate in liquidation only to The Company's collateralized debt and are
on parity with all other outstanding debentures, unsecured accounts payable
(except for certain payments to CMGI) and unsecured accrued liabilities. In the
event of liquidation of the Affiliated Group, the policyholders and creditors of
The Company's subsidiaries would be paid prior to Debenture holders to the
extent of the net assets of the subsidiaries.
16. RISKS RELATED TO ENVIRONMENTAL CONDITIONS AND REGULATIONS: In the
course of its business, the Affiliated Group acquires properties, generally
through foreclosure. Various state and federal laws and regulations impose
liability upon the owner and previous owner of property on account of hazardous
waste or substances released onto or disposed of on property. As a result, the
owner or former owner may be liable to the government or a third party for the
clean up costs. The costs of investigation, remediation and removal can be
substantial. While the Affiliated Group endeavors to avoid the acquisition of
Receivables or properties which may be contaminated, there can be no assurance
that significant losses could not be incurred due to environmental
contamination.
17. CONFLICTS OF INTEREST: The Company and various of its affiliates
engage in similar business activities which include investing in Receivables and
other related activities. As a result, certain conflicts of interest may arise
between or among these companies. A common management group directs the
activities of all of the companies in the Affiliated Group. Capital Management
Group, Inc. provides general management and Receivable acquisition services to
the Company. Seattle Funding Group, Ltd. and SFG Data Services, Inc., provide
loan origination and receivable servicing and collection services respectively
to the Company. As a result of these affiliated relationships, certain conflicts
of interest may now exist and may arise between or among the Company and the
Affiliated Group. Investors in the Company's securities must rely on the
integrity and corporate responsibilities of the Company, its management and the
management of its affiliates in making business decisions and directing the
operations of the Company and its subsidiaries.
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18. GOVERNMENT REGULATIONS: The Affiliated Group's business activities are
subject to extensive regulation, including regulation of its Receivable
origination, acquisition and servicing activities. The Company's sale of
debentures is regulated by the State of Washington pursuant to the Debenture
Company Act. Management is unable to predict with any degree of certainty
whether the state of Washington will impose additional restrictions during this
offering or future securities offerings under the Debenture Company Act, or
whether any such restrictions would impact the financial condition, including
the liquidity, of the Company.
USE OF PROCEEDS
DEBENTURE PROCEEDS: If all the Debentures offered are sold, the Company
expects net proceeds from this Debenture offering of $25,000,000. There can be
no assurance, however, that any of the Debentures can be sold. Sales commissions
will not be paid from the offering proceeds or by the purchasers of Debentures.
Rather they will be paid from the Company's operating revenues in an amount
equal to 1.5% of the principal amount of Debentures, including reinvestments or
new purchases, due on a quarterly basis.
In conjunction with the other funds available to it through operations
and/or borrowings, The Company will utilize the proceeds of the Debenture
offerings for the following purposes, shown in their descending order of
priority: funding investments in Receivables and other investments, which is
expected to include establishing a pool to purchase mortgage loans which will
have been originated by one or more of its affiliates, and purchase and/or
development of real estate now held or which may be acquired. The Affiliated
Group continues to evaluate possible acquisition candidates. Presently there are
no commitments or agreements for material acquisitions. To the extent internally
generated funds are insufficient or unavailable for the retirement of maturing
debentures in the future, proceeds of this offering may be used for retiring
maturing debentures and for general corporate purposes (debt service and other
general operating expenses.) There are no debentures that will mature in the
current fiscal year. See "RISK FACTORS--Dependence Upon Leverage Financing."
Management anticipates that some of the proceeds of this offering will be
invested in money market funds, bank repurchase agreements, commercial paper,
U.S. Treasury Bills and similar securities investments while awaiting use as
described above. Due to the Company's inability to accurately forecast the total
amount of Debentures to be sold pursuant to this offering, no specific amounts
have been allocated for any of the foregoing purposes.
In the event substantially less than the maximum proceeds are obtained, the
Company does not anticipate any material changes to its planned use of proceeds
from those described above.
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BUSINESS
OVERVIEW
The Company was established as a corporation in the State of Washington in
September 1998 to engage in the business of making and acquiring direct,
non-conventional equity loans and investing in real estate and Receivables
secured by real estate. Through growth and acquisitions, the Company intends to
become a diversified institution, with operations in non-conventional real
estate mortgage financing, Receivables acquisition and real property ownership
and management. Its principal affiliates are Seattle Funding Group, Ltd., a
non-conventional mortgage loan origination business, SFG Income Funds I, II, III
and IV which acquire and hold Receivables, primarily first position real estate
mortgages for investment, SFG Equity Fund, LLC which invests in real estate
receivables and real estate, SFG Data Services, Inc., a Receivable servicer and
Capital Management Group, Inc. which provides management services to the SFG
Funds and which will provide management services to the Company pursuant to a
management agreement. See "MANAGEMENT--The Management Agreement."
To date, the Affiliated Group's principal business activity is investing in
Receivables. The Receivables primarily consist of real estate contracts and
promissory notes collateralized by first liens on real estate. The Affiliated
Group predominantly invests in Receivables where the borrower or the collateral
does not qualify for conventional financing. This market is commonly referred to
as the non-conventional or "B/C" market. See "BUSINESS--Receivable Investments."
The Affiliated Group began originating and investing in non-conventional loans
during 1994 through Seattle Funding Group. See "BUSINESS--Loan Origination."
The proceeds from sale of the Debentures will be used by the Company to
establish a fund from which loans, secured by real property, will be made or
acquired and for direct investments in real estate. The borrowers under such
loans must meet the Company's lending guidelines. The borrowers will generally
be persons or businesses that have been unable to secure loans in a timely
manner from conventional lending institutions due to the increased restrictions
and constraints imposed on borrowers by such institution. Such borrowers are
expected to be willing to pay interest rates in excess of conventional mortgage
interest rates in order to secure a loan quickly or under non-conventional terms
such as interest only payments. The Company's real estate investment activities
are expected to concentrate on properties acquired from sellers who are facing
foreclosure and properties which are being offered below market value. The
Company intends to hold such properties for investment, which will involve both
short and long terms. It is expected that some properties will be placed on the
market soon after the Company acquires them while others may be held by the
Company as investment properties for longer terms.
MORTGAGE LENDING AND MORTGAGE BROKERAGE OPERATIONS
The Company is being formed in part to engage in the business of making
direct, non-conventional equity loans, either by itself or in conjunction other
lenders or investors and to acquire existing loans which meet its portfolio
guidelines, including loans which may already be in default. The proceeds from
sale of the Units will be used by the Company to establish a fund from which
loans, secured by real property, will be made to borrowers that meet the
Company's lending guidelines. The borrowers will generally be persons or
businesses that have been unable to secure loans in a timely manner from
conventional lending institutions due to the increased restrictions and
constraints imposed on borrowers by such institution. Such borrowers are
expected to be willing to pay interest rates in excess of conventional mortgage
interest rates in order to secure a loan quickly or under non-conventional terms
such as interest only payments. The loans will have shorter terms, generally
five to ten years, than conventional mortgage loans. All loans made or acquired
by the Company will be secured by a deed of trust or mortgage on real property
with a total loan to value ratio that will generally not exceed 65% of the total
value of the subject property, and in no event will exceed 75% of the total
value of the subject property. In some instances the Company may act as a
co-lender with other lenders, some of which may be affiliates of the Management
of the Company.
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The Company's Management expects to generate returns on the Company's
lending activities that will be higher than those earned on more conventional
loans. The higher return will generally be the result of interest rates being
paid on the loans at higher rates than conventional loans. The Company believes
that by carefully qualifying the borrowers, requiring the borrowers to provide
the Company with a specific "exit plan" showing how the loan will be serviced
and paid, and by carefully reviewing and evaluating the property that secures
the loan, it can substantially limit the risks that are usually associated with
non-conventional loans, while at the same time enjoying the higher returns such
loans generate.
REAL ESTATE INVESTMENTS
The Company intends to acquire and hold for investment real estate. The
Company expects to acquire such properties from two primary sources: (i) from
"highly motivated sellers" who are borrowers under loans which are in
foreclosure and (ii) the cash purchases of properties that are offered at prices
generally below current market values. The purchase of properties from motivated
sellers would generally occur by purchasing the property at a foreclosure sale
or by purchasing the loan from the lender prior to foreclosure and proceeding
with foreclosure. The Company will also look for properties which are being
offered below current market rates with the intention of making an immediate all
cash offer funded by the Company's cash reserves. It believes that by making an
all cash offer on such properties it will be able to negotiate better prices
because the sellers will not be asked to finance some or all of the purchase
price and because the Company's offer may not be subject to any financing
contingencies the seller can expect the sale of the property to occur more
quickly. The Company believes that it can locate properties which it will be
able to resell at a profit, even in a short term, or properties which it can
hold for income and investment and eventually sell at a profit over a longer
term.
The Company expects to realize income from its real estate investments in
the following forms: (1) gain on resale of property and (2) cash flow and income
from the property through rental of the property. Even though the Company
anticipates that all of its real estate investments will initially be purchased
for cash, in some instances the Company may elect to borrow against or
"leverage" a particular property in order to realize cash from such borrowing to
be used by the Company for its mortgage lending and acquisition activities or
for reinvestment in other property. The Company has established a policy that
the total principal amount of any loans, operating lines of credit or other
indebtedness which the Company may obtain cannot exceed 35% of the principal
amount of its issued and outstanding Debentures at the time any such
indebtedness is incurred. Some or all of this indebtedness may be secured by its
asset portfolio. See, "BUSINESS--Use of Leverage". There is no assurance of the
receipt of any of cash, income or gain generally or in any particular case in
connection with the Company's real estate investment activities. The net amount
of any income or profits that the Company will generate will, of course, depend
upon the Company's success in identifying attractive real estate investment
opportunities and in negotiating favorable terms for the Company's acquisition
of such real estate. Similarly, the economic performance of the properties in
which the Company invests, interest rates, economic conditions generally and
real estate market conditions specifically, and numerous other factors will
affect the net amount of income or profit that the Company will generate.
Management of properties held by the Company may be conducted either by
independent property management companies or by one or more affiliates of the
Company. In any case, the Company will pay the cost of such services, at the
prevailing rate in the community where such property is located, including
payments to its affiliates. Further, when properties are acquired or sold it is
likely that real estate commissions will be incurred and paid by the Company,
including payments to affiliates of the Company.
THE NEED FOR NON-CONVENTIONAL LOANS
The Company believes that there is a growing demand for non-conventional
consumer and commercial loans. The demand generally comes from borrowers who
have a need for financing more quickly than a conventional lender can fund a
loan or who, for a variety of reasons do not qualify for a conventional loan.
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Seattle Funding Group, Ltd., an affiliate of the General Partner has been
servicing the needs of borrowers through brokering or directly lending money in
private loan transactions since 1988. It currently is placing in excess of
$3,000,000 per month in private money loans in the Western Washington area. The
Company believes that this growth in loan volume was the result of three
factors: First, increased marketing efforts that expanded the market base
resulting in more qualified borrowers; Second, the public is becoming more
educated on the benefits of borrowing private money; and Third, the market
itself has grown as conventional lenders continue to turn more good loans and
good borrowers away. The Company believes these trends will continue for the
immediate future.
Among the reasons why borrowers are willing to obtain private money,
non-conventional loans under terms less favorable from a conventional lender
are:
- Make funds available to pay off underlying mortgage at a discount
- Bring property out of foreclosure of financial difficulty
- Purchase property at a discount for a quick resale
- Borrow funds on one property to buy or rehabilitate another, then
refinance one or both properties at conventional rates when more time is
available or rehabilitation has been completed
- Faster processing time, with fewer questions and processing steps
LOAN GUIDELINES
The loans which the Company makes or acquires are generally expected to have
the following terms and conditions:
<TABLE>
<S> <C>
Loan term: 5 to 10 years
Interest
Rate: 11%-12% per annum minimum(1)
Loan Fees: 2% to 5% of principal amount of loan(2)
First or junior deed of trust or mortgage on real
Security: property(3)(4)
</TABLE>
- ------------------------
(1) In some instances the interest rate that a lender may pay at the beginning
of a loan may be less than the overall interest rate for the loan. These
blended or graduated interest loans will generally have the same effective
interest rates as the other loans which the Company makes or purchases.
(2) The Company will not receive any loan origination fees. Seattle Funding
Group, Ltd., or other affiliates of the Company will receive all such loan
fees for its services in assisting the Company in negotiating and evaluating
the Company's loans.
(3) All loans will be secured by a first position or sometimes a junior position
deed of trust or mortgage on commercial, investment or residential real
property, including undeveloped or partially developed property on a limited
basis. The total amount of loans which are secured by junior position deeds
of trusts or mortgages, or which are secured by undeveloped land, will not
exceed twenty percent (20%) of the Company's total loan portfolio for either
category of loan. In some instances the Company may require or accept other
collateral as secondary security for a loan.
(4) The Company will require all loans to be secured by a deed of trust or
mortgage on real property, with a total loan to value ratio that generally
will not exceed 65%, but in no event will exceed 75% of the value of the
property collateralizing the loan at the time any loan is made or acquired.
While the loan terms will range from five to ten years, for any loan term in
excess of seven years the Company will attempt to negotiate a higher overall
interest rate, or an adjustable interest rate, to compensate for any significant
increases in interest rates during the loan term. Borrowers will be required to
provide the Company with a written "exit plan" establishing to the Company's
satisfaction the borrower's ability to service the debt under the payment terms
negotiated for the loan and to retire the
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debt at its maturity. The Company will require the borrower to demonstrate to
its satisfaction that such borrower has a clear and definite plan to discharge
its obligation under the loan terms.
LOAN FRACTIONALIZATION
From time to time the Company anticipates that it will be presented with an
opportunity to make loans with large principal balances. Such loans could have
principal balances in excess of $1,000,000. Because such a loan would represent
a substantial portion of the Company's capital it may elect to "fractionalize"
its investment in such loan by offering participation interests in the loan to
third parties as an investment. The sale of such participation interests may be
either for its own account or through the services of a third party. There are a
number of mortgage lenders which already offer loan participation programs as an
investment vehicle, including SFG Investments, Inc., an affiliate of the
Company.
While the specifics will vary from loan to loan, these loans will be
required to meet the Company's lending guidelines, including a loan to value
ratio no larger than 75% and must be secured by real property. The Company will
seek to obtain an interest rate of such "jumbo loans" in the same average amount
as the other loans in its Receivables portfolio. Following funding of a
particular jumbo loan the Company may seek to offer third parties participation
interests in the loan, either through its own means or the services of a third
party, including an affiliate of the Company. The Company anticipates that the
offering to acquire a "participation interest" in all or a portion of the
principal amount of such a jumbo loan would be at an interest rate less than the
face amount of the loan. The Company would then be entitled to retain all or a
portion of the excess interest amount.
As an example, assume the Company funds a loan with a principal amount of
$1,000,000 with an interest rate of 12% per annum. The Company may elect to
offer third parties the opportunity to purchase for cash interests in the loan
in an amount up to $750,000 of the principal amount, at an interest rate of 10%.
Such participation interests would be acquired pursuant to Loan Participation
Agreements entered into between the Company and the third parties investing in
the loan. The investors would pay the Company their respective portions of the
principal amount due, thus reducing the Company's capital invested in the loan.
In this example, if the participation interests were fully funded the Company's
capital investment in the loan would be reduced to $250,000. As payments are
collected from the borrower by the Company, under the Loan Participation
Agreements the Company would be obligated to pay to each of the participants an
amount equal to their pro rata participation in the principal amount of the loan
together with interest on such principal amount at the rate that was agreed upon
or 10% in the example. Thus, the Company would receive all of the interest paid
by the borrower on that portion of the loan which the Company has retained, in
the example, 12% on the initial principal balance of $250,000. In addition, the
Company would also be entitled to retain the difference between the interest
rate on the face amount of the loan (12%) and the interest rate offered to the
loan participation investors (10%) on the remaining principal balance of the
loan, in the example, 2% on the initial principal balance of $750,000. Because
the Company would be entitled to receive all interest on the loan in excess of
the amount owed to the loan participants, in this case 2% of the outstanding
principal balance of $1,000,000 even though its investment in the principal
amount due was $250,000, it would increase its return on the loan above the
interest rate paid by the borrower while further diversifying its asset base.
BUILDERS' ASSISTANCE PROGRAM
The Company has established a "Builders' Assistance Program" through which
it may make loans to contractors or homeowners for new construction or
remodeling. In making such loans the Company will require that the borrower
agree to progress payments which will be made as the construction progresses and
holdbacks for contingencies at the completion of construction. The loans will
otherwise generally be on the same terms and conditions as the Company's other
mortgage loans.
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LOAN ORIGINATION
Seattle Funding Group, through its operations, advertising and personal
contacts in the mortgage brokerage community, believes it has established a
reputation as a quality source for non-conventional money needs. It has been on
a long marketing campaign to over 3,000 mortgage brokers in the Pacific
Northwest. It also publishes a quarterly broker newsletter entitled "The
Commission Report" designed to share with the mortgage brokerage community the
value of adding private money brokering to their product base. This report is
both a marketing resource as well as a resource for the mortgage broker to
educate them on private non conventional financing. The Company expects that
Seattle Funding will originate the majority of loans on behalf of the Company.
It is anticipated that the majority of such loans, from wherever originated,
will come as referrals from mortgage brokers or from borrowers or referrals from
borrowers who have previously borrowed money from Seattle Funding.
LOAN SERVICING
Loan servicing includes collecting and remitting loan payments, accounting
for principal and interest, contacting delinquent borrowers, and generally
administering the loans. SFG Data Service, Ltd., an affiliate of the Company,
was established in November, 1994 to provide loan servicing for loans placed by
Seattle Funding Group, including the Company's loans. SFG Data Service, Ltd.,
will be responsible for overall loan administration of the Company's loans and
its services will include those described above. The Company believes that the
fees and charges paid to SFG Data Service are no more than those that are
charged by other organizations providing similar services. The fees and charges
related to loan servicing will be paid by the borrower and/or CMGI from the 1%
overhead allowance allocated to it.
PURCHASE OF DEFAULTED LOANS AND FORECLOSURE ON PROPERTY SECURING LOANS
In some cases loans which the Company has made will go into default. In
other cases the Company may purchase loans, including loans from affiliate and
third parties which are already in default. In purchasing a loan which is
already in default the Company would anticipate generating a higher return than
it realizes from its other loans because the default rate of interest may be
higher and/or there may also be late fees accruing. When and if the borrower
wishes to cure a defaulted loan, the Company may require the payment in full of
all default interest, late fees and other costs incurred in connection with the
default. In selecting a defaulted loan to purchase, the Company would only
purchase a loan which was secured by real estate that it would want to own. In
such instance it would anticipate acquiring the property through foreclosure and
then either reselling the property at a profit in the short term or holding the
property for income and investment and selling the property at a profit in the
longer term.
The Company's primary remedy for collecting all amounts due it under any
defaulted loan will be to foreclose on the property securing the loan. (See
"DEED OF TRUST AND MORTGAGE FINANCING IN GENERAL.") The Company may elect to
accept an amount at foreclosure which may, in some cases, be less than the
actual amount due in order to recover its invested funds and reinvestment them
another loan or property. Affiliates of the Company may bid at such foreclosures
and the Company may elect to accept their bid, even if it is for less than the
full amount due. The Company may also make its own bid for the property at a
foreclosure sale, and in a case there are other bidders and the Company desires
to acquire the property, such bid may be for an amount in excess of the minimum
amount needed to cover the amount due the Company plus its costs of foreclosure.
If the Company is the highest bidder then it will own the property and may hold
the property or resell it for any price it can obtain. If the Company is not the
successful bidder then any bid in excess of the minimum which has been made by a
third party will result in the Company recovering all of the principal, interest
and late fees due it, as well as its costs of foreclosure. (See "CONFLICTS OF
INTEREST--Affiliate's Option to Purchase Property at Foreclosure Sale.")
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SALE OF LOANS
The Company may from time to time elect to sell one or more of the loans in
its portfolio. The reasons for selling a loan or loans may include an offer to
purchase at a premium which would increase the yield to the Company, a need for
cash to meet redemption requests, the desire to generate capital to fund a new
loan or investment opportunity, or an attempt to reduce the Company's risk from
a particular loan or loans. In such event, an affiliate of the Company,
including CMGI, may from time to time be a purchaser of a loan or loans from the
Company. Generally, any purchase of a loan by an affiliate will be for no less
than the total of all principal and accrued interest, together with any and all
other costs or amounts due, such as foreclosure costs if the loan is in default.
However, a loan may be purchased by an affiliate for an amount less than full
amount due in order to recover and reinvest the company's funds because of the
condition of the property, market conditions, interest rates, or other factors.
USE OF LEVERAGE
In order to enhance the Company's ability to take advantage of opportunities
to invest in Receivables and or real estate, the Company may from time to time
leverage its assets under limited conditions. The Trust Indenture under which
the Debentures will be issued permits the Company to borrow funds and use the
Company's assets as security for such borrowings. The amount of borrowings may
not exceed thirty-five percent (35%) of the total principal amount due under the
issued and outstanding Debentures at the time such borrowings are secured. The
Company expects that such borrowings would be used to enhance the operations of
the Company and its expected return on investment, primarily in two methods. The
Company believes that an operating line of credit can be used to fund the
acquisition of Receivables and/or real property acquisitions or development
pending the receipt by the Company of term financing or additional capital
investment. The Company also believes that by borrowing funds under a term
lending arrangement, generally expected to be secured by its real estate assets,
it can leverage the equity it has in those assets to acquire other assets which
are expected to provide a return to the Company in excess of the cost of the
borrowed funds. In order to secure these borrowings the Company may agree to
pledge some or all of its assets and/or subordinate payment of the Debentures to
payments due to the lenders. The Trustee is required to take all actions
reasonably necessary to assist the Company in securing such borrowings within
the guidelines established in the Trust Indenture, including executing
collateral assignment agreements and subordination agreements as may be required
by a lender.
REGULATION
The Company's private non-conventional lending business is generally not
subject to the rules and regulations of FHA, VA, FNMA, FHLMC, GNMA or Washington
state rules and regulations with respect to originating, processing, selling and
servicing mortgage loans. However, the Company's mortgage origination activities
will generally be subject to the Equal Credit Opportunity Act, the Federal Truth
in Lending Act and the regulations promulgated thereunder which prohibit
discrimination and require the disclosure of certain basic information to
mortgagors concerning credit and settlement costs.
Conventional mortgage lending is subject to Washington state usury statutes.
However, the private non-conventional lending activities of the Company will
generally be exempt from such usury statutes since the loans will be made either
for commercial purposes or consumer lending transactions which are exempted from
coverage under the Washington state usury laws.
COMPETITION
The Company competes with other private money lenders and mortgage bankers
and brokers and to a lesser extent commercial banks, savings and loan
associations, credit unions and insurance companies. Some of its competitors
have substantially greater resources than the Company as well as larger and more
sophisticated marketing programs which could put the Company at a competitive
disadvantage.
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YEAR 2000 COMPLIANCE
The Company is undertaking a program to address the technical and business
issues related to the Year 2000. The Company's plans include (i) an awareness of
and an overall assessment of the year 2000 issue; (ii) an inventory of
environments to be remediated or replaced; (3) the remediation or replacement of
affected systems; (4) testing of remediated or new systems; and (5)
implementation of Year 2000 compliant systems. The Company's goal is to have all
systems critical to its business operations deemed Year 2000 compliant by June
30, 1999. Because the Company is recently organized and will primarily rely upon
third parties (particularly Capital Management Group, Inc., Seattle Funding
Group, Ltd., and SFG Data Services, Ltd.) to provide the various services
necessary to operate its business, its direct efforts to ensure Year 2000
compliance are not expected to be difficult or costly to achieve. The Company is
also instituting a program to survey each of its vendors to determine whether or
not they are or will by Year 2000 compliant. It expects that each of its vendors
will be Year 2000 compliant well in advance of January 1, 2000 or that suitable
alternative service vendors that are Year 2000 compliant will be available to
the Company, if necessary.
DEED OF TRUST AND MORTGAGE FINANCING IN GENERAL
The following is a discussion of the terms and practices in real estate
financing which may be relevant to the Company's mortgage lending activities.
DEEDS OF TRUST. Deeds of trust are commonly used to secure the payment of
debts or performance of other obligations with an interest in real estate.
A deed of trust grants a third party (the "trustee") the authority to sell
the real estate upon default of the borrower ("grantor") without the necessity
of filing a lawsuit. Upon the default of the borrower, the trustee follows a
statutory procedure affording interested parties notice and an opportunity to
cure defaults. If the defaults are not cured, then the trustee conducts a
trustee's sale for the benefit of the lender who is the "beneficiary" of the
deed of trust. If the grantor (borrower) repays the note secured by the deed of
trust, the trustee executes a full reconveyance back to the grantor. A deed of
trust must be in writing, signed (by both spouses when community property is
involved) and acknowledged, must contain a legal description of the real estate,
a description of the obligation secured, a power of sale, and a provision that
the property is not used principally for agricultural or farming purposes. If
the deed of trust does not contain a power of sale and a nonagricultural
provision, it will be treated as a mortgage. It should be recorded promptly with
the auditor of the county in which the property is located.
The advantage of a deed of trust is that the lender can choose whether to
proceed by a judicial foreclosure or by a nonjudicial foreclosure. Some of the
advantages of proceeding by a nonjudicial foreclosure include avoidance of
overcrowded court dockets and elimination of all redemption periods. Title vests
immediately in the purchaser at a trustee's sale, and the purchaser is entitled
to possession twenty days after the sale. The nonjudicial procedure and the
generally shorter time period required to realize on the security of the
defaulting debtor can be attractive to a lender. If a nonjudicial foreclosure of
a deed of trust occurs, however, the lender cannot obtain a judgment against the
borrower and may not be able to obtain a deficiency judgment against any
guarantor on the note for any deficiency. A deficiency judgment is a judgment
against the borrower requiring the payment of that portion of the obligation
which was not paid with the net proceeds realized upon the sale of the property
securing the obligations.
NONJUDICIAL FORECLOSURE OF DEEDS OF TRUST. In Washington a nonjudicial
foreclosure of a deed of trust is commenced by the trustee sending, publishing
and posting on the property a statutorily prescribed notice of default. Thirty
days after the notice of default is issued, a notice of sale and notice of
foreclosure is issued. These notices allow the borrower or buyer (and all other
parties with any interest in the property) an opportunity to cure the default. A
default may be cured even if the deed of trust contains an acceleration clause
which would automatically entitle the holder of the deed of trust to collect the
entire balance of the secured debt in a judicial foreclosure.
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The trustee's sale of the property may be conducted in a minimum of ninety
days after issuance of the notice of sale. Consequently, the total time period
for foreclosure of a deed of trust will be not less than 120 days from issuance
of the notice of default until the sale is conducted. In addition, the
nonjudicial foreclosure statute does not permit the trustee's sale to occur
earlier than 190 days from the date of default.
At the trustee's sale, the trustee sells the property to the higher bidder
and conveys title to the property by a trustee's deed which is then recorded.
However, the borrower or buyer (or any other party with a record interest in the
property) may cancel a nonjudicial foreclosure at any time prior to eleven days
before the trustee's sale by curing the default set forth in the notice of sale.
Upon discontinuance of the foreclosure, the deed of trust is reinstated and the
obligation remains as though no default had occurred. During the eleven days
prior to the sale, the foreclosure can be discontinued if the deed of trust
contains acceleration provisions only by payment of the entire amount of the
obligation, plus costs, expenses and the trustee's fee. No deficiency judgment
may be obtained in a nonjudicial foreclosure.
MORTGAGES. A mortgage can also be used to secure the performance of an
obligation to pay money. In the usual real estate transaction, the buyer of real
estate needs or wants to borrow money to pay the seller the difference between
the down payment and the purchase price. When the lender (mortgagee) loans the
money, the buyer-borrower (mortgagor) signs a promissory note for the amount
borrowed and executes a mortgage as a lien against the property to secure the
debt. The purpose of the promissory note is to create personal liability for
payment by the mortgagor. The purpose of the mortgage is to create a lien on the
mortgaged property to secure the obligation to repay. The mortgage is not
effective until and unless there is a valid debt, and the debt must be described
and identified in the mortgage document. The mortgage document is frequently
lengthy and contains many clauses such as provisions for acceleration,
subordination, release, waivers, and covenants to pay taxes, to keep the
premises in repair and to maintain adequate insurance.
A secured note can be sold by the lender to another party and the mortgage
can be assigned to the new holder of the note. In that way, the borrower becomes
legally obligated to pay the new holder according to the terms of the original
note. The new holder's right to payment is secured by the property and the new
holder can look to the property if the borrower defaults. If the Fund purchases
a note secured by a mortgage (or any other form of security instrument), the
note will be endorsed to the Fund, the security instrument is assigned to the
Fund, and the Fund will become the mortgagee.
If the borrower defaults on the obligation to pay, the holder of the
mortgage will have legal recourse against the mortgaged property to satisfy the
debt. Unlike a deed of trust, the mortgagee must bring judicial foreclosure
proceedings to foreclose its lien and cause the mortgagee's interest in the
property to be sold, as provided by statute, subject to the redemption rights of
third parties discussed more fully below. If the proceeds of sale are less than
the amount owed, the mortgagee may obtain a deficiency judgment against the
mortgagor for the balance, unless the mortgagee is deemed to have waived its
right to a deficiency judgment. In some cases, more than one lien exists against
a piece of property, and the priority of the lien usually is determined by the
date and time the lien is recorded in the office of the county auditor. The
priority of the lien can be important because if the property is foreclosed, the
superior liens will usually be in a better position to be paid off than will the
lower priority (or "subordinate") liens. See "Superior Encumbrances" below for
more information concerning the risks involved with subordinate liens.
The mortgage must be in writing, legally describe the mortgaged property,
state the consideration, contain a mortgaging clause, state the amount of the
debt and whether it bears interest, and be signed by the borrower (mortgagor).
In addition, the mortgagors should state their marital status, and, if community
property is involved, both spouses must sign the mortgage. The mortgage must be
"acknowledged" (language reciting that the individuals signing the document were
positively identified and that they signed
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freely and voluntarily) before a notary public. The mortgage should then be
recorded in the auditor's office of the county where the property is located.
The "lien theory" of mortgages is generally recognized in Washington and
Oregon. Under this theory, the title to the property remains with the borrower
and is not transferred to the mortgagee. The mortgage placed on the property is
only a charge or a lien on the title.
When property is sold, in some cases the existing mortgages may be assumed
by the buyer or may remain enforceable against the property and against the
seller. Alternatively, the mortgage may be paid off by the seller of the
property. This usually occurs when mortgages become due in full at the time the
property is sold because the mortgage contains a "Due on Sale" clause.
REAL ESTATE CONTRACTS. A real estate contract, also known as a land sales
contract, is used to convey property. It is a written agreement between the
seller and buyer for the purchase of real property by installment payments. The
real estate contract provides that the buyer must pay the purchase price in
installments over the period of the contract with the balance due at maturity.
While the Company generally will not make loans where there is a real estate
contract involved, it may on occasion take a seller's (vendor's) interest in a
real estate contract as collateral.
When the buyer completes his required payments, the seller is obligated to
convey good legal title to the buyer by a fulfillment deed. Under the terms of
the real estate contract, the buyer is given possession of the property and is
said to have equitable title to the property, while the seller retains legal
title to the property as security for payment of the purchase price.
The real estate contract usually contains the names of the buyer and seller,
the sales price, the terms of payment, a full legal description, and a lengthy
statement of the rights and obligations of the parties relating to the use and
maintenance of the premises, risk of loss, payment of taxes and insurance, and
remedies in case of default. The contract is signed by both parties (both
spouses must sign when community property is being bought or sold), acknowledged
and recorded.
JUDICIAL FORECLOSURE. Foreclosure is the legal procedure in which a lender
realizes on property that is security for a debt. A lender or seller has the
right to commence foreclosure proceedings if the borrower or buyer fails to pay
the note as required, or fails to pay or perform any other covenant or
obligation as required by the mortgage, deed of trust or real estate contract.
In Washington deeds of trust may be foreclosed as mortgages, although
nonjudicial procedures (such as a nonjudicial foreclosure or a nonjudicial
forfeiture) are used more frequently, unless the lender desires to seek a
deficiency judgment.
The judicial mortgage foreclosure action is brought in the Superior Court of
the county in which the real property is located. If the lender is able to
establish that it is entitled to a judgment of foreclosure, the court orders a
sale of the property to the highest bidder. Anybody wishing to bid on the
property may do so by paying in cash the bid price at the sale conducted by the
sheriff. The lender or seller is entitled to bid the amount of its judgment
(unpaid principal balance and interest, together with court awarded legal fees
and costs) without having to deposit any additional cash with the sheriff. If
the lender wishes to bid more than the amount of its judgment, then the lender
or seller will have to pay the excess amount in cash. Following court
confirmation of the sale, the highest bidder receives a certificate of sale. The
certificate of sale does not transfer title, which remains in the mortgagor
until the sheriff's deed is issued. The mortgagor and junior lienholders may
redeem the property by paying the purchaser the amount of the purchase bid at
the sale, together with interest, assessments, taxes, and certain other
expenses, if the purchaser is also a creditor having a lien prior to that of the
redemptioner, other than the judgment under which the purchase was made, then
the amount of the purchaser's lien, with interest. If the property is commercial
property, a setoff may be allowed for rents received. If none of the parties
entitled to redeem the property have done so within the applicable redemption
period, the sheriff executes a deed to the holder of the certificate of sale.
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The statutory period of redemption in Washington is generally one year. If
the security instrument contains certain prescribed provisions, such as a
nonagricultural provision, and if the right to a deficiency judgment is waived,
then the period of redemption is only eight months. When nonagricultural
property improved with a structure is abandoned for six months or more and no
payments are made on the debt during such period, the borrower forfeits his or
her rights or redemption. The redemption period may be extended if there are a
series of successive redemptions by the borrower or junior lienholders or if the
lender fails to timely notify the appropriate parties of the expiration of the
redemption period on homestead property. Ordinarily, the borrower must yield
possession to the successful bidder on the date of sale, but if the property
constitutes the borrower's "homestead," he or she is entitled to retain
possession through the entire period of redemption. Other parties may also be
entitled to retain possession of the property during all or part of the
redemption period, such as a tenant under an unexpired lease, the occupant of
property used for farming purposes, or the mortgagor as the mortgage so
stipulates.
If there are any excess proceeds of the foreclosure sale after deducting
expenses, they are paid to the mortgagor. If, on the other hand, the proceeds
from the sale are not sufficient to repay the foreclosed debt, recourse may be
had against the debtor for the deficiency, if the judgment allows for such
recourse.
ACCELERATED INDEBTEDNESS. The lender generally has the right upon default
by the borrower to "accelerate" the indebtedness if this right is provided for
in the deed of trust, mortgage or note. This means that the lender may sue the
borrower for the entire amount of the note due immediately upon default and the
borrower has the right to cure the default merely by paying the delinquent
installments and accrued interest. However, if a seller under a real estate
contract or a lender forecloses nonjudicially, the borrower may pay the
delinquent installments and prevent acceleration of the mortgage.
SUPERIOR ENCUMBRANCES. The property securing a payment obligation may be
subject to prior security interests in favor of other lenders. It may also be
subject to liens securing obligations such as real property taxes, construction
bills and public improvement assessment lines, which, by operation of law, are
or may become superior to a deed of trust or mortgage. These prior security
interests and liens are commonly referred to as superior encumbrances. If a
default occurs on a superior encumbrance, there is a risk of losing the security
interest in the property through foreclosure of a superior encumbrance.
By law, the holder of a subordinate lien or encumbrance has the right to pay
off a superior encumbrance, and may, depending on the nature of the superior
encumbrance and the terms of the subordinate encumbrance, have the right to cure
defaults. The Company may from time to time make loans and take a security
interest in property which has a superior encumbrance. If there is a default on
an obligation secured by such senior encumbrance, the Company may decide it is
necessary or advisable, in order to avoid a loss, to pay the periodic
installments due on or the entire amount secured by the superior encumbrance.
This could require the Company to make additional cash outlays for an indefinite
period of time. There may be additional costs for court and attorney fees and
other expenses incidental to protecting the investment.
RISK OF LOSS. In the event that a holder of a superior interest forecloses
on the property, lienholders who have lower priority interests will be paid only
to the extent, if any, that the sales price for the property exceeds the amount
of all superior liens. Accordingly, unless the price at which the property is
sold is sufficient to satisfy the Company's security interest and all superior
liens involved in the foreclosure proceedings, the Company faces the risk of
losing all or part of its investment. If such were to occur, the Company may
have the right to obtain a personal judgment against the borrower, but would
have to institute additional legal proceedings to do so and would not be able to
take any further action with respect to the particular property which had
secured the borrower's obligation. The Company's ability to recover from the
borrower would depend upon the existence of other assets of the borrower which
might be reached through such court proceedings.
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USURY. Usury is charging a rate of interest in excess of that permitted by
law. The statutory usury rate in Washington is the higher of twelve percent, or
four percentage points above a floating rate prescribed by statute. Any
commission, bonus, fee, premium, penalty or other charge, compensation or
gratuity, whether in money, credit or other thing of value given as
consideration for the purpose of compensation or inducement for obtaining a
loan, renewal or extension is deemed part of the interest charged on such loan.
In the event the contract does provide for a usurious rate of interest, the
contract itself is still valid. However, in any action on such contract, if
there is proof that a greater rate of interest has been directly or indirectly
contracted for or taken or reserved, the creditor is only entitled to the
principal, less the amount of interest accruing thereon at the rate contracted
for. If interest has been paid, the creditor is only entitled to the principal
less twice the amount of the interest paid and less the amount of all accrued
and unpaid interest. The debtor is entitled to costs and reasonable attorneys'
fees plus the amount by which the amount he has paid under the contract exceeds
the amount to which the creditor is entitled. Only consumer loans and
residential loans are covered by the usury statute.
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MANAGEMENT
THE MANAGERS
Under the Articles of Incorporation and Bylaws of the Company, its
management and control is vested in the Officers and Directors. The Company has
also entered into a Management Agreement with Capital Management Group, Inc.,
under which CMGI will provide management and administrative services to the
Company. CMGI will provide all services it considers proper and necessary to act
in the capacity of supervisory management agent, will maintain all records of
the interest of Company and its Members, will arrange for the preparation and
execution of all assignments of Debentures and record such assignments, will
maintain financial books and records, and will calculate and make interest
payments under the Debentures, will maintain the books and records of the
Company, prepare reports, and will assist the Company's accountants in the
preparation of financial reports and tax returns. The success of the Company
will, to a large extent, depend on the Company's management. Accordingly, no
person should purchase any Debentures unless he or she is willing to entrust all
aspects of Company management to the Officers and Directors and CMGI and has
evaluated their capabilities to perform such services. The Management and their
affiliates will receive compensation and fees from the Company.
The Company was formed as a corporation in the state of Washington on
September 17, 1998. The Company is an affiliate of Seattle Funding Group, Ltd.,
a Washington corporation which has engaged in the business of originating and
making non-conventional loans since 1988. John Odegard, the founder and Chief
Executive Officer of Seattle Funding Group, Ltd., is the president and a manager
of the Company. Seattle Funding Group will generally act as the marketing agent,
loan originator, and loan processor for the Company. It will be entitled to
receive any and all loan fees generated in connection with any loan made by the
Company originated and processed by Seattle Funding Group for its services.
A summary of the history and operations of Seattle Funding Group, Ltd., and
the experience of management of the Company follows.
SEATTLE FUNDING GROUP, LTD. ("Seattle Funding") originated in 1988 to
service the growing demand for non-conventional commercial and consumer loans.
At its inception it operated primarily as a mortgage broker assisting borrowers
who were unable to secure loans in a timely manner from conventional lending
institutions due to increasing restrictions being placed on such institutions.
As Seattle Funding became more known in the brokerage community it began to
receive loan requests from other mortgage brokers as well as unsolicited loan
requests from borrowers. For the past several years, Seattle Funding has
operated as a direct private funding portfolio using invested funds to fund its
non-conventional mortgage lending activity. Seattle Funding will serve as a
marketing agent and loan originator for the Company.
Seattle Funding has nine loan executives whose responsibilities are to
gather loan requests, package and present them to Seattle Funding's underwriting
department for approval. It has developed an account base in excess of two
thousand mortgage brokers from which it receives referrals. The brokers are
contacted on a regular basis in person and by mail with brochures, newsletters
and reports of successful loan transactions. In this matter Seattle Funding is
able to keep its name in front of the mortgage brokerage community on a regular
basis. Seattle Funding is currently placing an average of $3,000,000 per month
in loans in the Pacific Northwest area. The average loan size is approximately
$140,000.
JOHN ODEGARD. President and Manager; 35 years old. Mr. Odegard is the
President and founder of Seattle Funding Group, Ltd., an affiliate of the
Manager. Seattle Funding Group, Ltd. was organized in 1988 to engage in private
mortgage lending. He is the President and a Director of Capital Management
Group, Inc. and the President of SFG Income Funds III and IV, which are limited
liability companies. He is also the Vice President and a co-founder of Home
Assistance Services, Inc., a real estate consulting and acquisition firm which
also began operations in 1988. Mr. Odegard has attended three years of college
during which he studied real estate finance and development. He has been a
speaker on local and national media regarding real estate investing and
financing and is the author of a two volume manual for real
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estate investing. He also has testified as an expert on real estate and related
matters at the request of the largest law firm in the Pacific Northwest.
GREGORY B. ELDERKIN. Vice-President, Secretary and Manager; 35 years old.
Mr. Elderkin is the Vice President and designated broker of Pacific West
Brokerage, Inc., a commercial and investment real estate concern. Prior to his
affiliation with Pacific West Brokerage, Inc., Mr. Elderkin was affiliated with
Century 21 Pacific West Properties where he concentrated on commercial property
management and brokerage. He is also the Vice-President and a Director of
Capital Management Group, Inc. and the Vice-President of SFG Income Funds III
and IV, which are limited liability companies. Mr. Elderkin graduated with
honors from Washington State University in 1986 with a Bachelor of Arts degree
in Business Administration/ Finance.
MARK SPENO. Treasurer and Manager; 38 years old. Mr. Speno has been the
Vice President of Operations for Seattle Funding Group since joining that
organization in 1992. He has designed, implemented and is responsible for
maintaining Seattle Funding Group's compliance to lending regulations and
quality control standards. He is the Treasurer and a Director of Capital
Management Group, Inc. and the Treasurer of SFG Income Funds III and IV, which
are limited liability companies. Prior to joining Seattle Funding Group, he was
a casualty and life insurance broker with Nationwide and Wausau Insurance
Companies emphasizing in commercial and real estate risk for developers and real
estate portfolios for developers and real estate investment firms. Prior to
entering the insurance business Mr. Speno was a U.S. Naval Officer. He graduated
from Washington State University in 1982 with a Bachelor of Arts degree in
Business Administration.
CAPITAL MANAGEMENT GROUP, INC. Capital Management Group was incorporated in
the state of Washington on September 16, 1993. It is the General Partner of SFG
Income Fund Limited Partnership and SFG Income Fund II, L.P., both of which are
Washington limited partnerships organized to provide a loan fund to service the
need for non-conventional mortgage financing. SFG Income Fund Limited
Partnership raised $5,000,000 and SFG Income Fund II, L.P. raised $4,975,500
through sale of units of limited partnership interests. It is also the
Supervisory Managing Agent for SFG Income Fund III, L.L.C., and SFG Income Fund
IV, L.L.C., Washington limited liability companies which were also organized to
provide funds to service the need for non-conventional mortgage financing. SFG
Income Funds III and IV raised $9,730,000 and $6,966,954 (as of September 30,
1998) through the issuance of redeemable secured promissory notes. Capital
Management Group is also the Managing Member of SFG Equity Fund, L.L.C., a
limited liability which engages in mortgage lending and the acquisition of real
estate and has raised over $1,950,000 in equity capital.
THE MANAGEMENT AGREEMENT
Under terms of the Management Agreement to be entered into between CMGI and
the Company, CMGI will be appointed to manage the day to day operations of the
Company. The Managers of the Company will set the policies under which the
Company will operate and CMGI will, subject to such direction direct the
operations of the Company and pay all overhead expenses incurred by the Company,
except for extraordinary expenses incurred by the Company such as foreclosure
expenses and/or litigation costs.
The Management Agreement has an initial term of five years and automatically
renews for two year terms thereafter unless canceled by either the Company or
CMGI upon written notice to the other no less than 60 days prior to the
expiration of the current term of the agreement. CMGI will receive a management
fee on an annual basis equal to equal to 1.5% of the Company's total principal
amount of the outstanding Debentures to be paid from the Company's gross
operating income. This amount is to be paid quarterly from the Company's
operating revenues. CMGI is also entitled to receive an overhead allowance in an
amount equal to, on an annual basis, 1.0% of the Company's total principal
amount of the outstanding Debentures to be paid from the Company's gross
operating income. From this overhead
28
<PAGE>
allowance CMGI will pay all expenses incurred in operating the Company, except
certain extraordinary expenses such as costs of foreclosure and/or litigation.
Payment of the management fee and overhead allowance is subordinated to the
Company's payment of its principal and interest obligations due under the
Debentures.
Under the Management Agreement CMGI, subject to the direction of the
Company's managers will, among other things, direct the Company's mortgage
lending activities, maintain all records of the Company, arrange for the
preparation and execution of all assignments of Debentures record such
assignments, maintain the Company's financial books and records, and will
calculate and make interest payments under the Debentures and calculate and pay
all commissions, fees, allowances and other expenses for which the Company is
obligated. In addition, CMGI will supervise the maintenance of the Company's
books and records, arrange the preparation of all necessary tax and information
returns of, and the preparation and distribution of an annual profit and loss
statement and balance sheet.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of November 30, 1998
with respect to those persons or groups known to the Company who beneficially
own more than five percent of the Company's Common Stock, for each officer and
director and for all officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS OF OWNER(1) SHARES OFFERING OFFERING(2)
- ---------------------------------------------------- ----------- ------------------ -----------------
<S> <C> <C> <C>
John Odegard........................................ 10,000 25% 25%
Gregory B. Elderkin................................. 10,000 25% 25%
Mark Speno.......................................... 10,000 25% 25%
Loretta N. Elderkin(2).............................. 10,000 25% 25%
All officers and Directors as a group (3 persons)... 30,000 75% 75%
</TABLE>
- ------------------------
(1) The address for all persons listed is 923 Powell Avenue SW, Renton, WA
98057.
(2) Ms. Elderkin holds the shares as her separate property. She is the mother of
Gregory Elderkin.
THE COMPANY AND AFFILIATES' LOANS ON REAL ESTATE
As of the commencement date of this offering, the Company has not engaged in
any lending or real estate investment activities. However, the affiliated group
of Company's have been engaged in real estate lending activities since 1994.
SCHEDULE OF MANAGED FUNDS
The information presented in the following table represents the historical
experience of the SFG Income Fund, L.P., SFG Income Fund II, L.P., SFG Income
Fund III, L.L.C., SFG Equity Fund, L.L.C. and SFG Income Fund IV, L.L.C.
programs. This information has been subjected to an attestation engagement (a
review) performed by Peterson Sullivan PLLC. Whose report, dated December 8,
1998, is included in the Financial Statement section of this Prospectus.
29
<PAGE>
Investors in the Debentures should not assume that they will experience
returns, if any, comparable to those experienced by investors in the programs
displayed below. All the information set forth below was obtained from unaudited
financial statements. Investors purchasing a Debenture will not, by such
purchase, obtain any interest in the programs described in the following tables.
<TABLE>
<CAPTION>
SFG INCOME FUND, SFG INCOME FUND II, SFG INCOME FUND III, SFG EQUITY FUND, SFG INCOME FUND IV,
L.P. L.P. L.L.C. L.L.C. L.L.C.
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Type of Investment Offered.... Limited Partnership Limited Partnership 10.5% Promissory Limited Liability 10.0% Promissory
Units (equity Units (equity Notes (debt Membership Units Notes (debt
securities) securities) securities) (equity securities) securities)
Date Offering Commenced....... September 15, 1993 February 1, 1995 November 20, 1995 November 18, 1996 September 1, 1997
Date Offering Completed....... January 13, 1995 November 17, 1995 February 10, 1997 June 13, 1997 N/A
Total Amount of Offering...... $5,000,000 $5,000,000 $10,000,000 $2,000,000 $10,000,000
Total Amount Raised through
Offering.................... $5,000,000 $4,975,500 $9,733,073 $1,966,960 $6,966,955(1)
Nature of Company Business.... Non-Conventional Non-Conventional Non-Conventional Non-Conventional Non-Conventional
Mortgage Lending Mortgage Lending Mortgage Lending Mortgage Lending and Mortgage Lending
Real Estate
Ownership
Average Annualized
Distributions to Investors
from Program inception to
09/30/98.................... 11.34% 11.07% 10.50% 9.76% 10.00%
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE PORTFOLIO SFG INCOME FUND, SFG INCOME FUND II, SFG INCOME FUND III, SFG EQUITY FUND, SFG INCOME FUND IV,
(AS OF 09/30/98) L.P. L.P. L.L.C. L.L.C. L.L.C.
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Invested Portfolio............ $6,315,610 $4,940,970 $11,383,170 $1,206,250 $7,160,500
Number of Loans............... 43 37 68 11 45
Average Loan Size............. $146,875 $133,540 $167,400 $109,659 $159,122
Average Value of Security..... $281,326 $265,243 $346,919 $211,636 $298,789
Average Loan to
Value....................... 52.2% 50.3% 48.3% 51.8% 53.3%
Average Loan Size as a % of
Invested Portfolio.......... 2.33% 2.70% 1.47% 9.09% 2.22%
Average Loan Term - Months.... 104.9 99.4 110.1 120 120
INVESTOR INFORMATION
(AS OF 09/30/98)
- ------------------------------
Investor Funds (including
reinvestment)............... $6,463,319 $5,221,233 $11,036,537 $2,177,106 $7,163,433
Average Investment............ $76,039 $62,158 $68,978 $34,557 $44,771
Total Investors............... 85 84 160 63 160
DELINQUENCY
(AS OF 09/30/98)
- ------------------------------
90 Days or more............... 1 4 6 1 3
In Foreclosure (included
above)...................... 1 5 7 1 3
Real Estate Owned............. 0 0 0 6(2) 0
</TABLE>
- ----------------------------------
(1) As of 09/30/98
(2) SFG Equity Fund, L.L.C. was formed, in part, to purchase and own properties
in its portfolio.
30
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at November
9, 1998 and as adjusted to reflect the sale of the maximum of $25,000,000 in
Debentures in connection with this offering. This table should be read in
conjunction with the financial statements and related notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS ADJUSTED
ACTUAL MAXIMUM OFFERING
--------- -----------------
<S> <C> <C>
Long-term debt payable, net of current portion...................................... $ -0- $ 25,000,000
Stockholders' Equity:
Common Stock (no par value), 10,000,000 shares authorized and 40,000 issued at
November 9, 1998................................................................ 40,000 40,000
Retained Earnings (Deficit)......................................................... -0- -0-
--------- -----------------
Total Stockholders' Equity...................................................... 40,000 25,040,000
--------- -----------------
Total Capitalization............................................................ $ 40,000 $ 25,040,000
--------- -----------------
--------- -----------------
</TABLE>
PLAN OF DISTRIBUTION
The Company is offering up to $25,000,000 face value of the Series I
Debentures directly to the public on a continuing best efforts basis through
Pacific West Securities, Inc ("PWSI"). Pacific West Securities, Inc. is a member
of the National Association of Securities Dealers, Inc. ("NASD") member firm. No
securities sales commissions will be paid from the offering proceeds received
from sale of the Notes. However, PWSI will receive, on an annual basis from the
Company's gross operating income, the following: (i) an amount equal to
one-quarter percent (0.25%) of the principal amount of the outstanding
Debentures for its services as the Principal Distributor and (ii) an amount
equal to one and one quarter percent (1.25%) of the principal amount of
outstanding Debentures as a securities sales commission, some or all of which
may be reallowed to Selected Dealers, who are members of the NASD, and certain
foreign dealers who are not eligible for membership in the NASD, which agree to
participate in the offer and sale of the Debentures. Loretta Elderkin, the
president, and Janilee Jefferies, the owner of 100% of the issued and
outstanding shares of PWSI, are, respectively the mother and sister of Gregory
Elderkin, the Vice-President and a director of the Company. Mr. Elderkin is
neither an officer nor director of PWSI and holds no ownership interest in PWSI.
There is not now and the Company does not expect that there will be a public
trading market for the Debentures in the future. PWIS does not intend to make a
market for the Debentures. See "RISK FACTORS--TERM INVESTMENT; ABSENCE OF A
TRADING MARKET, LACK OF LIQUIDITY."
DESCRIPTION OF DEBENTURES
GENERAL
The Debentures will be issued under an Indenture dated as of ,
1999. The following statements relating to the Debentures and the Indenture are
summaries and do not purport to be complete. Such summaries are subject to the
detailed provisions of the Indenture and are qualified in their entirety by
reference to the Indenture, a copy of which is filed as an exhibit to the
Registration Statement and is also available for inspection at the office of the
Trustee.
The Debentures will represent unsecured general obligations of The Company
and will be issued in book entry form without coupons, in fractional
denominations of $0.01 or more subject to the stated minimum investment amount
requirements. The Debentures will be sold at 100% of the principal amount. The
Debentures will have the minimum investment amounts, maturities and interest
rates set forth on the cover page of this Prospectus. The stated interest rates,
maturities, and minimum investment amounts may
31
<PAGE>
be changed at any time by The Company by way of a supplement to this Prospectus.
Any such change will have no effect on the terms of the previously sold
Debentures.
Debentures may be transferred or exchanged for other Debentures of the same
series of a like aggregate principal amount subject to the limitations set forth
in the Indenture. No service charge will be made for any transfer or exchange of
Debentures. The Company may require payment of taxes or other governmental
charges imposed in connection with any such transfer or exchange. Interest will
accrue at the stated rate from the date of issue until maturity. The Debentures
are not convertible into capital stock or other securities of The Company.
The Debentures are subject to redemption prior to maturity and may also be
prepaid pursuant to the prepayment provisions described below. Also, subject to
regulatory restrictions affecting redemptions and exchanges of securities during
an offering, and certain other restrictions set forth in the Debenture and/or
the Trust Indenture, the Company will be obligated to honor requests for an
early payout of a Debenture. Such early payout requests, when received, are
honored in the order received.
PAYMENT OF PRINCIPAL AND INTEREST
Interest will be payable to Debenture holders quarterly with the principal
and any accrued, but unpaid interest due and payable at the maturity date of the
Debenture, unless the Debenture is renewed pursuant to its terms. A Debenture
purchaser may elect to have interest paid on a quarterly basis, without
compounding; or may elect to leave all or fifty percent (50%) of the accrued
interest with the Company in which case it will compound quarterly at the stated
interest rate. Debenture holders may change the interest payment election at any
time by written notice to the Company.
Unless Debenture holders are notified in writing by the Company of its
intention to renew all or some portion of the Debentures, all accrued interest
and the principal balance will be paid in full by the Company within 15 days of
the Maturity Date of the Debenture. Debentures do not earn interest after the
maturity date. The Company will pay the principal and accumulated interest due
on matured Debentures to the registered owner(s) in cash at the Company's main
office in Renton, Washington or by check mailed to the address designated by the
registered owner.
CALL OF DEBENTURES BY COMPANY
The Debentures are callable at the Company's option beginning on the first
anniversary on the date each Debenture was issued. On or after such date the
Debenture will be subject to prepayment at the option of the Company, in whole
or in part, at the prices set forth below, plus accrued and unpaid interest
thereon, if any, to the date of prepayment:
<TABLE>
<S> <C>
100.50% of
Between First and Second Anniversary................... Principal
100.25% of
Between Second and Third Anniversary................... Principal
100.00% of
Thereafter............................................. Principal
</TABLE>
AUTOMATIC RENEWAL OF DEBENTURES
The Company may elect to renew some or all of the Debentures at their
respective maturity dates by providing written notice of its intention to do so
to the holder of a Debenture no less than six (6) months prior to the maturity
date of the Debenture. Any holder of a Debenture desiring payment instead of
renewal must, within sixty (60) days after receiving notice of the Company's
intention to renew the Debenture, decline renewal by written notice to the
Company. If renewal is declined then the Company will be obligated to pay all
principal and interest under the Debenture as such amounts become due.
US Bank ("Trustee") is a national banking association, with a combined
capital and surplus in excess of $25 million. The Company and certain of its
subsidiaries may maintain deposit accounts and from time
32
<PAGE>
to time, may borrow money from the Trustee and conduct other banking
transactions with it. As of the date of this Prospectus, no loans from the
Trustee were outstanding. In the event of default, the Indenture permits the
Trustee to become a creditor of the Company and its subsidiaries, and does not
preclude the Trustee from enforcing its rights as a creditor, including rights
as a holder of collateralized indebtedness. The fees of the Trustee will be paid
by CMGI pursuant to the terms of the Management Agreement with the Company. See
"MANAGEMENT--THE MANAGEMENT AGREEMENT."
RIGHTS AND PROCEDURES IN THE EVENT OF DEFAULT
Events of default include the failure of The Company to pay interest on any
Debenture for a period of 30 days after it becomes due and payable; the failure
to pay the principal or any required installment thereof of any Debenture when
due; the failure to perform any other covenant in the Indenture for 60 days
after notice; and certain events in bankruptcy, insolvency or reorganization
with respect to The Company. Upon the occurrence of an event of default, either
the Trustee or the holders of 25% or more in principal amount of Debentures then
outstanding may declare the principal of all the Debentures to be due and
payable immediately.
The Trustee must give the Debenture holders notice by mail of any default
within 90 days after the occurrence of the default, unless it has been cured or
waived. The Trustee may withhold such notice if it determines in good faith that
such withholding is in the best interest of the Debenture holders, except if the
default consists of failure to pay principal or interest on any Debenture.
Subject to certain conditions, any such default, except failure to pay
principal or interest when due, may be waived by the holders of a majority (in
aggregate principal amount) of the Debentures then outstanding. Such holders
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or of exercising any power
conferred on the Trustee, except as otherwise provided in the Indenture. The
Trustee may require reasonable indemnity from holders of Debentures before
acting at their direction.
Within 120 days after the end of each fiscal year, The Company must furnish
to the Trustee a statement of certain officers of The Company concerning their
knowledge as to whether or not The Company is in default under the Indenture.
MODIFICATION OF THE TRUST INDENTURE
Debenture holders' rights may be modified with the consent of the holders of
66 2/3% of the outstanding principal amounts of Debentures, and 66 2/3% of those
series specifically affected. In general, no adverse modification of the terms
of payment and no modifications reducing the percentage of Debentures required
for modification is effective against any Debenture holder without his or her
consent.
RESTRICTIONS ON CONSOLIDATION, MERGER, ETC.
The Company may not consolidate with or merge into any other corporation or
transfer substantially all its assets unless either The Company is the
continuing corporation or the corporation formed by such consolidation, or into
which The Company is merged, or the person acquiring by conveyance or transfer
of such assets shall be a corporation organized and existing under the laws of
the United States or any state thereof which assumes the performance of every
covenant of The Company under the Indenture and certain other conditions
precedent are fulfilled.
TRANSFER AGENT AND REGISTRAR
The Company acts as its own transfer agent and registrar of the Debentures,
but may elect in the future to contract with a third party to provide such
services.
33
<PAGE>
DEBENTURE HOLDER'S' PREPAYMENT RIGHTS
The Debenture holder's will, subject to certain limitations, have the
opportunity to request prepayment of the principal amount of the Secured Notes,
together with any unpaid interest owed to them by the Company. Beginning upon
the first anniversary of the date each Debenture was issued, the Company will be
obligated to prepay the balance due a Debenture holder requesting early
redemption in a ninety (90) day period beginning the first day of the first full
month after receipt of a request for prepayment from such Debenture holder. The
redemption payment amount shall be equal to the principal amount due under the
Debenture, together with all accrued and unpaid interest. Provided, that the
Company may from time to time, charge a redemption processing fee which in no
event will exceed $500.00 per Debenture. Initially, the Company does not intend
to charge such fee. The Company has the right under the Debentures to limit, in
its sole discretion, the amount of Debentures redeemed to a maximum of twelve
and one-half percent (12.5%) of the then outstanding total principal balance of
Debentures in any ninety (90) day period, if in the Company's opinion, the
redemption of Debentures during that period of time would compromise the
Company's ability to pay its obligations (including principal and interest
payments on the remaining debentures) in the ordinary course of business. At the
end of the term of any such suspension period, redemptions will be processed and
paid in the order first received in proper form by the Company. If, in any
ninety (90) day period, during which the Company has limited the Debenture
holder's right to redemption the Company receives requests for prepayment from
Debenture holders which exceed twelve and one-half percent (12.5%) of the total
principal amount due under all outstanding Debentures, the Company may, at its
option, pay to all Debenture holders requesting prepayment a pro rated amount,
which amount shall be based upon the principal amount due under each Debenture
holder who has requested early redemption.
REINVESTMENT OF INTEREST PAYMENTS
Each Debenture holder may elect to reinvest all or fifty percent (50%) of
that Debenture holder's interest payments under the Secured Note. If a Debenture
holder makes such an election, the amount reinvested will be treated as an
additional principal due under the Debenture holder's Secured Note. By
increasing such electing Debenture holder's principal balance due, the interest
payable under that Debenture holder's Secured Note will be proportionately
increased. Reinvested funds will be held by the Company, placed in money market
funds or other temporary instruments and then invested in deeds of trust,
mortgages or real estate investments as they become available. The Company may
terminate or restrict the reinvestment option at any time upon written notice to
the Debenture holder's.
INDEMNIFICATION
The Company's Articles of Incorporation provide for indemnification of The
Company's directors, officers and employees for expenses and other amounts
reasonably required to be paid in connection with any civil or criminal
proceedings brought against such persons by reason of their service of or
position with The Company unless it is adjudged in such proceedings that the
person or persons are liable due to willful malfeasance, bad faith, gross
negligence or reckless disregard of his or her duties in the conduct of his or
her office. Such right of indemnification is not exclusive of any other rights
that may be provided by contract or other agreement or provision of law. Such
indemnification is not currently covered by insurance.
As of the date of this Prospectus, no contractual or other agreements
providing for indemnification of officers, directors or employees were in
existence other than as set forth above. Pursuant to Washington State law, The
Company is required to indemnify any director for his or her reasonable expenses
incurred in the successful defense of any proceeding in which such director was
a party because he or she was a director of The Company.
34
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to The Company's officers, directors or controlling
persons pursuant to the foregoing provisions, The Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
LEGAL MATTERS
LEGAL OPINION
The legality of the Debentures offered hereby is being passed upon for The
Company by the Law Offices of Jack G. Orr, 3019 Narrows Place, Tacoma, WA 98407.
LEGAL PROCEEDINGS
There are no material legal proceedings or actions pending or threatened
against any of the companies within the Affiliated Group or to which its
property is subject.
EXPERTS
The Financial Statements of the Company as of November 9, 1998 in this
prospectus, have been included herein in reliance on the report, of Peterson
Sullivan, PLLC independent accountants, given on the authority of that firm as
experts in accounting and auditing.
35
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.
FINANCIAL REPORT
NOVEMBER 9, 1998
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... 1
FINANCIAL STATEMENTS
Balance sheet............................................................................................ 2
Statement of cash flows.................................................................................. 3
Notes to financial statements............................................................................ 4-9
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SFG Mortgage & Investment Company, Inc.
Renton, Washington
We have audited the accompanying balance sheet of SFG Mortgage & Investment
Company, Inc. as of November 9, 1998, and the related statement of cash flows
for the period from September 17, 1998 (date of incorporation) to November 9,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a text basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of November
9, 1998, and its cash flows for the period from September 17, 1998 (date of
incorporation) to November 9, 1998, in conformity with generally accepted
accounting principles.
As described in Note 6, at November 9,1998, the Company has not commenced
operations. Therefore, a statement of operations for the period from September
17, 1998 (date of incorporation) to November 9, 1998, has not been included in
these financial statements.
Peterson Sullivan PLLC
November 9, 1998
Seattle, Washington
1
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.
BALANCE SHEET
NOVEMBER 9, 1998
<TABLE>
<CAPTION>
Cash....................................................................... $40,000
<S> <C>
-------
-------
Stockholders' Equity
Common stock, no par value, 1,000,000 shares authorized, 40,000 shares
issued and outstanding................................................ $40,000
-------
-------
</TABLE>
See Notes to Financial Statements
2
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.
STATEMENT OF CASH FLOWS
SEPTEMBER 17, 1998 (DATE OF INCORPORATION) TO NOVEMBER 9, 1998
<TABLE>
<CAPTION>
Cash Flows from Financial Activities
Proceeds from sale of common stock........................................ $40,000
<S> <C>
-------
Net increase in cash....................................................... 40,000
Cash at September 17, 1998 (date of incorporation)......................... --
Cash at November 9, 1998................................................... $40,000
-------
-------
</TABLE>
See Notes to Financial Statements
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
SFG Mortgage & Investment Company, Inc. ("the Company") was incorporated on
September 17, 1998, in Washington for the purpose of making direct,
non-conventional equity loans secured by real estate and to directly invest in
real estate. On November 16, 1998, the Company issued 40,000 shares of no par
common stock for $40,000 in cash.
The Company's business will be concentrated in non-conventional mortgage
lending activities. This market segment generally has higher default rates than
conventional mortgage lending. The Company's default rates could also be
negatively impacted by risks that are inherent to mortgage lending activities.
Such risks include, but are not limited to, fluctuating interest rates and
property values, and changes in economic conditions and government rules and
regulations.
Non-conventional equity loans include loans to persons/businesses that have
been unable to secure loans in a timely manner from conventional lending
institutions. The Company expects that these borrowers will be willing to pay
interest rates in excess of conventional mortgage interest rates. The loans will
generally have terms of five to ten years. All loans will be secured by a deed
of trust or mortgage on real property with a total loan to value ratio that
generally will not exceed 65% but will in no event exceed 75% of the value of
the property. The Company's real estate investment activities will be
concentrated on properties acquired from sellers who are facing foreclosure
and/or properties which, in management's opinion, are being offered at below
market.
The Company's private non-conventional lending business is generally not
subject to the rules and regulations of FHA, VA, FNMA, FHLMC, GNMA or Washington
state rules and regulations with respect to originating, processing, selling and
servicing mortgage loans. The Company's mortgage origination activities will
generally be subject to the Equal Credit Opportunity Act, the Federal Truth in
Lending Act and regulations promulgated thereunder which prohibit discrimination
and require the disclosure of certain basic information to mortgagors concerning
credit and settlement costs.
The Company is currently preparing to offer up to $25 million in debentures
to the public in order to fund operations. No operations have yet taken place.
The Company's fiscal year will end annually on December 31.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
Cash consists of amounts held in demand deposit accounts.
MORTGAGE NOTES RECEIVABLE
Mortgage notes receivable will be held for investment purposes and will be
carried at amortized cost net of any allowances for credit losses. Discounts
originating at the time of purchase, net of capitalized acquisition costs, will
be amortized using the interest method. Interest income will be recognized when
earned using the interest method for those notes which are not deemed impaired.
ALLOWANCE FOR LOSSES
the allowances for losses on mortgage notes receivable will include amounts
for estimated probable losses on receivables determined in accordance with the
provisions of Statement of Financial Accounting
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended. Specific allowances will be established for delinquent receivables, as
necessary. Additionally, the Company will establish allowances, based on prior
delinquency and loss experience, for currently performing receivables and
smaller delinquent receivables. Allowances for losses will be based on the net
carrying values of the receivables, including accrued interest.
REAL ESTATE HELD FOR SALE
Real estate will be stated at the lower of cost or fair value less estimated
costs to sell. The Company intends to acquire real estate through acquisition
and foreclosure. Cost will be determined by the purchase price of the real
estate or, for real estate acquired by foreclosure, at the lower of (a) the fair
value of the property at the date of foreclosure less estimated selling costs,
or (b) cost (unpaid receivable carrying value). The Company will periodically
review its carrying values of real estate held for sale by obtaining independent
appraisals and adjusting its carrying values to the lower of cost or net
realizable value, as necessary.
Income from sales of real estate will be recognized when a purchaser's
initial and continuing investment is adequate to demonstrate (1) a commitment to
fulfill the terms of the transaction, (2) that collectibility of the remaining
sales price due is reasonably assured, and (3) the Company maintains no
continuing involvement or obligation in relation to the property sold and has
transferred all the risks and rewards of ownership to the buyer.
STOCK RESTRICTIONS
Shares of the Company's common stock may not be disposed of without first
being offered to the non-selling shareholders. The price to be paid is to be
determined between the shareholders.
INCOME TAXES
Income taxes will be accounted for using the asset and liability approach,
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred income taxes will be provided for
the temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities. A valuation allowance will be
recognized for deferred tax assets not likely to be realized. Deferred taxes are
to be measured by the provisions of currently enacted tax laws.
USE OF ACCOUNTING ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. AFFILIATES
The Company has affiliates which are in the business of acquiring, holding,
selling, originating and servicing mortgage notes receivables primarily in the
Pacific Northwest. Certain of these affiliates will
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. AFFILIATES (CONTINUED)
provide services to and receive compensation from the Company. The following is
a list of affiliates, their relationships to the Company, and a brief
description of services that they will provide:
- Seattle Funding Group, Ltd. will provide mortgage notes receivable
origination services to the Company and other affiliates. Seattle Funding
Group, Ltd., and the Company have certain common shareholders and
officers. Seattle funding Group, Ltd. expects to be compensated for the
origination service by the mortgagee.
- Capital Management Group, Inc. ("CMGI") is a corporation owned, in part,
by the principles of Seattle Funding Group, Ltd. and Pacific West
Securities, Inc. Certain officers of CMGI are also shareholders and
officers of the Company. The Company entered into a five year management
agreement with CMGI whereby CMGI will be paid a management fee and an
overhead allowance. The management fee and overhead allowance are 1.5% and
1%, respectively, of the outstanding total principal balance due under all
debentures issued by the Company. the overhead allowance will cover all
expenses incurred in operating the Company, except certain extraordinary
expenses such as costs of foreclosure and/or litigation which will be paid
separately. Payment of any amounts under the management agreement will be
subordinate to payment of the Company's debentures. The management
agreement contains an automatic renewal for two-year periods unless
terminated. CMGI will subcontract some of these services to Pacific West
Investment Services, Inc. which is owned by relatives of an officer and
shareholder of the Company.
In addition, CMGI will pay all organizational and offering expenses
incurred by the Company related to the offer and sale of the debentures
that are discussed in Note 5. CMGI may borrow up to $60,000 for a period
not to exceed two years from the Company at an interest rate of 13% per
annum to pay these expenses.
A subsidiary of CMGI, SFG Investments, Inc., may invest fractionally in
mortgage notes receivable which are originally acquired by the Company.
- SFG Data Services, Inc. provides mortgage notes receivable services to the
Company and other affiliates. SFG Data Services, Inc. will be partially
compensated from the 1% overhead allowance fee that is charged by CMGI and
fees to be paid by mortgagees. Certain offices of SFG Data SErvices, Inc.
are also shareholders and officers of the Company.
- Pacific West Securities, Inc. provides brokerage services and will serve
as the principal distributor of the Company's debentures. Pacific West
Securities, Inc. will receive annually, a distribution fee and a sales
commission fee of .25% and 1.25%, respectively, of the principal amount of
outstanding debentures. The president and owner of Pacific West
Securities, Inc. are related to one of the officers and shareholders of
the Company.
The Company is affiliated with the SFG Family of Funds ("the Funds") which
include two Washington limited partnerships and three Washington limited
liability companies all of which engage primarily in non-conventional mortgage
financing. The SFG Family of Funds and their relationships to the Company and
its affiliates are as follows:
- SFG Income Fund, L.P.--CMGI is the general partner.
- SFG Income Fund II, L.P.--CMGI is the general partner.
- SFG Income Fund III, L.L.C.--This fund has common ownership and officers
with the Company. Also, CMGI is the contract manager.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. AFFILIATES (CONTINUED)
- SFG Equity Fund, L.L.C.--CMGI is the managing member of this fund.
- SFG Income Fund IV, L.L.C.--This fund has common ownership and officers
with the Company. Also, CMGI is the contract manager.
Seattle Funding Group, Ltd. may offer the same mortgage notes receivable it
originates to the Funds as well as to the Company. These offering will be on a
rotating basis which may allow the funds with available cash to invest in
mortgage notes receivable which would otherwise be offered to the Company.
NOTE 4. STATEMENT OF OPERATIONS
As of November 9, 1998, the Company has not commenced operations and thus
has not included a statement of operations in these financial statements. Since
inception, all costs associated with incorporation and preparation of the public
offering of debentures have been paid by CMGI pursuant to the management
agreement described in Note 3. Payments of management fees to CMGI will not
begin until the debentures are issued.
NOTE 5. COMMITMENTS
PUBLIC OFFERING OF DEBENTURES
The Company expects to offer to the public up to $25 million in debentures.
The debentures will be offered on a continuous, best effort basis at minimum
investment amounts. The debentures will be sold at 100% of the principal amount
and have a five-year term with an option to renew for an additional five years.
Interest rates will be dependent upon the amount of the investment and will be
payable quarterly without compounding. The debentures are unsecured debt
instruments, senior in liquidation to outstanding equity securities of the
Company, and will be subordinate to any collateralized debt. No trading market
is expected for the debentures.
Each of the debentures will be subject to a limited right of prepayment at
the holders' option beginning on the first anniversary of the date that the
debenture was issued. The Company will be obligated to redeem any debenture upon
ninety days written notice from the holder following the first anniversary. The
amount of redemptions may be limited by the Company to a maximum of 12.5% of the
outstanding principal balance of debentures in any ninety day period, if the
Company believes the redemption during the period would affect its ability to
pay obligations. The debentures will not be convertible into capital stock or
other securities of the Company.
LINE OF CREDIT
The Trust Indenture under which the debentures will be issued permits the
Company to borrow money. The Company is currently negotiating an operating
line-of-credit with a financial institution. Terms have not been finalized.
The amount of money that the Company can borrow is limited by the Trust
Indenture. Borrowings may not exceed thirty-five percent of the total principal
amount due under the issued and outstanding debentures at the time of the
borrowing. In order to secure these borrowings, the Company may pledge some or
all of its assets.
7
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.
SCHEDULE OF MANAGED FUNDS
(A REVIEW)
INCEPTION TO SEPTEMBER 30, 1998
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT........................................................................... 1
Schedule of Managed Funds 2 and 3
Note to Schedule of Managed Funds...................................................................... 4
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SFG Mortgage & Investment Company, Inc.
Renton, Washington
We have reviewed the accompanying Schedule of Managed Funds as of September
30, 1998, and for the period inception through September 30, 1998. Our review
was conducted in accordance with standards established by the American Institute
of Certified Public Accountants.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on the Schedule of Managed Funds.
Accordingly, we do not express such an opinion.
Based on our review, nothing came to our attention that caused us to believe
that the accompanying Schedule of Managed Funds is not presented in conformity
with the measurement and disclosure criteria set forth in the Note.
Peterson Sullivan PLLC
November 9, 1998
Seattle, Washington
1
<PAGE>
SCHEDULE OF MANAGED FUNDS
FUND INCEPTION THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SFG INCOME FUND III,
SFG INCOME FUND, L.P. SFG INCOME FUND II, L.P. L.L.C.
------------------------ ------------------------ --------------------------
<S> <C> <C> <C>
Type of Investment Offered.......... Limited Partnership Limited Partnership 10.5% Promissory Notes
Units (equity Units (equity (debt securities)
securities) securities)
Date Offering Commenced............. September 15, 1993 February 1, 1995 November 20, 1995
Date Offering Completed............. January 13, 1995 November 17, 1995 February 10, 1997
Total Amount of Offering............ $5,000,000 $4,975,500 $9,733,073
Nature of Company Business.......... Non-Conventional Non-Conventional Non-Convention Mortgage
Mortgage Lending Mortgage Lending Lending Ownership
Average Annualized Distributions to
Investors from inception through
September 30, 1998................ 11.34% 11.07% 10.50%
MORTGAGED PORTFOLIO (AS OF SEPTEMBER
30, 1998)
Invested Portfolio.................. $6,315,610 $4,940,970 $11,383,170
Number of Loans..................... 43 37 68
Average Loan Size................... $146,875 $133,540 $167,400
Average Value of Security........... $281,326 $265,243 $346,919
Average Loan to Value............... 52.50% 50.30% 48.30%
Average Loan Size as a % of Invested
Portfolio......................... 2.33% 2.70% 1.47%
Average Loan Term-months............ 104.9 99.4 110.1
INVESTOR INFORMATION (AS OF
SEPTEMBER 30, 1998)
Investor Funds (including
reinvestment)..................... $6,463,319 $5,221,233 $11,036,537
Average Investment.................. $76,039 $62,158 $68,978
Total Investors..................... 85 84 160
DELINQUENCY (AS OF SEPTEMBER 30,
1998)
90 Days or more..................... 1 4 6
In Foreclosure (included above) 1 5 7
Real Estate Owned................... 0 0 0
<CAPTION>
SFG EQUITY FUND, L.L.C. SFG INCOME FUND IV, L.L.C.
------------------------ --------------------------
<S> <C> <C>
Type of Investment Offered.......... Limited Liability 10.0% Promissory Notes
Membership Units (equity (debt securities)
securities)
Date Offering Commenced............. November 18, 1996 September 1, 1997
Date Offering Completed............. June 13, 1997 N/A
Total Amount of Offering............ $1,966,960 $6,966,955
Nature of Company Business.......... Non-Conventional Non-Conventional Mortgage
Mortgage Lending and Lending
Real Estate
Average Annualized Distributions to
Investors from inception through
September 30, 1998................ 9.76% 10.00 %
MORTGAGED PORTFOLIO (AS OF SEPTEMBER
30, 1998)
Invested Portfolio.................. $1,206,250 $7,160,500
Number of Loans..................... 11 45
Average Loan Size................... $109,659 $159,122
Average Value of Security........... $211,636 $298,289
Average Loan to Value............... 51.80% 53.30 %
Average Loan Size as a % of Invested
Portfolio......................... 9.09% 2.22 %
Average Loan Term-months............ 120 120
INVESTOR INFORMATION (AS OF
SEPTEMBER 30, 1998)
Investor Funds (including
reinvestment)..................... $2,177,106 $7,163,433
Average Investment.................. $34,557 $44,221
Total Investors..................... 63 160
DELINQUENCY (AS OF SEPTEMBER 30,
1998)
90 Days or more..................... 1 3
In Foreclosure (included above) 1 3
Real Estate Owned................... 6* 0
</TABLE>
- ------------------------------
* SFG Equity Fund, L.L.C. was formed, in part, to purchase and own properties in
its portfolio.
See Independent Accountants' Report and Note to Schedule.
2
<PAGE>
NOTE TO SCHEDULE OF MANAGED FUNDS
The five funds in the accompanying Schedule of Managed Funds are managed by
Capital Management Group, Inc. ("CMGI") which is expected to also manage SFG
Mortgage and Investment Company, Inc. These are the only funds being managed by
CMGI. The Average Annualized Distribution to Investors from inception through
September 30, 1998, may not be indicative of future distributions from the five
funds or from any other funds which may be managed in the future by CMGI.
The Average Annualized Distributions to Investors is an annualized average
of actual distributions from the individual fund's income (stated as a
percentage of average invested capital, as defined) to the limited partners
and/or members (limited liability corporations) from fund inception through
September 30, 1998.
The annualized distributions for the SFG Income Fund III L.L.C. and SFG
Income Fund IV, L.L.C. are contractually stipulated at 10.5% and 10%,
respectively. Therefore, distributions from these two funds are limited to these
rates. There are no distributions in arrears related to these two funds.
Invested Portfolio consists of the total original loan amounts and the
Average Loan Term is the simple average term of all original loans.
4
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION.
Article VIII of the Registrant's Articles of Incorporation provides as
follows:
The personal liability of a director or the directors to the corporation or
its shareholders for monetary damages is hereby eliminated for any conduct as a
director except acts or omissions that involve intentional misconduct or a
knowing violation of law by a director, for conduct violating RCW 23B.08.310, or
for any transaction from which a director will personally receive a benefit in
money, property, or services to which a director is not legally entitled.
If the Washington Business Corporation Act is hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the full extent permitted by the Washington Business Corporation Act, as so
amended. Any repeal or modification of this Article shall not adversely affect
any right or protection of a director of the corporation existing at the time of
such repeal or modification for or with respect to an act or omission of such
director occurring prior to such repeal or modification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................................................... $ 6,950
NASD Filing Fee.................................................................... 2,500
Blue Sky Qualification Fees and Expenses........................................... 3,000*
Accounting Fees and Expenses....................................................... 20,000*
Legal Fees and Disbursements....................................................... 40,000*
Printing Expenses.................................................................. 5,000*
Miscellaneous Expenses............................................................. 2,550
---------
Total Expenses..................................................................... $ 80,000
</TABLE>
- ------------------------
* Estimated Item
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the organization of the Registrant, a total of 40,000
shares of Common Stock of the Registrant were sold at a price of $1.00 per share
for an aggregate price for all shares of $40,000. The shares were sold to the
officers and directors and to one family an officer and director of the
Registrant in reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated thereunder.
The names and identities of the persons to whom the securities were issued
are as follows:
<TABLE>
<CAPTION>
NUMBER OF
LAST NAME FIRST NAME(S) IDENTITY SHARES $ AMOUNT
- ----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Odegard John Individual 10,000 $ 10,000.00
Elderkin Gregory B. Individual 10,000 10,000.00
Elderkin Loretta N. Individual 10,000 10,000.00
Speno Mark Individual 10,000 10,000.00
</TABLE>
II-1
<PAGE>
ITEM 27. EXHIBITS
The following is a list of exhibits filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ------------- ---------
<C> <S> <C>
1.3 Best Efforts Underwriting and Selected Dealers Agreements
2.1 Articles of Incorporation
2.2 Bylaws
3.1 Form of Debenture
3.2 Trust Indenture Agreement
4 Subscription Agreement
6.1 Management Agreement with Capital Management Group, Inc.
10.1 Consent of Peterson Sullivan, L.L.P.
10.2 Consent of Law Offices of Jack G. Orr, P.S.
11 Opinion of Law Offices of Jack G. Orr, P.S.
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling persons of the
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question
II-2
<PAGE>
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(c) For the purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
ITEM 29. FINANCIAL STATEMENTS.
Not Applicable
II-3
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
The following is a list of exhibits filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ------------- ---------
<C> <S> <C>
1.4 Best Efforts Underwriting and Selected Dealers Agreements
2.1 Articles of Incorporation, as amended
2.2 Bylaws
3.1 Form of Debenture
3.2 Trust Indenture Agreement
4 Subscription Agreement*
6.1 Management Agreement with Capital Management Group, Inc.
10.1 Consent of Peterson Sullivan, L.L.P.
10.2 Consent of Law Offices of Jack G. Orr, P.S.
11 Opinion of Law Offices of Jack G. Orr, P.S.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
SIGNATURES
The issuer has duly caused this offering statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Seattle,
State of Washington, on January 12, 1999.
<TABLE>
<S> <C> <C>
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
By: /s/ JOHN ODEGARD
-----------------------------------------
John Odegard
PRESIDENT
</TABLE>
This registration statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN ODEGARD
- ------------------------------ President, Chief Executive 1/12/99
John Odegard Officer And Director
/s/ GREGORY B. ELDERKIN
- ------------------------------ Vice-President And 1/12/99
Gregory B. Elderkin Director
/s/ MARK SPENO
- ------------------------------ Treasurer And Director 1/12/99
Mark Speno
</TABLE>
<PAGE>
EXHIBIT 1.1
BEST EFFORTS UNDERWRITING AND SELECTED DEALERS AGREEMENTS
<PAGE>
$25,000,000
INVESTMENT DEBENTURES, SERIES I
UNDERWRITING AGREEMENT
January ____, 1999
PACIFIC WEST SECURITIES, INC.
As Managing Dealer
923 Powell Avenue SW
Renton, WA 98057
Dear Sirs:
1. INTRODUCTORY. SFG Mortgage and Investment Company, Inc., a Washington
corporation (the "Company"), has authorized the issuance of $25,000,000 in
Investment Debentures, Series I, at face value (the "Debentures"), none of which
were issued and outstanding prior to the date of this Agreement. This Agreement
contemplates that you will use your best efforts to sell, for the account of the
Company, up to $25,000,000 of the Debentures bearing the following terms and
interest rates:
<TABLE>
<CAPTION>
AMOUNT OF INVESTMENT TERM TO MATURITY ANNUAL INTEREST RATE
----------------------- ----------------- ---------------------
<S> <C> <C>
$2,000-$9,999 60 Months 7.0%
$10,000-$24,999 60 Months 8.0%
$25,000-$99,999 60 Months 8.35%
$100,000-$249,999 60 Months 8.65%
$250,000-$999,999 60 Months 9.0%
$1,000,000+ 60 Months Negotiable
</TABLE>
The term "Debentures," as used herein, includes as many of the Investment
Debentures, Series I, as are issued and sold pursuant to the terms hereof unless
the context indicates otherwise.
The Company hereby agrees with you as follows:
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to, and agrees with, you that:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement (File No. ) on
Form SB-2 and may have prepared and filed one or more amendments thereto
covering the registration of the Debentures under the Securities Act of 1933, as
amended (the "Securities Act"), including the related preliminary prospectuses,
each and all such preliminary prospectuses (together with all documents
incorporated therein by reference) being herein referred to as the "Preliminary
prospectus," and has prepared and proposes to file, prior to the effective date
of such registration statement, an additional amendment to such registration
statement, including a final prospectus, copies of which have heretofore been
delivered to you. The Company will not, without your prior consent (which shall
not be unreasonably withheld), file any other amendment thereto prior to the
time such registration statement shall become effective or make any change in
such form of final prospectus prior to the time it is first filed with the
Commission pursuant to
<PAGE>
Rule 424(b) of the rules and regulations of the Commission under the Securities
Act (the "Rules and Regulations"). Such registration statement and prospectus,
including all exhibits thereto and documents incorporated therein by reference,
as finally amended and revised at the time the registration statement becomes
effective are herein, respectively, called the "Registration Statement" and the
"Prospectus," except that, if the prospectus first filed by the Company pursuant
to Rule 424(b) of the Rules and Regulations shall differ from the Prospectus,
the term "Prospectus" shall mean the prospectus first filed pursuant to Rule
424(b).
(b) When the Registration Statement shall become effective and at all
times subsequent thereto up to and including the Closing Date (as hereinafter
defined), and, when any post-effective amendment thereof shall become effective,
the Registration Statement (and any post-effective amendment thereof) will fully
comply with the applicable provisions of the Securities Act and the Rules and
Regulations thereunder, and the Registration Statement will not contain any
untrue statement of a material fact and will not omit to state any material fact
required to be stated therein or necessary in order to make the statement
therein not misleading, and when the Registration Statement shall become
effective and at all times subsequent thereto up to and including the Closing
Date, the Prospectus (and the Prospectus as amended or supplemented, if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) will fully comply with the provisions of the Securities Act and the
Rules and Regulations and will not contain any untrue statement of a material
fact and will not omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
foregoing does not apply to statements or omissions in the Registration
Statement or the Prospectus, or any amendment or supplement thereto, based upon
written information furnished to the Company by you specifically for use
therein.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Washington and the
Company has full power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus and as being conducted,
and is in compliance in all material respects with all laws requiring its
qualification to do business as a foreign corporation in all other jurisdictions
in which it owns or leases substantial properties or in which the conduct of its
business requires such qualification.
(d) The Debentures have been duly authorized, and when issued and
delivered as contemplated by this Agreement, will have been validly issued and
will be fully paid and nonassessable, and conform to the description thereof
contained in the Prospectus. The certificates used to evidence the Debentures
will be in due and proper form. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Debentures as contemplated herein.
(e) This Agreement and the Trust Indenture Agreement (as defined below)
have each been duly authorized, executed and delivered by the Company and each
of this Agreement and the Trust Indenture Agreement constitutes a legal, valid
and binding obligation of each of the Company enforceable in accordance with its
terms and is in all respects in full compliance with all applicable provisions
of the Securities Act.
(g) The execution and delivery of this Agreement and the Trust Indenture
Agreement and the performance by the Company hereunder and thereunder will not
conflict with, result in a breach or violation of or constitute a default under
any agreement or instrument to which the Company is a party or the corporate
charter or by-laws of the Company or any law, order, rule, regulation, decree or
injunction of any jurisdiction, court or governmental agency or body, and no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the performance by the Company or
the Trust Indenture Agreement or
-2-
<PAGE>
the consummation by the company, of the transactions contemplated hereby or
thereby, except such as may be required under the Securities Act, or state
securities or Blue Sky laws.
(h) The Prospectus and the Preliminary Prospectus as originally filed or
as amended and supplemented, if the Company shall have filed with the Commission
any amendment thereof or supplement thereto will fully comply with the
applicable provisions of the Securities Act and the Rules and Regulations and
will not contain any untrue statement of a material fact and will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(i) The Company has not given any information or made any representation
in connection with the offering of the Debentures, written or oral, other than
as contained in the Prospectus or Preliminary Prospectus.
3. OFFERING AND SALE OF THE DEBENTURES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company appoints you as its exclusive
agent to effect sales of the Debentures for the account of the Company at the
face value thereof and upon the other terms and conditions set forth herein and
in the Prospectus, and you agree to use your best efforts as such agent to sell
the Debentures during the term of this Agreement upon the terms and conditions
set forth herein and in the Prospectus.
As compensation for your services hereunder, the Company will, at the
Closing (as hereinafter defined), pay you commissions each year in an amount
equal to 1.5% of the principal balance of all issued and outstanding Debentures
resulting from the sale of Debentures pursuant to the offering contemplated
herein. Such amounts shall be payable quarterly, in arrears, based upon the
principal amount of Debentures issued and outstanding as of the end of each
calendar quarter. Your appointment shall commence upon the date of the
execution of this Agreement, and shall continue for a period (such period,
including any extension thereof as hereinafter provided, being herein called the
"Offering Period") of 360 days from the effective date (the "Effective Date") of
the Registration Statement (and for any additional period extended by agreement
of the Company and you), unless all of the Debentures have previously been
subscribed for.
You hereby acknowledge that you will promptly upon receipt deliver all cash
and checks received by you from applicants to purchase Debentures to the
Company. Such cash or checks will be accompanied by one executed copy of the
Subscription Application pursuant to which applications to purchase Debentures
are made, properly completed and executed and in the form of Exhibit A to the
Prospectus ("Subscription Application"). All checks received by you from
applicants to purchase shall be made payable to "SFG Mortgage and Investment
Company, Inc." Promptly after receipt of a Subscription Application and the
funds therefore, the Company will mail an interim receipt to each such
subscriber to purchase the Debentures for the amount of such purchase. Any
entity selected by you to process orders for Debentures on behalf of applicants
to purchase may deliver cash or checks and Subscription Applications received
from such applicants directly to the Company.
It is understood that you shall have the right to refuse to forward to the
Company any Subscription Application, and in such event you shall promptly remit
all funds received by you to the person on whose behalf such funds were
submitted to you.
4. CLOSING. Subject to the prior termination of the offering as provided
herein, there shall be an initial closing (the "Initial Closing") at the Law
Offices of Jack G. Orr, P.S., on the tenth business day immediately following
the effective date of the Registration Statement, a final closing (the "Final
Closing") on the tenth business day after termination of the Offering Period and
such interim closings (or at such other place or time not later than ten
business
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days thereafter as You and the Company shall determine) (hereinafter
collectively the "Closings" or "the Closing Date") . Such Closings shall
include the following: (i) satisfaction of the conditions set forth in Section
7; (ii) payment for the Debentures to the Company and delivery to the Company of
properly completed and executed Subscription Applications to each purchaser (if
payment and delivery have not previously been effected); and (iii) delivery by
the Company of copies of the certificates for the Debentures purchased by each
Debenture purchaser. The copies of certificates for the Debentures to be
delivered at the Closing will be in definitive form in such denominations and
registered in such names as have been previously requested by you at least three
business days prior to the Closing Date.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with you
that:
(a) The Company will use its best efforts to cause the registration
statement as filed and any subsequent amendments thereto to become effective as
promptly as possible and will notify you immediately and confirm in writing (i)
when the Registration Statement and any amendment thereto shall have become
effective or any supplement to the Prospectus or any amended Prospectus shall
have been filed, (ii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
institution of any proceedings for that purpose, or of the institution or
threatening by the Commission of any investigation or other proceeding that
might result in the suspension of the use of the Prospectus, or of the
suspension of the qualification of the Debentures for offering or sale in any
jurisdiction, or of the institution or threatening of any proceedings for any
such purpose or for the purpose of preventing the use of or noticing a
deficiency in the Prospectus, any amended Prospectus or any supplement thereto.
The Company will not file any post-effective amendment to the Registration
Statement or supplement or amendment to the Preliminary Prospectus or the
Prospectus or, prior to the completion of the offering of the Debentures, make
any supplement to the Prospectus, unless you shall have been advised thereof and
shall not have reasonably disapproved such amendment or supplement.
(b) If prior to the Closing Date or at any time thereafter when a
Prospectus relating to the Debentures is required to be delivered under the
Securities Act any event occurs as a result of which the Preliminary Prospectus
or the Prospectus as then amended or supplemented would, in your judgment with
the concurrence of your counsel, include an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend the Preliminary Prospectus or the Prospectus
to comply with the Securities Act, the Company promptly will prepare and file
with the Commission an amendment or supplement which will correct such statement
or omission or an amendment which will effect such compliance and, at the
Company's expense, will prepare and furnish as many copies of any such amendment
or supplement as you may reasonably request.
(c) Not later than sixteen months from the date hereof, the Company will
make generally available to its security holders an earnings statement covering
a period of at least twelve months beginning after the effective date of the
Registration Statement which will satisfy the provisions of Section 11(a) of the
Securities Act.
(d) The Company will furnish to you copies of the Registration Statement
(two of which will be signed and will include all exhibits), each related
preliminary prospectus, the Prospectus and all amendments and supplements to
such documents, in each case as soon as available and in such quantities as you
reasonably request.
(e) The Company will use its best efforts to arrange for the qualification
of the Debentures under the laws of such jurisdictions as you designate and will
continue such qualifications in effect so long as required for the
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<PAGE>
offering of the Debentures as contemplated herein, PROVIDED that the Company
shall not be obligated to file any general consent to service of process, or to
qualify as a foreign corporation or as a dealer in securities in any state in
which it is not now so qualified.
(f) During the period of five years from the date hereof, the Company will
furnish to you, as soon as practicable after the end of each fiscal year, a copy
of its annual report to security holders for such fiscal year, and during such
period the Company will also furnish to you (i) as soon as available, a copy of
each report or definite proxy statement of the Company filed with the Commission
under the Securities Exchange Act of 1934 (the "Securities Exchange Act") or
mailed to security holders and (ii) from time to time such other information
concerning the Company as you may reasonably request.
(g) The Company will apply the net proceeds from the sale of the
Debentures to be sold by it hereunder for the purposes set forth in the
Prospectus.
(h) During the course of the offering of the Debentures the Company will
not take directly or indirectly any action designed to or that might, in the
future, reasonably be expected to cause or result in stabilization or
manipulation of the price of the Debentures.
(j) The Company will not give any information or make any representation
in connection with the offering of the Debentures, written or oral, other than
as contained in the Prospectus or the Preliminary Prospectus.
6. EXPENSES. Whether or not the transactions contemplated hereunder are
consummated, the Company will pay all costs and expenses incident to the
performance of its obligations hereunder, including, without limiting the
generality of the foregoing, all costs and expenses incurred in connection with:
(i) the issuance, sale and delivery of the Debentures being offered hereby
(including all transfer and other taxes thereon); (ii) the preparation, filing,
printing, and delivery of the Registration Statement (including all exhibits
thereto and documents incorporated therein by reference), the Preliminary
Prospectus, the Prospectus and - any amendments thereof and supplements thereto,
the Blue Sky memorandum, this Agreement and related selling and other documents
in connection with the offering (iii) the filing fees and expenses (including
fees and disbursements of your counsel) incurred in connection with the
qualification of the Debentures under state securities or Blue Sky laws and the
preparation of the Blue Sky memorandum for the offering and filing fees in
connection with the review of the terms of the public offering of the Debentures
by the National Association of Securities Dealers, Inc. ("NASD"); (iv) the fees,
disbursements and expenses of the accountants and counsel for the Company; (v)
the fees of the Company's transfer agent and registrar; (vi) all expenses of
obtaining approval for listing of the Debentures on any stock exchange; (vii)
the advertising costs (including tombstone advertisements, newspaper
advertising, direct mailings to potential investors and fees and expenses of
marketing consultants) of the offering not to exceed $5,000.00; and (viii) the
costs to you relating to arrangement of order processing services not to exceed
$5,000.00. It is understood that except as provided in this Section 6 and
Section 7 you will pay all of your costs and expenses, including travel,
telephone, advertising, and fees, disbursements and expenses of your counsel,
relating to the offering of the Debentures.
7. CONDITIONS OF YOUR OBLIGATIONS. Your obligations to use your best
efforts to sell the Debentures as provided herein and the delivery of funds on
the Closing Date shall be subject to the accuracy of the representations and
warranties of the Company as of the date hereof and at the Closing Date, to the
accuracy of the statements of the officers of the Company made pursuant to the
provisions hereof, to the performance by the Company, of its respective
obligations hereunder and to the following additional conditions:
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(a) The Registration Statement shall have become effective not later than
9:00 A.M., Seattle time, on the day of this Agreement, or such later time or
date as shall have been consented to by you. No stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted, or, to the knowledge of
the Company, shall be contemplated, by the Commission.
(b) You shall not have advised the Company that the Registration Statement
or Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact or omits to state a fact which, you have concluded, after
conferring with your counsel, is in either case material and in the case of an
omission is required to be stated therein or is necessary to make the statements
therein not misleading.
(c) You shall received an opinion of counsel for the Company, dated the
Closing Date, to the effect that:
(i) The Company has been duly incorporated and are validly existing as
corporations in good standing under the laws of the State of Washington and the
Company has full corporate power and authority to own its property and conduct
its business as described in the Prospectus, is in compliance in all material
respects with all laws requiring its qualification to do business as a foreign
corporation in all other jurisdictions in which it owns or leases substantial
properties or in which the conduct of its business requires such qualification;
(ii) The Debentures delivered on the Closing Date have been duly
authorized and validly issued and are fully paid and nonassessable and conform
to the description thereof contained in the Prospectus. The certificates used
to evidence the Debentures are in due and proper form. All actions of the
Company in connection with the offer and sale of the Debentures have been
effected in compliance with applicable law;
(iii) This Agreement has been duly authorized, executed and delivered by
the Company, and (assuming due authorization, execution and delivery by you)
constitutes a legal, valid and binding agreement of the Company, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws affecting enforcement of
creditors rights generally and to equitable principles that may restrict the
availability of remedies and except as rights to indemnity hereunder may be
limited under the Securities Act;
(iv) The Trust Indenture Agreement attached as Exhibit 3.2 to the
Registration Statement as amended has been duly authorized, executed and
delivered by the Company and (assuming due authorization, execution and delivery
by the other parties thereto) constitutes the legal, valid and binding
agreements of the Company enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and other
laws affecting enforcement of creditors' rights generally and to equitable
principles that may restrict the availability of remedies, and such agreement is
in all respects in full compliance with all applicable provisions of the
Securities Act and the Trust Indenture Act;
(v) All required action has been taken by the Company under the
Securities Act and the Securities Exchange Act to make the public offering and
consummate the sale of the Debentures pursuant to this Agreement; the issue and
sale by the Company of the Debentures and the execution and delivery of this
Agreement, the Trust Indenture Agreement by the Company and the performance by
the Company of its obligations hereunder and thereunder will not conflict with,
result in a breach of, or constitute a default under any agreement or instrument
known to such counsel to which the Company is a party or any applicable law,
order, rule, regulation, decree or injunction of any jurisdiction, court or
governmental agency or body or the corporate charter or by-laws of the Company;
and no consent, approval, authorization or order of, or filing with, any court
or governmental agency or body is required in connection with the issuance or
sale of the Debentures by the Company or for the performance by the Company of
this Agreement, or the Custodian Agreement or the consummation by the Company,
of the
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<PAGE>
transactions contemplated hereby or thereby, except such as have been obtained
under the Securities Act, and/OR the Securities Exchange Act and such as may be
required under state securities or Blue Sky laws in connection with the offering
of the Debentures as contemplated herein;
(vi) The Registration Statement and the Prospectus (except as to the
financial information contained therein, as to which they need express no
opinion) complied as to form in all material respects with the requirements of
the Securities Act, the 1940 Act and the rules and regulations of the Commission
thereunder;
(vii) The terms of the Trust Indenture Agreement comply in all material
respects with the requirements of the Trust Indenture Exchange Act.
Such counsel shall also have stated that (i) the Registration Statement has
become effective under the Securities Act, and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for such purposes have been
instituted or are pending or contemplated under the Securities Act; (ii) in the
course of their review and discussion of the contents of the Registration
Statement and Prospectus with certain officers and employees of the Company and
its independent accountants, no facts have come to their attention which would
lead them to believe that either the Registration Statement as of its effective
date or the Prospectus (except as to the financial information contained
therein, as to which they need express no opinion), as of its issue date or
thereafter to and including the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
In rendering such opinion, such counsel may rely as to matters involving
the application of laws other than the laws of the jurisdictions in which such
counsel is admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, upon an opinion or opinions of other counsel,
satisfactory to you. The opinion of counsel for the Company shall also state
that the opinion of any other counsel on whom such counsel is relying is in form
and substance satisfactory to such counsel and that, in such counsel's opinion,
you and they are justified in relying thereon.
(d) You shall have received from your counsel, such opinion or opinions,
dated such Closing Date, with respect to matters relating to the offering of the
Debentures as you may reasonably request, and the Company shall have furnished
to such counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(e) You shall have received a certificate of the chief executive officer
and a principal financial or accounting officer of each of the Company dated the
Closing Date, to the effect that:
(i) The representations and warranties herein of the Company are true
and correct as of the Closing Date with the same force and effect as if made on
that date;
(ii) The Company has performed all of its obligations hereunder to be
performed at or prior to the Closing Date; and
(iii) Since the effective date of the Registration Statement, there has
not occurred any event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth, and any such amendment or supplement
does not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
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<PAGE>
(f) At the time of the signing of this Agreement and at the Closings, you
shall have received a letter of Peterson Sullivan PLLC, certified public
accountants, dated the date of this Agreement or the Closing Date, confirming
that they are independent certified public accountants with respect to the
Company within the meaning of the Securities Act and the Rules and Regulations
and stating in effect that:
(i) In their opinion the balance sheet included in the Prospectus
complies as to form in all material respects with the applicable accounting
requirements of the Securities Act and the Rules and Regulations;
(ii) On the basis of a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company responsible for
financial and accounting matters and other specified procedures, nothing came to
their attention that caused them to believe that at the date of the latest
available balance sheet read by such accountants, or at a subsequent specified
date not more than five days prior to the Closing Date, there was any change in
the capital stock or stockholders equity of the Company as compared with amounts
shown on the balance sheet included in the Prospectus, except for such changes
as are contemplated by the Prospectus and as are described in such letter; and
(iii) They have confirmed such procedures with respect to certain information
contained in the Prospectus as were previously agreed
upon by you and them.
(g) The Company shall have furnished to you such additional certificates,
if any, with respect to the representations and warranties of the Company
contained herein as you shall reasonably have requested.
(h) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any change, or any development involving a
prospective change, in the condition (financial or otherwise) of the Company or
in any pending action, suit, proceeding or investigation involving the Company
whether or not arising from transactions in the ordinary course of business,
that, in your reasonable judgement, is material and renders it impractical or
inadvisable to proceed with the completion of the sale of and payment for the
Debentures on the Closing Date.
(i) No notice of disapproval shall have been issued or proceedings for
that purpose shall have been instituted by the Commission, the NASD, or any
state securities or Blue Sky authority with respect to the distribution
arrangements relating to the offering of the Debentures.
The Company will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you reasonably request.
8. INDEMNIFICATION AND CONTRIBUTION. (a) the Company will indemnify and
hold harmless you and each person, if any, who controls you within the meaning
of the Securities Act against any losses, claims, damages or liabilities, joint
or several, to which you or such controlling person may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or any Preliminary Prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
you and each such controlling person for any legal or other expenses reasonably
incurred by you or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any of such documents in reliance upon and in
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<PAGE>
conformity with written information furnished to the Company by you specifically
for use therein; and PROVIDED FURTHER, that the indemnity agreement contained in
this Section 9(a) with respect to any Preliminary Prospectus shall not inure to
the benefit of you (or of any person controlling you) on account of any such
losses, claims, damages, or liabilities (or actions in respect thereof), arising
from the sale of any of the Debentures to any person if you shall have failed to
send or give to such person with or prior to the delivery to you by such person
of a Subscription Application, a copy of the Prospectus or the Prospectus as
amended or supplemented, if any amendments or supplements thereto shall have
been furnished at or prior to the time of receipt by you of such person's
subscription application, to the extent that any such loss, claim, damage or
liability results from an untrue statement or an omission which was corrected in
the Prospectus or the Prospectus as amended or supplemented. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) You will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any Preliminary Prospectus or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by you
specifically for use therein; and will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action. This indemnity agreement will be in addition to
any liability which you may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. An indemnifying
party against whom indemnity may be sought shall not be liable to indemnify an
indemnified party under this Section 9 if any settlement of any such action is
effected without such indemnifying party's consent.
(d) If the indemnification provided for in subsection (a), (b) or (c) of
this Section 8 is for any reason, other than as specified in such subsections,
unavailable and the Company or you have been required to pay damages as a result
of a determination by a court that the Registration Statement, any Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto contains a
misrepresentation of a material fact or omits to state a material fact untrue
statement required to be stated therein or necessary to make the statements
therein not misleading, then the Company shall contribute to the damages paid by
you, and you shall contribute to the damages paid by the Company, but in each
case only to the extent that such damages arise out of or are based upon such
untrue statement
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or omission, (i) in such proportion as is appropriate to reflect the relative
benefits by the Company on the one hand and you on the other from the offering
of the Debentures or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand and you on the other in connection with
the statements or omissions which resulted in such damages as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and you on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total commissions received by you,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and you on the other shall be
determined by reference to, among other things, whether the untrue statement of
a material fact or the omission to state a material fact relates to information
supplied by the Company on the hand or by you on the other, and the parties
relevant intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and you agree that it
would not be just and equitable if their respective obligations to contribute
pursuant to this Section 8(e) were to be determined by pro rata allocation of
the aggregate damages or by any other method of allocation which does not take
account of the equitable considerations referred to in the first sentence of
this Section 8(e). For purposes of this Section 8(e), the term "damages" shall
include any legal or other expenses reasonably incurred by the Company or you in
connection with investigating or defending against any action or claim which is
the subject of the contribution provisions of this Section 8(e).
Notwithstanding the provisions of this Section 8(e), you shall not be required
to contribute any amount in excess of the amount by which the total price at
which the Debentures distributed to the public were offered to the public
exceeds the amount of any damages which you have otherwise been required to pay
by reason of such untrue statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. TERMINATION. You shall have the right to terminate this Agreement and
the offering of the Debentures at any time prior to the Closing if, after the
date hereof, there shall have been any declaration of war by the Government of
the United States, the Armed Forces of the United States shall be engaged in any
major hostilities, or any event shall have occurred resulting in (i) the closing
of the New York Stock Exchange or the American Stock Exchange, (ii) the general
suspension of trading on either such Exchange, (iii) the general establishment
of minimum prices by either such Exchange or by the Commission, or (iv) the
declaration of a bank moratorium by authorities of the United States or of the
State of New York, the effect of which in your judgment makes it impracticable
or inadvisable to proceed with the offering.
10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The respective
indemnities, agreements, representations, warranties and other statements of
Company and its officers set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of you, the Company or any of
its officers, directors or controlling persons, and will survive payment to the
Company for the Debentures. If this Agreement is terminated pursuant to Section
9 hereof or if for any reason the sale of the Debentures is not consummated, the
Company shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 6 and 8 and to you pursuant to Section 8 shall remain in
effect.
11. NOTICES. All communications hereunder will be in writing and, if sent
to you, will be mailed, delivered, or telegraphed and confirmed to you at 923
Powell Avenue SW, Renton, WA, 98057; if sent to the Company, will be mailed,
delivered, or telegraphed and confirmed to it at 1239 - 120th Avenue NE, Suite
J, Bellevue, WA, 98005, Attention-John Odegard, President.
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12. SUCCESSORS. This Agreement will inure to the benefit and be binding
upon the parties hereto and their respective successors and the officers,
directors and controlling persons referred to in Section 9, and no other person
will have any right or obligation hereunder.
13. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington.
14. COUNTERPARTS. This Agreement may be executed in counterparts, all of
which, taken together, shall constitute a single agreement.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicate hereof, whereupon it will
become a binding agreement among the Company and you in accordance with its
terms.
Very truly yours,
SFG MORTGAGE AND INVESTMENT
COMPANY, INC.
By
--------------------------------
John Odegard, President
The foregoing Underwriting Agreement is herein confirmed and accepted as of the
date first above written.
- ------------------------------
Pacific West Securities, Inc.
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EXHIBIT 2.1
ARTICLES OF INCORPORATION
<PAGE>
ARTICLES OF INCORPORATION
OF
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
The undersigned, being over the age of eighteen years and acting as
incorporator of the corporation under the Washington Business Corporation Act,
RCW 23B, adopts by duplicate originals the following Articles of Incorporation
for the corporation.
ARTICLE V
CORPORATE NAME
The name of the corporation is SFG MORTGAGE AND INVESTMENT COMPANY, INC.
ARTICLE VI
TERM OF EXISTENCE
The corporation shall have perpetual existence.
ARTICLE VII
CORPORATE PURPOSE
The nature of the business of the corporation and its objects and purposes
are:
A. To engage in the business of making, acquiring, buying and selling
real estate loans, real estate contracts and other obligations secured by real
estate and to acquire, hold for investment, buy and sell real estate.
B. In general, to carry on any lawful business or trade whatsoever in
connection with the foregoing which is calculated, directly or indirectly, to
promote the interests of the corporation or to enhance the value of its
properties, and to exercise all powers granted to a corporation formed under the
Washington Business Corporation Act, RCW Chapter 23B, or any amended version of
that Act or any successor Acts.
ARTICLE VIII
CAPITAL STOCK
The corporation shall have authority to issue One Million (1,000,000)
shares of common stock. The shares of common stock shall have no par value. No
other class or shares of stock in this corporation are authorized.
<PAGE>
ARTICLE IX
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, shareholders
of the corporation shall not be entitled to preemptive rights to subscribe for
or purchase any part of new or additional issues of shares of stock or
securities convertible into shares of stock of any class whatsoever, whether now
or hereafter authorized, and whether issued for cash, property, services, by way
of distributions, or otherwise.
ARTICLE X
NO CUMULATIVE VOTING
There shall be no cumulative voting of the shares in this corporation.
ARTICLE XI
SHAREHOLDER VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
To be adopted by the shareholders, (1) an amendment of the Articles of
Incorporation; (2) a plan of merger or share exchange; (3) a sale, lease,
exchange, or other disposition of all, or substantially all, of the
corporation's assets, other than in the usual and regular course of business; or
(4) a dissolution of the corporation, must be approved by each voting group of
shareholders entitled to vote thereon by a two-thirds of all the votes entitled
to be cast by that voting group.
ARTICLE XII
LIMITATION OF DIRECTORS' LIABILITY
The personal liability of a director or the directors to the corporation or
its shareholders for monetary damages is hereby eliminated for any conduct as a
director except acts or omissions that involve intentional misconduct or a
knowing violation of law by a director, for conduct violating RCW 23B.08.310, or
for any transaction from which a director will personally receive a benefit in
money, property, or services to which a director is not legally entitled.
If the Washington Business Corporation Act is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the full extent permitted by the Washington Business Corporation Act,
as so amended. Any repeal or modification of this Article shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification for or with respect to an act or omission of
such director occurring prior to such repeal or modification.
ARTICLE XIII
TRANSACTIONS WITH DIRECTORS, OFFICERS, AND SHAREHOLDERS
The corporation hereby expressly elects not to be covered by the provisions
of the Washington Business Corporation Act, RCW 23B.17.020, limiting the
counting of votes of
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interested shareholders in certain transactions. The corporation may enter into
contracts and otherwise transact business as vendor, purchaser, or otherwise,
with its directors, officers, and shareholders and with corporations,
associations, firms, and entities in which they are or may be or become
interested as directors, officers, shareholders, members, or otherwise, as
freely as though such adverse interests did not exist, even though the vote,
action, or presence of such director, officer, or shareholder may be necessary
to obligate the corporation upon such contracts or transactions.
In the absence of knowing fraud, no such contract or transaction shall be
avoided and no such director, officer, or shareholder shall be held liable to
account to the corporation, by reason of such adverse interests or by reason of
any fiduciary relationship to the corporation arising out of such office or
stock ownership, for any profit or benefit realized by him or her through any
such contract or transaction. In the case of directors and officers of the
corporation (but not in the case of shareholders who are not directors or
officers), the nature of the interest of such director or officer, though not
necessarily the details or extent thereof, shall be disclosed or made known to
the Board of Directors of the corporation at the meeting thereof at which such
contract or transaction is authorized or confirmed. A general notice that a
director or officer of the corporation is interested in any corporation,
association, firm, or entity shall be sufficient disclosure as to such director
or officer with respect to all contracts and transactions with that corporation,
association, firm, or entity.
ARTICLE XIV
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Name: Address:
---- --------
Jack G. Orr 3019 Narrows Place
Tacoma, WA 98407
ARTICLE XV
REGISTERED OFFICE AND AGENT
The address of the registered office of the corporation and the name of the
registered agent of the corporation at that address are as follows:
Name: Address:
---- --------
Jack G. Orr 3019 Narrows Place
Tacoma, WA 98407
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ARTICLE XVI
DIRECTORS
The number, qualifications, terms of office, manner of election, time and
place of meetings, and powers and duties of the directors shall be prescribed in
the Bylaws, but the number of original directors shall be three (3), and they
shall serve until the first meeting of the shareholders and until their
successors are elected and qualified, and their names and post office addresses
are as follows:
Name: Address:
---- --------
John Odegard 923 Powell Avenue SW, Suite 108
Renton, WA 98057
Mark Speno 923 Powell Avenue SW, Suite 108
Renton, WA 98057
Gregory B. Elderkin 923 Powell Avenue SW, Suite 108
Renton, WA 98057
ARTICLE XVII
BYLAWS
Both the shareholders of the corporation, by a majority vote of qualified
shares issued and outstanding, and the Board of Directors, by vote of a majority
of the whole Board, shall each have the power to adopt, make, amend, alter or
repeal the Bylaws of the corporation; but any Bylaw adopted by the Board may be
amended or repealed by the shareholders.
ARTICLE XVIII
REVISION OF THE ARTICLES
The corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by law, and all rights and powers conferred in these
Articles of Incorporation on shareholders and directors are subject to this
reserved power.
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IN WITNESS WHEREOF, the undersigned incorporator, for the purpose of
forming a corporation pursuant to the Washington Business Corporation Act, does
make these Articles and has affixed his signature below on this 1st day of
September, 1998.
/s/ Jack G. Orr
----------------------------------
Jack G. Orr, Incorporator
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CONSENT TO SERVE AS REGISTERED AGENT
I, Jack G. Orr, do hereby consent to serve as registered agent in the State
of Washington for SFG MORTGAGE AND INVESTMENT COMPANY, INC. I understand that
as agent for the corporation, it will be my responsibility to receive service of
process in the name of the corporation, to forward all mail to the corporation,
and to immediately notify the Office of the Secretary of State in the event of
my resignation, or of any changes in the registered office address of the
corporation for which I am agent.
DATED this 1ST day of September, 1998.
/s/ Jack G. Orr
---------------------------
Jack G. Orr
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EXHIBIT 2.2
BYLAWS
<PAGE>
BYLAWS
OF
SFG MORTGAGE AND INVESTMENT COMPANY, INC.
ARTICLE XIX
OFFICES
1. REGISTERED OFFICE AND REGISTERED AGENT. The registered office of the
corporation shall be in the State of Washington and located at such place as may
be fixed from time to time by the Board of Directors upon filing of such notices
as required by law. The registered agent in the State of Washington shall have
a business office identical with such registered office.
2. OTHER OFFICES. The corporation may have other offices within or
outside the State of Washington at such place or places as the Board of
Directors may from time to time determine.
ARTICLE XX
SHAREHOLDERS' MEETINGS
1. MEETING PLACE. All meetings of the shareholders shall be held at the
registered office of the corporation, or at such other place as determined from
time to time by the Board of Directors. The notice of the meeting shall state
the place where the meeting will be held.
2. ANNUAL MEETING TIME. The annual meeting of the shareholders for the
election of directors and for the transaction of other business as may properly
come before the meeting shall be held each year at such time and place as shall
be determined by the Board of Directors.
3. ANNUAL MEETING - ORDER OF BUSINESS. At the annual meeting of
shareholders, the order of business shall be as follows:
(a) the meeting shall be called to order;
(b) the proof of notice of the meeting, or the filing of a waiver,
shall be provided;
(c) the minutes of the last annual meeting shall be read;
(d) the reports of the officers shall be read;
(e) the reports of the committees shall be read;
(f) the directors shall be elected; and
(g) the miscellaneous business shall be conducted.
<PAGE>
4. SPECIAL MEETING. A special meeting of the shareholders may be called
for any purpose at any time by the President, the Board of Directors, or the
holders of not less than one-tenth of all shares entitled to vote at the
meeting. Business transacted at any special meeting of the shareholders shall
be limited to the express purposes stated in the notice of the special meeting.
The Board of Directors may designate any location as the place of any special
meeting called by the President or the Board of Directors, and a special meeting
called at the request of the shareholders shall be held at any place determined
by the Board of Directors and described in the notice of such meeting.
5. NOTICE OF SHAREHOLDERS' MEETING. Notice of the date, time, and place
of an annual meeting or a special meeting of the shareholders shall be given by
the Secretary or persons authorized to call the meeting by transmitting to the
shareholders entitled to vote at the meeting a written or printed notice of the
meeting no fewer than ten (10) days nor more than sixty (60) days prior to the
meeting; except that a notice of a shareholders' meeting to act on an amendment
to the Articles of Incorporation, a plan of merger or share exchange, a proposed
sale of assets pursuant to RCW 23B.12.020 (or any successor statute), or the
dissolution of the corporation shall be given no fewer than twenty (20) days nor
more than sixty (60) days before the meeting date. If the meeting is a special
meeting, the notice shall also include a description of the purpose or purposes
for which the meeting is called. Notice of an annual meeting or a special
meeting may be transmitted by mail; private carrier; personal delivery;
telegraph; teletype; or telephone, wire or wireless equipment which transmits a
facsimile of the notice. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, and addressed to the
shareholder at the shareholder's address appearing on the stock transfer books
of the corporation.
6. WAIVER OF NOTICE. Notice of the date, time, place, and purpose of any
meeting may be waived in writing (either before or after such meeting) and will
be waived by any shareholder by the shareholder's attendance at the meeting in
person or by proxy, unless the shareholder, at the beginning of the meeting,
objects to holding the meeting or transacting business at the meeting. Any
shareholder waiving notice shall be bound by the proceedings of any such meeting
in all respects as if notice had been given.
7. CLOSING OF TRANSFER BOOKS AND RECORD DATE. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period no fewer than ten (10)
days prior to such meeting and no more than seventy (70) days prior to such
meeting. In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a record date for any determination of the shareholders, such
date to be no more than seventy (70) days and no fewer than ten (10) days prior
to the date on which the particular action requiring determination of
shareholders is to be taken. If no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the day before the date on which notice of the meeting is mailed shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section, such determination shall apply to any adjournment,
unless the Board of
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Directors fixes a new record date, which it must do if the meeting is adjourned
more than one hundred twenty (120) days after the date fixed for the original
meeting.
8. SHAREHOLDERS' LIST FOR MEETING. At least ten (10) days before a
meeting of the shareholders, the corporation shall prepare an alphabetical list
of the names of all shareholders on the record date which are entitled to notice
of a shareholders' meeting. The list shall be arranged by voting group, and
within each voting group by class or series of shares, and shall show the
address of and number of shares held by each shareholder. The shareholders'
list shall be available for inspection by any shareholder, beginning ten (10)
days prior to the meeting and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, the shareholder's
agent, or the shareholder's attorney may inspect the list, during regular
business hours and at the shareholder's expense, during the period it is
available for inspection. The corporation shall make the shareholders' list
available at the meeting, and any shareholder, shareholder's agent, or
shareholder's attorney may inspect the list at any time during the meeting or
any adjournment. The refusal or failure to prepare or make available the
shareholders' list shall not affect the validity of any action taken at the
meeting.
9. VOTING OF SHARES. Except as otherwise provided by the Articles of
Incorporation or by these Bylaws, every shareholder of record shall have the
right at every shareholders' meeting to one vote for every share standing in the
shareholder's name on the stock transfer books of the corporation. Except as
otherwise provided in the Articles of Incorporation or in these Bylaws, the
affirmative vote of the holders of a majority of the shares entitled to vote and
represented in a meeting shall be necessary for the adoption of a motion or for
the determination of all questions and business which shall come before the
meeting.
10. QUORUM AND ADJOURNED MEETINGS. A majority of the outstanding shares
of the corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. A majority of the shares
represented at a meeting, even if less than a quorum, may adjourn the meeting
from time to time without further notice. At such reconvened meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
shareholders present at a duly organized meeting may continue to transact
business at such meeting and at any adjournment of such meeting (unless a new
record date is or must be set for the adjourned meeting), notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
11. PROXIES. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by the shareholder's duly
authorized attorney-in-fact. The proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.
12. SHAREHOLDER PRESENCE - CONFERENCE CALL. Shareholders may participate
in a meeting of the shareholders by means of a conference telephone or similar
communications equipment by
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which all persons participating in the meeting can hear each other during the
meeting. A shareholder participating by conference telephone or similar
communication equipment shall be deemed present in person at a meeting.
13. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required to be
taken or which may be taken at a meeting of shareholders of the corporation may
be taken without a meeting if a consent in writing, setting forth the action
taken, is signed either before or after the action is taken by all shareholders
entitled to vote with respect to the subject matter. Such consent shall have
the same force and effect as a unanimous vote of shareholders.
ARTICLE XXI
BOARD OF DIRECTORS
1. GENERAL POWERS. The management of all of the affairs, property, and
interest of the corporation shall be vested in the Board of Directors, except as
otherwise provided by the Washington Business Corporation Act or the Articles of
Incorporation. In addition to the powers and authorities expressly conferred
upon the Board of Directors by these Bylaws and the Articles of Incorporation,
the Board of Directors may exercise all powers of the corporation and do any
acts that the shareholders direct to be performed which are not prohibited by
law, the Articles of Incorporation, or these Bylaws.
2. NUMBER AND ELECTION. The number of directors of the corporation shall
be three (3). The number of directors may be increased or decreased from time
to time by amending this Section 2, provided that (a) any amendment may be made
by a vote of the directors, (b) no decrease shall have the effect of shortening
the term of any incumbent director, and (c) the Board of Directors shall consist
of at least one person. A director shall be elected for a term of one year and
shall hold office until the director's successor is elected and qualified or
until there is a decrease in the number of directors. A director need not be a
shareholder or resident of the State of Washington.
3. DUTIES. A director shall perform the duties of a director, including
the duties as a member of any committee of the Board of Directors upon which the
director may serve, in good faith, in a manner the director believes to be in
the best interests of the corporation, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances. In performing the duties of a director, the director may
rely upon information, opinions, reports or statements, including financial
statements and other financial data, prepared or presented by:
(a) one or more officers or employees of the corporation that the
director believes to be reliable and competent in the matter presented;
(b) legal counsel, public accountants, or other persons as to matters
that the director believes to be within such person's professional or expert
competence; or
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(c) a committee (of which the director is not a member) of the Board
of Directors, duly designated in accordance with a provision of the Articles of
Incorporation or the Bylaws, as to matters within the committee's designated
authority, so long as the director reasonably believes the committee merits
confidence.
A director is not acting in good faith if the director has knowledge
concerning the matter in question which makes reliance otherwise permitted above
unwarranted.
4. RESIGNATION. Any director may resign at any time by delivering
written notice to the Secretary of the corporation.
5. VACANCIES. All vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill any vacancy shall hold office for the
unexpired term of the director's predecessor and until the director's successor
is elected and qualified. Any directorship to be filled due to an increase in
the number of directors shall be filled, by a vote of the holders of a majority
of the shares entitled to vote, for a term of office continuing only until the
next election of directors by the shareholders. A vacancy that will occur at a
specific later date may be filled before the vacancy occurs, but the new
director may not take office until the vacancy occurs.
6. REMOVAL OF DIRECTORS. At a meeting of the shareholders called
expressly for that purpose, the entire Board of Directors, or any member, may be
removed in the following manner: (a) by a vote of the holders of a majority of
the shares entitled to vote at an election of directors; but, (b) if cumulative
voting is permitted by the Articles of Incorporation, and if less than the
entire Board of Directors is to be removed, a single director may not be removed
if the votes cast against the director's removal would be sufficient to elect
the director if cumulatively voted at an election of the entire Board of
Directors, or, if there are classes of directors, at an election of the class of
directors of which the director is a member.
7. MEETINGS OF THE BOARD OF DIRECTORS.
(a) ANNUAL MEETINGS. The first meeting following shareholder
election of the Board of Directors shall be known as the annual meeting thereof
and shall be held without notice immediately after the adjournment of the annual
meeting of shareholders. The meeting shall be held at the same place as the
preceding shareholders' meeting unless some other place is specified by
resolution of the shareholders or the Board of Directors.
(b) REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at the registered office of the corporation or at such
other place or places, either within or without the State of Washington, as the
Board of Directors may from time to time designate.
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(c) SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called at any time by the President or, in his or her absence, by any
director, to be held at the registered office of the corporation or at such
other place or places as the Board of Directors may from time to time designate.
Such notice shall specify the business to be transacted at the meeting.
(d) NOTICE OF MEETINGS AND WAIVER. Unless the Articles of
Incorporation provide otherwise, regular meetings of the Board of Directors may
be held without notice of the date, time, place, or purpose of the meeting.
Special meetings of the Board of Directors must be preceded by at least two (2)
days' notice of the date, time, and place of the meeting, but not of its
purpose, unless the Articles of Incorporation or Bylaws require otherwise.
Notice may be given by telegraph, telephone, facsimile, mail or personally. If
mailed, notice shall be deemed delivered when deposited in the United States
mail, first-class postage prepaid, five (5) days in advance of the meeting.
Notice of any meeting of the Board of Directors may be waived in a signed
writing, delivered to the corporation for inclusion in the minutes, by any
director at any time, either before or after the meeting, and attendance or
participation at the meeting shall constitute a waiver of any required notice of
the meeting except where a director attends for the express purpose of objecting
to the holding of the meeting or the transaction of any business because the
meeting was not lawfully convened, and the director does not thereafter vote for
or assent to action taken at the meeting.
(e) ACTION OF DIRECTORS BY COMMUNICATIONS EQUIPMENT. Members of the
Board of Directors and any committee thereof may participate at a meeting of
such Board or committee by means of a conference telephone or similar
communications equipment by which all directors participating in the meeting can
hear each other during the meeting. A director participating by these means is
deemed to be present in person at a meeting.
(f) QUORUM. A majority of the Board of Directors shall be necessary
at all meetings to constitute a quorum for the transaction of business.
(g) REGISTERING DISSENT. A director who is present at a meeting of
the Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless: (1) the director objects at
the beginning of the meeting, or promptly upon the director's arrival, to
holding the meeting or transacting business at the meeting; (2) the director's
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (3) the director delivers written notice of the director's dissent
or abstention to the presiding officer of the meeting before its adjournment or
to the corporation within a reasonable time after adjournment of the meeting.
The right to dissent shall not apply to a director who voted in favor of such
action.
8. ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or which
may be taken at a meeting of the Board of Directors, or a committee of the Board
of Directors, may be taken without a meeting if all members of the Board of
Directors or its committee sign, either before or after the action is taken, a
written consent(s) setting forth the action to be taken and deliver said
consent(s) to the corporation for inclusion in the minutes or for filing with
the corporate records. Such consent shall have the same effect as a unanimous
vote at a meeting.
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9. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors, from its own
number, may appoint standing or temporary committees from time to time and
invest such committees with such powers as it may see fit, subject to such
conditions as may be prescribed by such Board of Directors. Each committee must
have two or more members. An Executive Committee may be appointed by resolution
passed by a majority of the full Board of Directors. It shall have and exercise
all of the authority of the Board of Directors, except that the Executive
Committee shall not have the authority to:
(a) authorize distributions, except at a rate or in periodic amounts
as determined by the Board of Directors;
(b) approve or recommend to the shareholders actions or proposals
required by the Washington Business Corporation Act to be approved by the
shareholders;
(c) fill vacancies on the Board of Directors or any of its
committees;
(d) amend the Articles of Incorporation pursuant to RCW 23B.10.020
(or any successor statute), or adopt, repeal, or amend the Bylaws;
(e) authorize or approve the reacquisition of shares unless pursuant
to a general formula or method specified by the Board of Directors;
(f) fix compensation of any director for serving on the Board of
Directors or on any committee;
(g) approve a plan of merger, consolidation, or exchange of shares
not requiring shareholder approval; or
(h) appoint other committees or members of other committees of the
Board of Directors.
10. COMPENSATION. No stated compensation shall be paid to directors, as
such, for their services. By resolution of the Board of Directors, however, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board; provided, however, that this shall
not be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation for such service. Members of special
or standing committees may be allowed like compensation for attending committee
meetings.
11. LOANS. The corporation shall not lend money to or guarantee the
obligation of a director of the corporation unless either: (a) the particular
loan or guarantee is approved by a vote of the holders of a majority of the
shares represented by the outstanding voting shares of all classes, except the
shares of the benefited director, or, (b) the corporation's Board of Directors
determines
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that the loan or guarantee benefits the corporation and either approves the
specific loan or guarantee or a general plan authorizing loans or guarantees.
12. LIABILITY. In addition to any other liabilities imposed by law upon
directors of the corporation, unless the directors comply with Section 3 of this
Article:
(a) a director of the corporation who votes for or assents to any
distribution of the assets of the corporation to its shareholders contrary to
RCW 23B.06.400 (or any successor statute), or other provision of the Washington
Business Corporation Act (the "Act"), or contrary to any restrictions contained
in the Articles of Incorporation, shall be personally liable to the corporation
for the amount of the distribution in excess of the amount which could have been
paid or distributed without a violation of RCW 23B.06.400 (or any successor
statute), the other provisions of the Act, or the restrictions in the Articles
of Incorporation, if it is established that the director did not perform his or
her duties in compliance with RCW 23B.08.300 (or any successor statute), and
other provisions of the Act;
(b) a director of the corporation who votes for or assents to any
distribution of the assets of the corporation for the purchase of the
corporation's shares contrary to the provisions of the Act shall be personally
liable to the corporation for the amount of consideration paid for such shares
in excess of the maximum amount which could have been paid without a violation
of the provisions of the Act;
(c) a director of the corporation who votes for or assents to any
distribution of assets of the corporation to its shareholders during the
liquidation of the corporation, without the payment and discharge of, or making
adequate provision for, all known debts, obligations, and liabilities of the
corporation, shall be personally liable to the corporation for the value of such
assets which are distributed, to the extent that the debts, obligations, and
liabilities of the corporation are not paid and discharged; and
(d) a director of the corporation who votes for or assents to the
making of a loan secured by shares of the corporation shall be personally liable
to the corporation for the amount of such loan until its repayment, unless
approved as provided in Section 11 of this Article.
Any director held liable pursuant to this Article for a distribution of
assets of the corporation is entitled to contribution from each shareholder for
the amount the shareholder accepted or received knowing the distribution was
made in violation of RCW 23B.06.400 (or any successor statute), the Act, or the
Articles of Incorporation. Any director held liable pursuant to this Article of
a distribution of assets of the corporation is entitled to contribution from
every other director who could be held liable under this Article for the
unlawful distribution.
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ARTICLE XXII
OFFICERS
1. DESIGNATIONS. The corporation shall have a President and Secretary,
and other officers as the Board of Directors may designate, which may include
one or more Vice Presidents, one or more Executive Vice Presidents, Assistant
Secretaries, a Treasurer, and Assistant Treasurers. An officer shall be elected
for one year by the Board of Directors at its first meeting after the
organizational meeting of shareholders and shall hold office until the officer's
successor is elected and qualified. Any two or more offices may be held
simultaneously by the same person. The Board of Directors may delegate to any
officer the authority to appoint subordinate officers.
2. DUTIES OF THE OFFICERS. The duties of the officers shall be as
follows:
(a) THE PRESIDENT. The President shall be the chief executive
officer of the corporation. The President shall preside at all meetings of
shareholders and directors, shall have general supervision of the affairs of the
corporation, and shall perform all other duties as are incident to the office or
which are properly required of the President by the Board of Directors.
(b) THE VICE PRESIDENT. During the absence or disability of the
President, the Executive Vice President, if any, and the Vice President in the
order designated by the Board of Directors, shall exercise all the functions of
the President. Each Executive Vice President and Vice President shall have such
powers and discharge such duties as may be assigned to such officer from time to
time by the Board of Directors.
(c) THE SECRETARY AND ASSISTANT SECRETARY. The Secretary shall issue
notices for all meetings, except notices for special meetings of the
shareholders and special meetings of the directors which are called by the
requisite number of shareholders and directors, shall keep minutes of all
meetings, shall have charge of the seal and the corporate books and records,
shall be responsible for authenticating records of the corporation, and shall
make such reports and perform such other duties as are incident to the office,
or are properly required of the officer by the Board of Directors. The
Assistant Secretary, or Assistant Secretaries in the order designated by the
Board of Directors, shall perform all of the duties of the Secretary during the
absence or disability of the Secretary, and at other times may perform such
duties as directed by the President or the Board of Directors.
(d) THE TREASURER AND ASSISTANT TREASURER. The Treasurer shall have
the care and custody of all moneys and securities of the corporation and shall
keep regular books of account. The Treasurer shall disburse the funds of the
corporation in payment of the just demands against the corporation or as may be
ordered by the Board of Directors, taking proper vouchers for such disbursements
and shall deposit all funds and other valuable effects in the name of the
corporation in such depositories as may be designated by the Board of Directors.
The Treasurer shall render to the Board of Directors from time to time as may be
required of the Treasurer an account of all the
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Treasurer's transactions as Treasurer and of the financial condition of the
corporation. The Treasurer shall perform such other duties incident to the
office or that are properly required of the Treasurer by the Board of Directors.
The Assistant Treasurer, or Assistant Treasurers in the order designated by the
Board of Directors, shall perform all of the duties of the Treasurer in the
absence or disability of the Treasurer, and at other times may perform such
other duties as directed by the President or the Board of Directors.
3. DELEGATION. If any officer of the corporation and any person
authorized to act in such officer's place are absent or unable to act, the Board
of Directors may from time to time delegate the powers or duties of such officer
to any other officer, director, or other person that the Board of Directors may
select.
4. VACANCIES. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board
of Directors.
5. OTHER OFFICERS. The Board of Directors may appoint such other
officers and agents as it deems necessary or expedient. Those officers shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
6. COMPENSATION. The compensation of all officers of the corporation
shall be fixed by or under the direction of the Board of Directors.
7. TERM AND REMOVAL. The officers of the corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected
or appointed by the corporation may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contract rights, if any, of
the officer or agent so removed. Election or appointment of an officer or agent
shall not of itself create any contract rights.
8. STANDARD OF CONDUCT. Non-director officers with discretionary
authority will be held to the same standards of conduct as directors.
9. BONDS. The Board of Directors may, by resolution, require any and all
of the officers to give bonds to the corporation, with sufficient surety or
sureties, conditioned upon faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
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ARTICLE XXIII
SHARE CERTIFICATES
1. CONSIDERATION FOR SHARES. Consideration for shares may consist of
cash, promissory notes, services performed, contracts for services to be
performed, or any other tangible or intangible property. If shares are issued
for other than cash, the Board of Directors shall determine the value of the
consideration.
2. ISSUANCE, FORM AND EXECUTION OF CERTIFICATES. Each certificate
representing shares may state upon the face of the certificate the par value of
each share or may state that the shares are without par value.
No shares of the corporation shall be issued unless authorized by the Board
of Directors. Such authorization shall include the maximum number of shares to
be issued and the consideration to be received for each share. Certificates for
shares of the corporation shall be in a form consistent with the provisions of
the Washington Business Corporation Act and shall state: (a) the name of the
issuing corporation and that the corporation is organized under the laws of this
state; (b) the name of the person to whom issued; (c) the number and class of
shares and the designation of the series, if any, which the certificate
represents; and (d) if the corporation is authorized to issue shares of more
than one class, that upon request and without charge, the corporation will
furnish any shareholder with a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or series, and the
authority of the Board of Directors to determine variations for future series.
Certificates of stock shall be issued in numerical order. Each certificate
issued shall be signed by the President or a Vice President, and by the
Secretary or an Assistant Secretary, and may be sealed with the seal of the
corporation or a facsimile of the seal of the corporation. The signatures of
such officers may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the corporation itself
or an employee of the corporation. If the officer that signed, either manually
or in facsimile, a share certificate does not hold office when the certificate
is issued, the certificate is nevertheless valid.
3. FRACTIONAL SHARES OR SCRIP. The corporation may, but shall not be
obliged to, issue a certificate for a fractional share, which shall entitle the
holder to exercise voting rights, to receive dividends, and to participate in
any of the assets of the corporation in the event of liquidation. In lieu of
fractional shares, the Board of Directors may: (a) dispose of a fractional
interest by paying in cash the fair value of the fractional interest as of the
time when those entitled to receive such shares are determined, or (b) issue
scrip in registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of scrip aggregating a full
share.
4. TRANSFERS. Transfers of stock shall be made only upon the stock
transfer books of the corporation, kept at the registered office of the
corporation or at its principal place of business, or at the office of its
transfer agent or registrar. Shares may be transferred by delivery of the
certificate,
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accompanied either by an assignment in writing on the back of the certificate,
or by a written power of attorney to sell, assign and transfer the same, signed
by the record holder of the certificate. Before a new certificate is issued,
the old certificate shall be surrendered for cancellation. Restrictions on the
transfer of shares that the Board of Directors may from time to time adopt are
valid and enforceable to the extent permitted by Washington law. The Board of
Directors may, by resolution, open a share register in any state of the United
States, and may employ an agent or agents to keep such register and record
transfers of shares.
5. MUTILATED, LOST OR DESTROYED CERTIFICATES. If any stock certificate
is mutilated, lost or destroyed, it may be replaced upon proof of such
mutilation, loss, or destruction. The Board of Directors may require the
shareholder to provide a satisfactory bond or indemnity to the corporation in
such sum as determined by the Board of Directors or may impose other conditions
or establish other procedures as it deems necessary.
6. REGISTERED OWNER. Only registered shareholders shall be considered as
holders of the stock standing in their respective names. The corporation shall
not be bound to recognize any equitable or other claim to or interest in any
share on the part of any other person, whether or not the corporation has
express or other notice of such claim or interest, except as expressly provided
by the laws of the State of Washington.
7. CLOSING STOCK TRANSFER BOOKS AND FIXING RECORD DATE. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for the payment of
any distribution, the allotment of rights, the conversion or exchange of any
securities by their terms or any other proper purpose, the Board of Directors
may provide that the stock transfer books shall be closed for a stated period
not to exceed sixty (60) days. If the stock transfer books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix
in advance a date as the record date for any such determination of shareholders,
the date in any case to be not more than seventy (70) days and, in case of a
meeting of shareholders, not less than ten (10) (or in the case of a merger,
dissolution, amendment of the Articles of Incorporation, or sale of assets,
twenty (20)) days prior to the date on which the particular action requiring the
determination of shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, the date on which
notice of the meeting is mailed shall be the record date for such determination
of shareholders. If the stock transfer books are not closed and no record date
is fixed for determination of shareholders entitled to a distribution, the date
on which the Board adopted the resolution declaring the dividend shall be the
record date. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, that
determination shall apply to any adjournment thereof, unless Washington law
requires fixing a new record date.
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8. SHARES OF ANOTHER CORPORATION. Shares owned by the corporation in
another corporation, domestic or foreign, may be voted by such officer, agent,
or proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the corporation.
ARTICLE XXIV
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES, AND AGENTS
1. DEFINITIONS.
(a) "Director" means any person who is or was a director of the
corporation and any person that, while a director of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan;
(b) "Expenses" means costs and attorneys' fees;
(c) "Official capacity" means: (1) when used with respect to a
director, the office of director in the corporation, and (2) when used with
respect to a person other than a director as contemplated in Section 10 of this
Article, the elective or appointive office in the corporation held by the
officer or the employment or agency relationship undertaken by the employee or
agent on behalf of the corporation; but shall not include service for any other
foreign or domestic corporation or any partnership, joint venture, trust, other
enterprise or employee benefit plan;
(d) "Party" means a person who was, is, or is threatened to be, made
a named defendant or respondent in a proceeding or who is otherwise involved in
a proceeding (including, without limitation, a witness); and
(e) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding whether civil, criminal, administrative, or investigative.
2. DIRECTOR INDEMNITY; PROCEEDING NOT BY OR IN RIGHT OF CORPORATION. The
corporation may indemnify any director made a party to any proceeding, other
than a proceeding by or in the right of the corporation, against judgments,
penalties, fines, settlements, and reasonable expenses actually incurred by the
director in connection with such proceeding if:
(a) the director conducted himself or herself in good faith, and: (1)
if the conduct involved his or her own official capacity with the corporation,
that he or she reasonably believed his or her conduct to be in the corporation's
best interests, or (2) in all other circumstances, that he or she reasonably
believed that his or her conduct was not opposed to the corporation's best
interests; and
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(b) in a criminal proceeding, the director had no reasonable cause to
believe his or her conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not be
determinative of itself that the director did not meet the requisite standard of
conduct set forth in this Section.
3. DIRECTOR INDEMNITY; PROCEEDING BY OR IN RIGHT OF CORPORATION. The
corporation may indemnify any director made a party to any proceeding by or in
the right of the corporation against reasonable expenses actually incurred by
the director in connection with such proceeding if the director conducted
himself or herself in good faith; and
(a) if the conduct was in the director's official capacity with the
corporation and the director reasonably believed that his or her conduct was in
the corporation's best interests; or
(b) if the director reasonably believed that his or her conduct was
not in opposition to the corporation's best interests; PROVIDED THAT, no
indemnification shall be made pursuant to this Section if such person is
adjudged liable to the corporation.
4. NO INDEMNITY WHEN DIRECTOR RECEIVES BENEFIT. A director shall not be
indemnified under Section 2 or 3 of this Article in any proceeding, whether or
not the director acted in his or her official capacity, if the director was
adjudged liable because the director personally received a benefit in money,
property, or services to which the director was not legally entitled.
5. DIRECTOR INDEMNITY BY CORPORATION OR COURT ORDER. Unless otherwise
limited by the Articles of Incorporation:
(a) a director who has been wholly successful, on the merits or
otherwise, in the defense of any proceeding referred to in Section 2 or 3 of
this Article shall be indemnified for reasonable expenses incurred by the
director in connection with the proceeding; or
(b) a court of appropriate jurisdiction, which may be the same court
in which the proceeding involving the director's liability took place, upon
application of the director and such notice as the court shall require, shall
have authority to order indemnification of the director in the following
circumstances:
(1) If the court determines that the director is entitled to
indemnification under Paragraph (a) of this Section, the court shall order such
indemnification, which shall include expenses incurred in obtaining such
indemnification; or
(2) If the court determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standards of conduct set
forth in Section 2 or 3 of this Article or was adjudged liable under Section
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4 of this Article, the court may order such indemnification as the court shall
deem proper, except that such indemnification shall be limited to expenses for
any proceeding referred to in Section 3 of this Article and any proceeding
referred to in Section 4 in which the director was adjudged liable of this
Article.
6. DETERMINATION OF PROPRIETY OF DIRECTOR INDEMNIFICATION. The
corporation shall not indemnify the director pursuant to Section 2 or 3 of this
Article unless it has been determined that indemnification of the director is
permissible in the circumstances because the director has met the standard of
conduct set forth in the applicable Section. Such determination shall be made:
(a) by the Board of Directors by a majority vote of a quorum
consisting of directors that are not parties to such proceeding; or
(b) if such a quorum cannot be obtained, then by a majority vote of a
committee to the Board of Directors, duly designated to act in the matter by a
majority vote of the full Board of Directors (in which designation directors who
are parties may participate), consisting solely of two or more directors that
are not parties to such proceeding; or
(c) by written opinion by legal counsel selected by the Board of
Directors or a committee to the Board of Directors by vote as set forth in
Paragraph (a) or (b) of this Section, or if the requisite quorum of the full
Board of Directors cannot be obtained and such committee cannot be established,
then by a majority vote of the full Board of Directors (in which selection
directors who are parties may participate), PROVIDED THAT, an attorney, or a
firm having associated with it an attorney, retained by or that has performed
services within the past three years for the corporation or any party to be
indemnified may not serve as such legal counsel; or
(d) by a majority vote of the shareholders.
After determining that indemnification of the director is permissible, the
Board of Directors, the committee to the Board of Directors, or the shareholders
may authorize the indemnification of the director and may determine the
reasonableness of the expenses incurred by the director in the manner described
in Paragraphs (a), (b) and (d). If the determination that indemnification of
the director is permissible was made by legal counsel as described in Paragraph
(c), then the authorization of indemnification and the determination of the
reasonableness of the expenses incurred by the director shall be made in the
manner specified in Paragraph (c) of this Section for the selection of such
counsel. Shares held by directors who are parties to the proceeding shall not
be voted on the subject matter under this Section.
7. PAYMENT OF EXPENSES BEFORE FINAL DISPOSITION OF PROCEEDING.
Reasonable expenses incurred by a director who is a party to a proceeding may be
paid or reimbursed by the corporation in advance of the final disposition of
such proceeding on the following conditions:
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(a) upon receipt by the corporation of a written promise by or on
behalf of the director to repay such amount if it is ultimately determined that
the director has not met the standard of conduct necessary for indemnification
by the corporation as authorized by this Article; and
(b) either:
(1) Upon a determination as described in Section 6 of this
Article that the information then known (i.e., without undertaking further
investigation) to those making the determination does not establish that
indemnification would not be permissible under Section 2 or 3 of this Article;
or
(2) Upon receipt by the corporation of a written affirmation by
the director of his or her good faith belief that he or she has met the standard
of conduct necessary for indemnification by the corporation as authorized in
this Article.
The agreement required by Paragraph (a) of this Section shall be an
unlimited general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make the repayment. Payments
under this Section may be authorized in the manner specified in Section 6 of
this Article.
8. ADDITIONAL INDEMNIFICATION. The corporation shall have the power to
make or agree to any further indemnity, including the advance of expenses, to
any director that is authorized by the Articles of Incorporation, any Bylaw
adopted or ratified by the shareholders, or any resolution adopted or ratified,
before or after the event, by the shareholders, provided that no such indemnity
shall indemnify any director for acts or omissions of such director finally
adjudged to be intentional misconduct or a knowing violation of law, or for
conduct of such director finally adjudged to be in violation of RCW 23B.08.310
(or any successor statute), or for any transaction with respect to which it was
finally adjudged that such director personally received benefit in money,
property, or services to which the director was not legally entitled. Unless
the Articles of Incorporation, a Bylaw, or a resolution provide otherwise, any
determination as to any further indemnity shall be made in accordance with
Section 6 of this Article. Each such indemnity may continue as to a person who
has ceased to be a director and may inure to the benefit of the heirs,
executors, and administrators of such a person.
9. DIRECTOR ACTS OR OMISSIONS RELATING TO AN EMPLOYEE BENEFIT PLAN. For
purposes of this Article, the corporation shall be deemed to have requested a
director to serve an employee benefit plan if: (a) the performance by the
director of his or her duties to the corporation also imposes duties on, or
otherwise involves services by, the director to the plan, its participants, or
its beneficiaries; (b) the excise taxes assessed against the director with
respect to an employee benefit plan pursuant to applicable law shall be deemed
"fines"; and (c) the action taken or omitted with respect to an employee benefit
plan, by the director in the performance of the director's duties with a
reasonable belief that it is in the interest of the participants and
beneficiaries of the plan, shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
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10. INDEMNIFICATION OF NON-DIRECTORS. Unless otherwise limited by the
Articles of Incorporation:
(a) an officer of the corporation may seek indemnification and shall
be indemnified as provided in Section 5 of this Article for a director;
(b) the corporation may indemnify and advance expenses to an officer,
employee, or agent of the corporation as provided in this Article, except that
Section 12 of this Article shall not apply to any person other than a director;
and
(c) the corporation may also indemnify an officer, employee, or agent
that is not a director to such extent, consistent with law, as provided by the
Articles of Incorporation, the Bylaws, a general or specific resolution of the
Board of Directors, or a contract.
11. LIABILITY INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is, or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as an officer, employee or agent of another corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan
against any liability asserted against the person and incurred by the person in
any such capacity or arising out of the person's status as such, whether or not
the corporation would have the power to indemnify the person against such
liability under the provisions of this Article.
12. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION. The shareholders shall be
notified of the indemnification of any person in accordance with this Article,
including any payment or reimbursement of expenses, by a written report sent
prior to the notice of the next shareholders' meeting or sent with such notice.
The written report shall contain a brief description of the proceedings
involving the person indemnified and the nature and extent of such
indemnification.
ARTICLE XXV
BOOKS AND RECORDS
1. BOOKS OF ACCOUNTS, MINUTES AND SHARE REGISTER. The corporation shall
keep as permanent records minutes of all meetings of its shareholders and Board
of Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee of
the Board of Directors exercising the authority of the Board of Directors on
behalf of the corporation. The corporation or its agent shall maintain a record
of its shareholders, in a form that permits preparation of a list of the names
and addresses of all shareholders, in alphabetical order by class of shares
showing the number and class of shares held by each. The corporation shall
maintain appropriate accounting records and shall maintain all other records in
written form or in another form capable of conversion into written form within a
reasonable time. The corporation shall keep a copy of the following records at
its principal office:
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(a) its Articles or Restated Articles of Incorporation and all
amendments to them currently in effect;
(b) its Bylaws or Restated Bylaws and all amendments to them
currently in effect;
(c) the minutes of all shareholders' meetings, and records of all
action taken by shareholders without a meeting, for the past three years;
(d) the financial statements described in RCW 23B.16.200(1) (or any
successor statute), for the past three years;
(e) all written communications to shareholders generally within the
past three years;
(f) a list of the names and business addresses of its current
directors and officers; and
(g) its most recent annual report delivered to the Secretary of State
under RCW 23B.16.220 (or any successor statute.
2. COPIES OF CORPORATE RECORDS. Any person dealing with the corporation
may rely upon a copy of any of the records of the proceedings, resolutions, or
votes of the Board of Directors or shareholders which are certified by the
President or Secretary.
3. EXAMINATION OF RECORDS. A shareholder shall have the right to inspect
and copy, in person or by his or her attorney or agent, corporate records if the
shareholder gives the corporation written notice of the demand at least five (5)
business days before the date the shareholder wishes to inspect and copy.
However, to inspect excerpts from minutes of any meeting of the Board of
Directors, records of any action of a committee of the Board of Directors,
minutes of any shareholders' meeting, records of action taken without a meeting,
accounting records of the corporation, and the record of shareholders, the
shareholder must also show that the demand is in good faith and for a proper
purpose, make a demand describing the needed records with reasonable
particularity, and show a direct relation between the records and the
shareholder's purpose.
ARTICLE XXVI
DISTRIBUTIONS AND FINANCE
1. DISTRIBUTIONS. The Board of Directors may, from time to time,
declare, and the corporation may pay, distributions in cash, property, or its
own shares, subject to the conditions and limitations imposed by the State of
Washington. The Board of Directors may provide that the stock transfer books be
closed for a stated period not exceeding seventy (70) days before the payment of
distributions. In lieu of closing the stock transfer books, the Board of
Directors may fix a record date for determining shareholders entitled to a
distribution. Distributions shall be payable only to those
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that are holders of record at the close of business on the record date, which
shall be a business day not more than seventy (70) days before the date on which
the distribution is paid. If no record date is fixed and the transfer books are
not closed, the date of the adoption of the Board of Directors' resolution
declaring a distribution shall be the record date.
2. DEPOSITORIES. The moneys of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE XXVII
FISCAL YEAR
The fiscal year of the corporation shall be set by resolution of the Board
of Directors.
ARTICLE XXVIII
SEAL
The corporate seal of the corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors or by
usage of the officers on behalf of the corporation.
ARTICLE XXIX
RULES OF ORDER
The rules contained in the most recent edition of Robert's Rules of Order,
Newly Revised, shall govern all meetings of shareholders and directors in which
those rules are not inconsistent with the Articles of Incorporation, Bylaws, or
special rules of order of the corporation.
ARTICLE XXX
NOTICES
Except as otherwise required by law or by other provisions of these Bylaws:
(a) any notice to any person may be transmitted by mail; private carrier;
personal delivery; telegraph; teletype; or telephone, wire or wireless equipment
which transmits a facsimile copy; and (b) if mailed, the notice shall be deemed
to have been given on the third day following its deposit in the United States
mail, postage prepaid, addressed to the addressee at his or her last known
address in the records of the corporation.
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ARTICLE XXXI
AMENDMENTS OF THE BYLAWS
1. BY THE SHAREHOLDERS. These Bylaws may be altered, amended or repealed
by the affirmative vote of the holders of a majority of the voting stock issued
and outstanding at any regular or special meeting of the shareholders.
2. BY THE BOARD OF DIRECTORS. If the Articles of Incorporation shall so
provide, the Board of Directors shall have power to make, alter, amend and
repeal the Bylaws of the corporation. However, any such Bylaws, or any
alteration, amendment or repeal of the Bylaws, may be changed or repealed by a
vote of the holders of a majority of the shares entitled to vote at any
shareholders' meeting.
3. EMERGENCY BYLAWS. The Board of Directors may adopt emergency Bylaws,
subject to repeal or change by action of the shareholders, which shall be
operative during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or any nuclear, atomic, or natural
disaster.
ADOPTED by resolution of the corporation's Board of Directors on the _____
day of September, 1998.
SFG MORTGAGE AND INVESTMENT
COMPANY, INC.
By:
-------------------------------------
Gregory B. Elderkin, Secretary
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EXHIBIT 3.1
FORM OF DEBENTURE
<PAGE>
SFG MORTGAGE & INVESTMENT COMPANY, INC.
923 Powell Avenue SW
Renton, Washington 98057
Investment Debenture, Series I
Issued To:
Principal Amount:
Issue Date:
Maturity Date:
Interest Rate:
Certificate Number:
Interest Payable:
1. THE DEBENTURE
This is a duly authorized Debenture of SFG Mortgage & Investment Company,
Inc. ("SFG Mortgage"). This Debenture is issued under an Indenture dated
, 1999 ("Indenture") between SFG Mortgage and US Bank as Trustee
("Trustee"). The Indenture permits SFG Mortgage to issue an unlimited amount of
Debentures, the terms of which may vary according to series. This Debenture is
of the series stated above; that series is limited in aggregate principal amount
as stated in the Indenture (or supplemental indentures). The Indenture (and
supplemental indentures) contains statements of the rights of the Debenture
holders, SFG Mortgage and the Trustee and provisions concerning authentication
and delivery of the Debentures. Definitions of certain terms used in this
Debenture are also found in the Indenture (and supplemental indentures).
2. PAYMENT OF PRINCIPAL
For value received, SFG Mortgage promises to pay the principal amount of
this Debenture at the maturity date stated above. Payment will be made to the
Person to whom this Debenture is issued, or registered assigns.
3. PAYMENT OF INTEREST
SFG Mortgage promises to pay interest on the principal amount of this
Debenture from the issue date until the principal amount is paid or made
available for payment. Interest will be computed at the annual interest rate
stated above and payable quarterly. Interest will be payable or reinvested as
stated above or as otherwise elected by the Person entitled to payment of
interest. SFG Mortgage will pay interest to the Person in whose name this
Debenture (or one or more Predecessor Debentures) is registered at the close of
business on the Regular Record Date for the payment of interest. The Regular
Record Date is the 15th day of the calendar month immediately preceding an
Interest Payment Date.
<PAGE>
4. DEBENTURE HOLDER'S' PREPAYMENT RIGHTS
The Person to which payment is owed under this Debenture shall have,
subject to the limitations set forth herein, have the opportunity to request
prepayment of the principal amount of the Debenture, together with any unpaid
interest owed to them by SFG Mortgage. Beginning upon the first anniversary of
the date each Debenture was issued, SFG Mortgage will be obligated to prepay the
balance due a Debenture holder requesting early redemption in a ninety (90) day
period beginning the first day of the first full month after receipt of a
request for prepayment from such Debenture holder. The redemption payment
amount shall be equal to the principal amount due under the Debenture, together
with all accrued and unpaid interest. Provided, that SFG Mortgage may charge a
redemption processing fee for its reasonable costs incurred in processing the
prepayment request, which fee in no event will exceed $500.00 per Debenture.
SFG Mortgage has the right to limit, in its sole discretion, the total
amount of Debentures redeemed in any ninety (90) day period to a maximum of
twelve and one-half percent (12.5%) of the then outstanding total principal
balance of Debentures if, in SFG Mortgage's opinion, the redemption of
Debentures during that period of time would compromise SFG Mortgage's ability to
pay its obligations (including principal and interest payments on the remaining
Debentures) in the ordinary course of business. At the end of the term of any
such suspension period, redemptions will be processed and paid in the order
first received in proper form by SFG Mortgage. If, in any ninety (90) day
period, during which SFG Mortgage has limited the Debenture holder's right to
redemption SFG Mortgage receives requests for prepayment from Debenture holders
which exceed twelve and one-half percent (12.5%) of the total principal amount
due under all outstanding Debentures, SFG Mortgage may, at its option, pay to
all Persons requesting prepayment a pro rated amount, which amount shall be
based upon the principal amount due under each Debenture holder who has
requested early redemption.
5. REINVESTMENT OF INTEREST PAYMENTS
The Person to which payment is owed under this Debenture may elect to
reinvest all or fifty percent (50%) of the interest payments under this
Debenture upon thirty (30) days written notice to SFG Mortgage. If the Person
makes such an election, the amount reinvested will be treated as an addition to
the principal amount due under this Debenture. SFG Mortgage may terminate or
restrict the reinvestment option at any time upon written notice to the holder
of this Debenture. The holder of this Debenture may upon thirty (30) days
written notice to SFG Mortgage elect to change the terms of the reinvestment or
discontinue it altogether. Provided, however, any amounts previously reinvested
shall not become due and payable except upon the due date of the principal
amount due under this Debenture.
6. CALL OF DEBENTURES BY COMPANY
Some or all of the Debentures are callable at the Company's option
beginning on the first anniversary of the date each Debenture was issued. On or
after such dates each of the Debentures
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<PAGE>
will be subject to prepayment at the option of the Company, in whole or in part,
at the prices set forth below, plus accrued and unpaid interest thereon, if any,
to the date of prepayment:
<TABLE>
<S> <C>
Between First and Second Anniversary 100.50% of Principal
Between Second and Third Anniversary 100.25% of Principal
Thereafter 100.00% of Principal
</TABLE>
7. MISCELLANEOUS
The provisions on the reverse are part of this Debenture.
This Debenture is not entitled to any benefit under the Indenture nor is
this Debenture valid or obligatory for any purpose unless the certificate of
authentication below has been executed by the Trustee by manual signature.
This Debenture is not insured by the United States government, the State of
Washington nor any agency thereof.
In witness whereof, SFG Mortgage has caused this Debenture to be duly
executed under its corporate seal.
SFG MORTGAGE & INVESTMENT
COMPANY, INC.
(Corporate Seal)
By
---------------------------------
Authorized Officer
[INSERT TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
[FORM OF REVERSE OF INVESTMENT DEBENTURE, SERIES I]
8. TRANSFER AND EXCHANGE
Transfer and exchange of this Debenture are conditioned by certain
provisions in the Indenture. To effect a transfer, the Holder must surrender
this Debenture at SFG Mortgage's office or agency in Renton, Washington. This
Debenture must be duly endorsed or accompanied by a written instrument of
transfer satisfactory to SFG Mortgage. Upon transfer, one or more new
Debentures of the same series, of authorized denominations and for the same
aggregate principal amount will be issued to the designated transferee or
transferees. Prior to due presentment for registration of transfer, SFG
Mortgage, the Trustee or any of their agents may treat any Person in whose name
this Debenture is registered as the owner of this Debenture, regardless of
notice to the contrary or whether this Debenture might be overdue.
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<PAGE>
This Debenture is issuable only as a registered Debenture; it does not bear
coupons. As provided in the Indenture, this Debenture is exchangeable for other
Debentures of the same series of authorized denominations with the same
aggregate principal amount. To effect an exchange, the Holder must surrender
this Debenture at SFG Mortgage's office or agency in Renton, Washington. The
Debenture must be duly endorsed or accompanied by a written instrument of
exchange satisfactory to SFG Mortgage.
No service charge will be made for a transfer or exchange, but SFG Mortgage
may require payment of a sum sufficient to cover any governmental charge payable
in connection with such transaction.
9. AMENDMENT OF THE INDENTURE; WAIVER OF RIGHTS
With certain exceptions, the Indenture may be amended, the obligations and
rights of SFG Mortgage may be modified and the rights of the Debenture holders
may be modified by SFG Mortgage at any time with the consent of the Holders of
66-2/3% in aggregate principal amount of the Debentures at the time Outstanding.
The Indenture allows the Holders of specified percentages in aggregate principal
amount of the Debentures of a particular series to waive compliance by SFG
Mortgage with certain Indenture provisions and to waive past defaults and their
consequences on behalf of all the Holders of Debentures of that series. Any
such consent or waiver by the Holder of this Debenture will be binding upon that
Holder. The consent or waiver will also be binding upon all future Holders of
this Debenture and of any Debenture issued upon the transfer of, or in exchange
for or in lieu of this Debenture, whether or not that consent or waiver is noted
upon the Debenture.
10. FAILURE TO PAY INTEREST; EVENTS OF DEFAULT
If interest is not punctually paid or duly provided for, it shall cease to
be payable to the registered Holder of this Debenture on the applicable Regular
Record Date. Instead, the Trustee will fix a Special Record Date for payment of
the Defaulted Interest. The Trustee will give the Debenture holders notice of
the Special Record Date at least 10 days prior to the Special Record Date. The
Person in whose name this Debenture (or one or more Predecessor Debentures) is
registered at the close of business on the Special Record Date will be entitled
to payment of the Defaulted Interest. If the Debentures are listed on a
securities exchange, however, the Defaulted Interest may be paid at any time and
in any lawful manner consistent with the requirements of the exchange.
If an Event of Default occurs, the principal of all the Debentures may be
declared due and payable as provided in the Indenture.
11. FORM OF PAYMENT
Payment of principal and interest will be made at the office or agency of
SFG Mortgage maintained for that purpose in Renton, Washington. Payment will be
made in coin or currency of the United States of America that is legal tender
for payment of public and private debts at the time
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<PAGE>
of payment. At SFG Mortgage's option, however, payment of interest may be made
by check mailed to the Person entitled to the interest at that Person's address
as it appears in the Debenture Register.
12. BUSINESS DAYS
Whenever any Interest Payment Date, the Stated Maturity of this Debenture
or any date on which any Defaulted Interest is proposed to be paid is not a
Business Day, the appropriate payment or compounding of interest or principal
may be made on the next succeeding Business Day without accrual of additional
interest.
13. CERTAIN DEFINITIONS
SFG Mortgage is a Washington corporation. The term "SFG Mortgage" includes
any successor corporation under the Indenture. The term "Trustee includes any
successor Trustee under the Indenture.
SFG MORTGAGE AND INVESTMENT
COMPANY, INC.
By
--------------------------------------
Authorized Officer
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<PAGE>
EXHIBIT 3.2
TRUST INDENTURE AGREEMENT
<PAGE>
TRUST INDENTURE AGREEMENT
THIS INDENTURE is dated as of , 1999 between SFG
Mortgage & Investment Company, Inc., a Washington corporation (hereinafter
called the "Company"), having its principal office at 923 Powell Avenue SW,
Renton, Washington 98057, and US Bank, a national banking association
(hereinafter called the "Trustee"), having its corporate trust office at 601
Union Street, Suite 2120, Seattle, Washington 98104.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its Investment Debentures, to be issued
in one or more series (hereinafter called the "Debentures"), as in this
Indenture provided. The initial series of Debentures to be issued hereunder is
to be known as the Company's Investment Debentures, Series I, limited to the
aggregate principal amount of $25,000,000, the further terms and provisions of
which are set forth in Section 3-12.
All things necessary to make the Debentures when executed by the Company,
authenticated by the Trustee, delivered as authorized by the Company and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Debentures
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Debentures, as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 1-1. DEFINITIONS.
(a) For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) "This Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
(2) All references in this instrument to designated "articles,"
"sections" and other subdivisions are to the designated Articles, Sections and.
other subdivisions of this instrument as
<PAGE>
originally executed. The words "herein," "hereof," and 'hereunder," and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
(3) The terms defined include the plural as well as the singular.
(4) All other terms used herein which are defined in the Trust Indenture
Act of 1939, either directly or by reference therein, have the meanings assigned
to them therein.
(5) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles.
(b) Certain terms, used principally in Article Six, are defined in that
Article.
(c) Other definitions:
"Act" when used with respect to any Debentureholder has the meaning
specified in Section 1-4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control' when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling' and "controlled" have meanings correlative to the
foregoing.
"Applicable Debentures" has the meaning set forth in Section 5-2.
"Authorized Newspaper" means a newspaper of general circulation in the
relevant area, printed in the English language and customarily published on
each business day, whether or not Published on Saturdays, Sundays or holidays.
Whenever successive weekly publications in an Authorized Newspaper are required
hereunder they may be made (unless otherwise expressly provided herein) on the
same or different days of the week and in the same or in different Authorized
Newspapers.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
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<PAGE>
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in the City of Seattle,
Washington are authorized by law to close.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties on such date.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request", "Company Order" and "Company Consent" mean,
respectively, a written request, order or consent signed in the name of the
Company by its Chairman of the Board, President or a Vice President, and by its
Treasurer, an Assistant Treasurer, Controller, an Assistant Controller,
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Debentureholder" means a Person in whose name a Debenture is registered in
the Debenture Register.
"Debenture Register" and 'Debenture Registrar" have the respective meanings
specified in Section 3-7.
"Defaulted Interest" has the meaning specified in Section 3-9.
"Event of Default" has the meaning specified in Article Five.
"Holder" when used with respect to any Debenture means a Debentureholder.
"Independent" when used with respect to any specified Person means such a
Person who (1) is in fact independent, (2) does not have any direct financial
interest or any material indirect financial interest in the Company or in any
other obligor upon the Debentures or in any Affiliate of the Company or of such
other obligor, and (3) is not connected with the Company or such other obligor
or any Affiliate of the Company or of such other obligor, as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by a Company Order and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debentures.
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<PAGE>
"Investment Debentures of Series I," "Investment Debentures, Series I" or
"Series I Investment Debentures" means the Debentures established by Section
3-12 hereof.
'Maturity" when used with respect to any Debenture means the date on which
the principal of such Debenture becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Notice of Default" has the meaning specified in Article Five.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Controller, an Assistant Controller, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee. Wherever this
Indenture requires that an Officers' Certificate be signed also by an engineer
or an accountant or other expert, such engineer, accountant or other expert
(except as otherwise expressly provided in this Indenture) may be in the employ
of the Company, and shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may (except as
otherwise expressly provided in this Indenture) be counsel for the Company, and
shall be acceptable to the Trustee.
"Outstanding" when used with respect to Debentures means, as of the date of
determination, all Debentures' theretofore authenticated and delivered under
this Indenture, EXCEPT:
(i) Debentures theretofore canceled by the Company;
(ii) Debentures for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any Paying
Agent in trust for the Holders of such Debentures, PROVIDED that, if such
Debentures are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the Trustee
has been made; and
(iii) Debentures in exchange for or in lieu of which other Debentures
have been authenticated and delivered pursuant to this Indenture;
PROVIDED, however, that in determining whether the Holders of the requisite
principal amount of Debentures Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Debentures owned
by the Company or any other obligor upon the Debentures or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon ANY such request, demand, authorization, direction, notice,
consent or waiver, only Debentures which the Trustee knows to be so owned shall
be so disregarded. Debentures so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Debentures and
that the pledgee is
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<PAGE>
not the Company or any other obligor upon the Debentures or any Affiliate of the
Company or such other obligor.
When used with respect to Debentures of a given series, the foregoing
definition shall be applicable to Debentures of such series as though only the
Debentures of such series were referred to therein.
"Paying Agent" means any Person authorized by the Company, including
Persons employed by or affiliated with the Company, to pay the principal of and
premium, if any, or interest on any Debentures on behalf of the Company.
"Person" means any individual,- corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" with respect to Investment Debentures, Series I, means
the City of Renton, State of Washington, and with respect to Debentures of other
series, the City of Renton, State of Washington or such other place or places as
may be specified in the supplemental indenture creating such series.
"Predecessor Debentures" of any particular Debenture means every previous
Debenture evidencing all or a portion of the same debt as that evidenced by such
particular Debenture; and, for the purposes of this definition, any Debenture
authenticated and delivered under Section 3-8 in lieu of a lost, destroyed or
stolen Debenture shall be deemed to evidence the same debt as the lost,
destroyed or stolen Debenture.
"Redemption Date" when used with respect to any Debenture to be redeemed
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Debenture to be redeemed
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
means, with respect to Investment Debentures, Series I, the 15th day (whether or
not a Business Day) of the calendar month next preceding the Interest Payment
Date as specified on each Investment Debenture, Series I, and with respect to
Debentures of other series, such date as shall be specified in the supplemental
indenture creating such series.
"Responsible officer" when used with respect to the Trustee means the
chairman or vice-chairman of the board of directors, the chairman or
vice-chairman of the executive committee of the board of directors, the
president, any vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, the controller and any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
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<PAGE>
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Special Record Date" for the- payment of any Defaulted Interest (as
defined in Section 3-9) means a date fixed by the Trustee pursuant to Section
3-9.
"Stated Maturity" when used with respect to any Debenture or any
installment of interest thereon means the date specified in such Debenture as
the fixed date on which the principal of such Debenture or such installment of
interest is due and payable.
"Trustee" means the Person named as the 'Trustee" in' the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as in
force at the date as of which this instrument was executed.
"Vice President" when used with respect to the Company or the Trustee means
any vice president, whether or not designated by a number or a word or words
added before or after the title "vice president".
Section 1-2. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
Counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;.
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that each such individual has made such examination or
investigation as, in such individual's opinion, is necessary to enable such
individual to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
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<PAGE>
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1-3. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered bv the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Comoany, unless such Counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1-4. ACTS OF DEBENTUREHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Debentureholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Debentureholders in person or by
agent duly appointed in writing; and, except as -herein otherwise expressly
provided,' such action shall become effective when such instrument or
instruments are delivered to the Trustee, and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Debentureholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6-1)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
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<PAGE>
such execution is by an officer of a corporation or a member of a partnership,
on behalf of such corporation or partnership, such certificate or affidavit
shall also constitute sufficient proof of his authority. The fact and date of
the execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The ownership of Debentures shall be proved by the Debenture
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Debenture shall bind the Holder of
every Debenture issued upon the transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done or suffered to be done by the Trustee
or the Company.in reliance thereon, whether or not notation of such action is
made upon such Debenture.
Section 1-5. NOTICES, ETC., TO TRUSTEE AND COMPANV.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Debentureholders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(1) the Trustee by any debentureholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its principal corporate trust office, located
at 601 Union Street, Suite 2120, Seattle, Washington 98101 or at such other
address previously furnished in writing to the Company by the Trustee for such
purpose, or
(2) the Company by the Trustee or by any Debentureholder shall be
sufficient for every purpose hereunder if in writing and mailed, first-class
postage prepaid, to the Company addressed to it at 923 Powell Avenue SW,
Washington 98057, or at such other address previously furnished in writing to
the Trustee by the Company for such purpose.
Section 1-6. NOTICES TO DEBENTUREHOLDERS; WAIVER.
Where this Indenture provides for notice to Debentureholders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and desposited in the United States mail, first-class
postage prepaid, to each Debentureholder affected by such event, at his address
as it appears in the Debenture Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Debentureholders is given by mail, neither the failure
to mail such notice, nor any defect in any notice so mailed, to any particular
Debentureholder shall affect the sufficiency of such notice with respect to
other Debentureholders, and any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
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notice by Debentureholders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of publication of any Authorized
Newspaper, or by reason of any other cause, it shall be impossible to make
publication of any notice in an Authorized Newspaper or Authorized Newspapers as
required by this Indenture, then (notwithstanding such provision) such method of
publication or notification as shall be made with the approval of the Trustee
shall constitute a sufficient publication of such notice.
Section 1-7. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of TIA, such required provision shall control.
Section 1-8. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1-9. SUCCESSORS AND ASSIQNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 1-10. SEVERABILITY CLAUSE.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1-11. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Debentureholders, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
Section 1-12. GOVERNING LAW.
This Indenture shall be construed in accordance with and be governed by the
laws of the State of Washington.
Section 1-13. LEGAL HOLIDAYS.
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In any case where any Interest Payment Date, any Redemption Date, or the
Stated Maturity of any Debenture, or any date on which any Defaulted Interest is
proposed to be paid, shall not be a Business Day, then (notwithstanding any
other provision of this Indenture) payment of interest, principal and premium,
if any, need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or Redemption Date or at the Stated Maturity, or on the date on which the
Defaulted Interest is proposed to be paid, and no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date or Stated
Maturity or date fdr the payment of Defaulted Interest, as the case may be.
Section 1-14. EXECUTION IN COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
ARTICLE TWO
Debenture Forms
Section 2-1. FORMS GENERALLY.
The Debentures and the certificates of authentication thereon shall be
substantially in the forms set forth in this Article Two, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, or as may,
consistently herewith, be determined by the officers executing such Debentures,
as evidenced by their execution of the Debentures. Any portion of the text of
any Debenture may be set forth on the reverse thereof , with an appropriate
reference thereto on the face of the Debenture.
The definitive Debentures shall be printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange, all as determined by
the officers executing such Debentures, as evidenced by their execution of such
Debentures.
Section 2-2. FORM OF INVESTMENT DEBENTURES, SERIES I.
SFG MORTGAGE & INVESTMENT COMPANY, INC.
923 Powell Avenue SW
Renton, Washington 98057
Investment Debenture, Series I
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Issued To:
Principal Amount:
Issue Date:
Maturity Date:
Interest Rate:
Certificate Number:
Interest Payable:
1. THE DEBENTURE
This is a duly authorized Debenture of SFG Mortgage & Investment Company,
Inc. ("SFG Mortgage"). This Debenture is issued under an Indenture dated
, 1999 ("Indenture") between SFG Mortgage and US Bank as Trustee
("Trustee"). The Indenture permits SFG Mortgage to issue an unlimited amount of
Debentures, the terms of which may vary according to series. This Debenture is
of the series stated above; that series is limited in aggregate principal amount
as stated in the Indenture (or supplemental indentures). The Indenture (and
supplemental indentures) contains statements of the rights of the
Debentureholders, SFG Mortgage and the Trustee and provisions concerning
authentication and delivery of the Debentures. Definitions of certain terms
used in this Debenture are also found in the Indenture (and supplemental
indentures) .
2. PAYMENT OF PRINCIPAL
For value received, SFG Mortgage promises to pay the principal amount of
this Debenture at the maturity date stated above. Payment will be made to the
Person to whom this Debenture is issued, or registered assigns.
3. PAYMENT OF INTEREST
SFG Mortgage promises to pay interest on the principal amount of this
Debenture from the issue date until the principal amount is paid or made
available for payment. Interest will be computed at the annual interest rate
stated above and payable quarterly. Interest will be payable or reinvested as
stated above or as otherwise elected by the Person entitled to payment of
interest. SFG Mortgage will pay interest to the Person in whose name this
Debenture (or one or more Predecessor Debentures) is registered at the close of
business on the Regular Record Date for the payment of interest. The Regular
Record Date is the 15th day of the calendar month immediately preceding an
Interest Payment Date.
4. DEBENTURE HOLDER'S' PREPAYMENT RIGHTS
The Person to which payment is owed under this Debenture shall have,
subject to the limitations set forth herein, have the opportunity to request
prepayment of the principal amount of the Debenture, together with any unpaid
interest owed to them by SFG Mortgage. Beginning upon the first anniversary of
the date each Debenture was issued, SFG Mortgage will be obligated to prepay the
balance due a Debenture holder requesting early redemption in a ninety (90) day
period
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<PAGE>
beginning the first day of the first full month after receipt of a request for
prepayment from such Debenture holder. The redemption payment amount shall be
equal to the principal amount due under the Debenture, together with all accrued
and unpaid interest. Provided, that SFG Mortgage may charge a redemption
processing fee for its reasonable costs incurred in processing the prepayment
request, which fee in no event will exceed $500.00 per Debenture.
SFG Mortgage has the right to limit, in its sole discretion, the total
amount of Debentures redeemed in any ninety (90) day period to a maximum of
twelve and one-half percent (12.5%) of the then outstanding total principal
balance of Debentures if, in SFG Mortgage's opinion, the redemption of
Debentures during that period of time would compromise SFG Mortgage's ability to
pay its obligations (including principal and interest payments on the remaining
Debentures) in the ordinary course of business. At the end of the term of any
such suspension period, redemptions will be processed and paid in the order
first received in proper form by SFG Mortgage. If, in any ninety (90) day
period, during which SFG Mortgage has limited the Debenture holder's right to
redemption SFG Mortgage receives requests for prepayment from Debenture holders
which exceed twelve and one-half percent (12.5%) of the total principal amount
due under all outstanding Debentures, SFG Mortgage may, at its option, pay to
all Persons requesting prepayment a pro rated amount, which amount shall be
based upon the principal amount due under each Debenture holder who has
requested early redemption.
5. REINVESTMENT OF INTEREST PAYMENTS
The Person to which payment is owed under this Debenture may elect to
reinvest all or fifty percent (50%) of the interest payments under this
Debenture upon thirty (30) days written notice to SFG Mortgage. If the Person
makes such an election, the amount reinvested will be treated as an addition to
the principal amount due under this Debenture. SFG Mortgage may terminate or
restrict the reinvestment option at any time upon written notice to the holder
of this Debenture. The holder of this Debenture may upon thirty (30) days
written notice to SFG Mortgage elect to change the terms of the reinvestment or
discontinue it altogether. Provided, however, any amounts previously reinvested
shall not become due and payable except upon the due date of the principal
amount due under this Debenture.
6. CALL OF DEBENTURES BY COMPANY
Some or all of the Debentures are callable at the Company's option
beginning on the first anniversary of the date each Debenture was issued. On or
after such dates each of the Debentures will be subject to prepayment at the
option of the Company, in whole or in part, at the prices set forth below, plus
accrued and unpaid interest thereon, if any, to the date of prepayment:
<TABLE>
<S> <C>
Between First and Second Anniversary 100.50% of Principal
Between Second and Third Anniversary 100.25% of Principal
Thereafter 100.00% of Principal
</TABLE>
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<PAGE>
7. MISCELLANEOUS
The provisions on the reverse are part of this Debenture.
This Debenture is not entitled to any benefit under the Indenture nor is
this Debenture valid or obligatory for any purpose unless the certificate of
authentication below has been executed by the Trustee by manual signature.
This Debenture is not insured by the United States government, the State of
Washington nor any agency thereof.
In witness whereof, SFG Mortgage has caused this Debenture to be duly
executed under its corporate seal.
SFG MORTGAGE & INVESTMENT
COMPANY, INC.
(Corporate Seal)
By
------------------------
Authorized Officer
[INSERT TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
[FORM OF REVERSE OF INVESTMENT DEBENTURE, SERIES I]
8. TRANSFER AND EXCHANGE
Transfer and exchange of this Debenture are conditioned by certain
provisions in the Indenture. To effect a transfer, the Holder must surrender
this Debenture at SFG Mortgage's office or agency in Renton, Washington. This
Debenture must be duly endorsed or accompanied by a written instrument of
transfer satisfactory to SFG Mortgage. Upon transfer, one or more new
Debentures of the same series, of authorized denominations and for the same
aggregate principal amount will be issued to the designated transferee or
transferees. Prior to due presentment for registration of transfer, SFG
Mortgage, the Trustee or any of their agents may treat any Person in whose name
this Debenture is registered as the owner of this Debenture, regardless of
notice to the contrary or whether this Debenture might be overdue.
This Debenture is issuable only as a registered Debenture; it does not bear
coupons. As provided in the Indenture, this Debenture is exchangeable for other
Debentures of the same series of authorized denominations with the same
aggregate principal amount. To effect an exchange, the Holder must surrender
this Debenture at SFG Mortgage's office or agency in Renton, Washington. The
Debenture must be duly endorsed or accompanied by a written instrument of
exchange satisfactory to SFG Mortgage.
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<PAGE>
No service charge will be made for a transfer or exchange, but SFG Mortgage
may require payment of a sum sufficient to cover any governmental charge payable
in connection with such transaction.
9. AMENDMENT OF THE INDENTURE; WAIVER OF RIGHTS
With certain exceptions, the Indenture may be amended, the obligations
and rights of SFG Mortgage may be modified and the rights of the
Debentureholders may be modified by Metrooolitan at any time with the consent
of the Holders of 66-2/3% in aggregate principal amount of the Debentures at
the time Outstanding. The Indenture allows the Holders of specified
percentages in aggregate principal amount of the Debentures of a particular
series to waive compliance by SFG Mortgage with certain Indenture provisions
and to waive past defaults and their consequences on behalf of all the
Holders of Debentures of that series. Any such consent or waiver by the
Holder of this Debenture will be binding upon that Holder. The consent or
waiver will also be binding upon all future Holders of this Debenture and of
any Debenture issued upon the transfer of, or in exchange for or in lieu of
this Debenture, whether or not that consent or waiver is noted upon the
Debenture.
10. FAILURE TO PAV INTEREST; EVENTS OF DEFAULT
If interest is not punctually paid or duly provided for, it shall cease to
be payable to the registered Holder of this Debenture on the applicable Regular
Record Date. Instead, the Trustee will fix a Special Record Date for payment of
the Defaulted Interest. The Trustee will give the Debentureholders notice of
the Special Record Date at least 10 days prior to the Special Record Date. The
Person in whose name this Debenture (or one or more Predecessor Debentures) is
registered at the close of business on the Special Record Date will be entitled
to payment of the Defaulted Interest. If the Debentures are listed on a
securities exchange, however, the Defaulted Interest may be paid at any time and
in any lawful manner consistent with the requirements of the exchange.
If an Event of Default occurs, the principal of all the Debentures may be
declared due and payable as provided in the Indenture.
11. FORM OF PAYMENT
Payment of principal and interest will be made at the office or agency of
SFG Mortgage maintained for that purpose in Renton, Washington. Payment will be
made in coin or currency of the United States of America that is legal tender
for payment of public and private debts at the time of payment. At SFG
Mortgage's option, however, payment of interest may be made by check mailed to
the Person entitled to the interest at that Person's address as it appears in
the Debenture Register.
12. BUSINESS DAYS
Whenever any Interest Payment Date, the Stated Maturity of this Debenture
or any date on which any Defaulted Interest is proposed to be paid is not a
Business Day, the appropriate payment
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<PAGE>
or compounding of interest or principal may be made on the next succeeding
Business Day without accrual of additional interest.
13. CERTAIN DEFINITIONS
SFG Mortgage is a Washington corporation. The term "SFG Mortgage" includes
any successor corporation under the Indenture. The term "Trustee includes any
successor Trustee under the Indenture.
Section 2-3. FORM OF TRUSTEE'S CERTIFICATION OF AUTHENTICATION.
This is one of the Debentures referred to in the within mentioned
Indenture.
US BANK, as Trustee
By
-------------------------------
Authorized Officer
ARTICLE THREE
The Debentures
Section 3-1. GENERAL LIMITATIONS.
The aggregate principal amount of Debentures which may be authenticated and
delivered and Outstanding under this Indenture is not limited except as may be
limited by law.
Section 3-2. ISSUABLE IN SERIES; GENERAL TITLE.
The Debentures may be issued in series as from time to time shall be
authorized by the Board of Directors. The Debentures of all series shall be
entitled generally "Debentures." With respect to the Debentures of any
particular series, the Company may incorporate in or add to the general title of
such Debentures any words, letters or figures designed to distinguish that
series.
Section 3-3. TERMS OF PARTICULAR SERIES.
The Debentures of each series (other than Investment Debentures, Series I
as to which specific provision is made in Section 3-12) shall be payable at such
place or places, shall mature on such date or dates, shall bear interest at such
rate or rates payable in such installments and on such dates and at such place
or places and to Holders registered as such, and may be redeemable at such
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<PAGE>
price or prices and upon such terms, all as shall be provided for in the
supplemental indenture creating that series.
The Company may at the time of the creation of any series of Debentures or
at any time thereafter make, and the Debentures of such series may contain,
provision for:
(1) the redemption of all, or of all or any part, of the Debentures of
such series prior to maturity;
(2) a sinking, amortization improvement or otheranalogous fund;
(3) limiting the aggregate principal amount of the Debentures of such
series;
(4) the exchange or conversion of the Debentures of that series, at the
option of the Holders thereof, for or into new Debentures of a different series
and/or shares of stock of the Company and/or other securities;
(5) exchanging Debentures of that series, at the option of the Holders
thereof, for other Debentures of the same series of the same aggregate principal
amount of a different authorized kind and/or authorized denomination or
denominations; and/or
(6) the appointment by the Trustee of an Authenticating Agent in one or
more places other than the location of the office of the Trustee with power to
act on behalf of the Trustee and subject to its direction in the authentication
and delivery of the Debentures of any one or more series in connection with such
transactions as shall be specified in the provisions of this Indenture creating
such series or in a supplemental indenture;
all upon such terms as the Board of Directors may determine. All Debentures of
the same series shall be substantially identical in tenor and effect.
Each series of Debentures, except Investment Debentures, Series I, shall be
created by an indenture supplemental hereto authorized by a Board Resolution.
Section 3-4. FORM AND DENOMINATIONS.
The Debentures of each series shall be in registered form and substantially
in the form hereinbefore recited for the Investment Debentures,, Series I,, with
such omissions, variations and insertions as are permitted by this Indenture,
and may have such letters, numbers or other marks of identification and such
legends or endorsements printed, lithographed or engraved thereon, as may be
required to comply with the rules of any securities exchange or to conform to
any usage in respect thereof, or as may, consistently- herewith, be prescribed
by the Board of Directors or by the officers executing such Debentures, such
determination by said officers to be evidenced by their signing the Debentures.
The form of the Debentures of each series (except Investment Debentures, Series
I) shall be established by the supplemental indenture creating such series. The
Debentures of each
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<PAGE>
series shall be distinguished from the Debentures of other series in such manner
as may be prescribed in the supplemental indenture creating such series.
The definitive Debentures of each series other than Investment Debentures,
Series I shall be as required by the applicable supplemental indenture. The
definitive Investment Debentures, Series I shall be printed or prepared in a
manner to be determined by the officers executing such Debentures, as evidenced
by their execution of such Debentures.
The Debentures of each series shall be issued in such denominations as
shall be provided in the supplemental indenture creating such series or as the
Board of Directors may determine, except that the Investment Debentures, Series
I shall be issued in the denominations provided for in Section 3-12.
Section 3-5. EXECUTION, AUTHENTICATION AND DELIVERY AND DATING.
The Debentures shall be executed on behalf of the Company by its Chairman
of the Board, its President or one of its Vice Presidents under its corporate
seal reproduced thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Debentures may be
manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Debentures executed by the Company to the
Trustee for authentication; and the Trustee shall authenticate such Debentures
as in this Indenture provided and not otherwise, and shall deliver such
Debentures as authorized by the Company.
No Debenture shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears 'on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Debenture shall be conclusive evidence, and the only evidence, that such
Debenture has been duly authenticated hereunder
Section 3-6. TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate (and if so
authorized deliver), temporary Debentures which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any denomination,
substantially of the tenor of the definitive Debentures in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the
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<PAGE>
officers executing such Debentures may determine, as evidenced by their
execution of such Debentures.
If temporary Debentures of any series are issued, the Company will cause
definitive Debentures of such series to be prepared without unreasonable delay.
After the preparation of definitive Debentures, the temporary Debentures shall
be exchangeable for definitive Debentures upon surrender of the temporary
Debentures at the office or agency of the Company in a -Place of Payment,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Debentures the Company shall execute and the Trustee shall
authenticate in exchange therefor a like aggregate principal amount of
definitive Debentures of authorized denominations, which shall be delivered as
authorized by the Company. Until so exchanged the temporary Debentures shall in
all respects be entitled to the same benefits under this Indenture as definitive
Debentures.
Section 3-7. REGISTRATION TRANSFER AND EXCHANGE.
The Company shall cause to be kept at its office in Renton, Washington a
register (herein sometimes referred to as the "Debenture Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Debentures and for transfers of Debentures. The
Company will act as "Debenture Registrar" for the purpose of the registration of
Debentures and transfers of Debentures as herein provided.
Upon surrender for transfer of any Debenture of any series at the off ice
or agency of the Company in a Place of Payment, the Company shall execute, and
the Trustee shall authenticate, in the name of the designated transferee or
transferees, one or more new Debentures of the same series of any authorized
denominations, of a like aggregate principal amount, which shall be delivered as
authorized by the Company.
At the option of the Holder, Debentures may be exchanged for other
Debentures of the same series of any authorized denominations, of a like
aggregate principal amount, upon Surrender of the Debentures to be exchanged at
such office or agency. Whenever any Debentures are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate, the Debentures
the Debentureholder making the exchange is entitled to receive, which Debentures
shall be delivered as authorized by the Company.
All Debentures issued upon any transfer or exchange of Debentures shall be
the valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Debentures surrendered upon such
transfer or exchange.
Every Debenture presented or surrendered for transfer or exchange shall (if
so required by the Company or the Trustee) be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Company, as the
Debenture Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.
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<PAGE>
No service charge shall be made for any transfer or exchange of Debentures,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any transfer or
exchange of Debentures, other than exchanges pursuant to Section 3-6 or 9-6 not
involving any transfer.
The Company shall not be required (i) to issue, transfer or exchange any
Debenture of any series during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Debentures
selected for redemption under Section 11-4 and ending at the close of business
on the day of such mailing, or (ii) to transfer or exchange any Debenture so
selected for redemption in whole or in part.
Section 3-8. MUTILATED, DESTROYED, LOST AND STOLEN DEBENTURES.
If (i) any mutilated Debenture is surrendered to the Company, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Debenture, and (ii) there is delivered to. the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Debenture has been acquired by a bona fide purchaser, the
Company shall execute and upon its request the Trustee shall authenticate, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Debenture, a new Debenture of like tenor and principal amount, bearing a number
not contemporaneously outstanding, which shall be delivered as authorized by the
Company.
In case any such mutilated, destroyed, lost or stolen Debenture has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Debenture, pay such Debenture.
Upon the issuance of any new Debenture under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
destroyed, lost or stolen Debenture shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Debenture shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall -preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures.
Section 3-9. PAYMENT OF INTEREST; INTEREST RIQHTS PRESERVED.
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<PAGE>
Interest on any Debenture of any series which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date for Debentures of such
series shall be paid to the Person in whose name that Debenture (or one or more
Predecessor Debentures) is registered at the close of business on the Regular
Record Date for such interest in respect of Debentures of such series (unless
that Debenture, or one or more Predecessor Debentures, is called for redemption
on a date that is prior to such Interest Payment Date, in which case interest
shall be paid thereon as provided in Article Eleven or in the provisions with
respect to redemption or sinking fund contained in the supplemental indenture
creating the series of which that Debenture is a part).
Any interest on any Debenture which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date for Debentures of such series
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder; and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Debentures (or their respective Predecessor
Debentures) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Debenture and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 nor less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee .shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Debentureholder at his address as it appears in the Debenture Register,
not less than 10 days prior to such Special Record Date. The Trustee may, in
its discretion, in the name and at the expense of the Company, cause a similar
notice to be published at least once in an Authorized Newspaper in each Place of
Payment for Debentures of such series, but such publication shall not be a
condition precedent to the establishment of such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special -Record Date
therefor having been mailed as aforesaid, such Defaulted Interest shall be paid
to the Persons in whose names the Debentures of such series (or their respective
Predecessor Debentures) are registered on such Special Record Date and shall no
longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures of the series in respect of which interest is in default
may be listed, and upon such notice as may be
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required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause, such payment shall
be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Debenture shall carry the rights to interest accrued and unpaid, and
to accrue, which were carried by such other Debenture.
Section 3-10. PERSONS DEEMED OWNERS.
Prior to due presentment for transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat any Person in whose name any
Debenture is registered as the owner of such Debenture for the purpose of
receiving payment of principal of and premium, if any, and (subject to Section
3-9) interest on, such Debenture and for all other purposes whatsoever, whether
or not such Debenture be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.
Section 3-11. CANCELLATION.
All Debentures surrendered for payment, redemption, transfer, exchange or
conversion shall be promptly cancelled by the Company. No Debentures shall be
authenticated in lieu of or in exchange for any Debentures cancelled as provided
in this Section, except as expressly permitted by this Indenture.
Section 3-12. INVESTMENT DEBENTURES, SERIES I.
There shall be an initial series of Debentures entitled "Investment
Debentures, Series I" and the form thereof shall be substantially as
hereinbefore recited. The aggregate principal amount of Investment Debentures,
Series I, at any one time Outstanding shall be limited to $25,000,000 exclusive
of Investment Debentures, Series I authenticated and delivered under Section
3-8. The initial Investment Debentures, Series I shall be issued in the
maturities and denominations with interest rates upon the unpaid principal
amounts thereof as follows:
<TABLE>
<CAPTION>
AMOUNT OF INVESTMENT TERM TO MATURITY ANNUAL INTEREST RATE
--------------------- ----------------- ---------------------
<S> <C> <C>
$2,000-$9,999 60 Months 7.0%
$10,000-$24,999 60 Months 8.0%
$25,000-$99,999 60 Months 8.35%
$100,000-$249,999 60 Months 8.65%
$250,000-$999,999 60 Months 9.0%
$1,000,000+ 60 Months Negotiable
</TABLE>
The interest rates of Investment Debentures, Series I may be changed at any
time by the Company, but no such change will affect any Investment Debentures,
Series I issued prior to such change. Holders of Investment Debentures, Series
I, will receive interest payments quarterly or may elect to allow all or 50% of
the interest payable to be compounded and paid as set forth in
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paragraph 5 of the form of the Investment Debenture, Series I in Section 2-2.
Payment of the principal of and interest on Investment Debentures, Series I will
be made at the office or agency of the Company maintained for that purpose in
Renton, Washington. All such payments shall be made in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that payment of interest
may be made at the option of the Company by check mailed to the address of the
Person entitled thereto as such address shall appear on the Debenture Register.
In the event of the death of any registered owner of an Investment Debenture,
Series I, any party entitled to receive some or all of the proceeds of such
Investment Debenture, Series I may elect to have his or her share of such
investment Debenture, Series I prepaid under the terms, conditions and
limitations set out in paragraph 4 of the form of the Investment Debenture,
Series I in Section 2-2 hereof.
ARTICLE FOUR
Satisfaction and Discharge
Section 4-1. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion or transfer or exchange of Debentures herein
expressly provided for) , and the Trustee, on demand of and at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(1) either:
(A) all Debentures theretofore authenticated and delivered (other than
(i) Debentures which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3-8, and (ii) Debentures for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10-3) have been delivered to the Trustee
cancelled; or
(B) all such Debentures not theretofore delivered to the Trustee
cancelled
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within 1 year,
or
(iii) are to be called for redemption within 1 year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company, and the Company, in the
case of (i) , (ii) or (iii) above, has deposited or caused to be deposited with
the Trustee as trust funds in trust for the purpose an amount sufficient to pay
and discharge the entire indebtedness on such Debentures not theretofore
delivered to the Trustee cancelled, for principal and premium, if any, and
interest to the date of such deposit (in the case of
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Debentures which have become due and payable) , or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company;
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with; and
(4) the Company has delivered to the Trustee a statement that it does
not intend to authorize any further series of Debentures under this Indenture.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6-7 shall survive.
Section 4-2. APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to Section 4-1 shall be held
in trust and applied by it, in accordance with the provisions of the Debentures
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Company may
determine, to the Persons entitled thereto, of the principal and premium, if
any, and interest for-whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
Remedies
Section 5-1. EVENTS OF DEFAULT.
"Event of Default," with respect to the Investment Debentures, Series 1,
means any one of the events specified below in this Section 5-1 and "Event of
Default" with respect to each other series of Debentures shall mean such events
as are set forth in the supplemental indenture creating such series (in each
case whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law, or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Investment
Debenture, Series I when such interest becomes due and payable, and continuance
of such default for a period of 30 days; or
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(2) default in the payment of the principal of (or premium, if any, on)
any Investment Debenture, Series I at its Maturity; or
(3) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a default in
whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 10% in principal amount
of the Outstanding Investment Debentures, Series I, a written notice specifying
such default or breach and requiring it to be remedied and stating that such
notice is a 'Notice of Default" hereunder; or
(4) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company under- the Federal Bankruptcy Act or any other
applicable Federal or State law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the Federal Bankruptcy Act or
any other applicable Federal or State law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator, assignee
trustee, sequestrator (or other similar official) of the Company or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Company in furtherance of any such action.
Section 5-2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding "Applicable Debentures" (as hereinafter defined) may declare the
Applicable Debentures to be due and payable immediately, by a notice in writing
to the Company (and to the Trustee if given by the Holders of the Applicable
Debentures), and upon any such declaration the principal of, premium, if any,
and accrued interest on the Applicable Debentures to the extent not then already
due and payable shall become immediately due and payable. The term "Applicable
Debentures" shall mean the Investment Debentures, Series I in the case of an
Event of Default set forth in Section 5-1 and the Debentures of each other
series in the case of an Event of Default with respect to such series as
provided in any supplemental indenture relating to, the Debentures of such
series; but in no event shall the term "Applicable Debentures" include
Debentures of more than one series.
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At any time after such a declaration of acceleration has -been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of such Applicable Debentures outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay:
(A) all overdue installments of interest on such Applicable Debentures,
(B) the principal of and premium, if any, on such Applicable Debentures
which have become due otherwise than by such declaration of acceleration and
interest thereon at the respective rates borne by such Applicable Debentures,
(C) to the extent that payment of such interest is lawful, interest upon
overdue installments of interest at the respective rates borne by such
Applicable Debentures, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, in each case, with respect to such Applicable
Debentures;
and
(2) all Events of Default, other than the nonpayment of the principal of
such Applicable Debentures which have become due solely by such acceleration,
have been cured or waived as provided in Section 5-13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5-3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if:
(1) default is made in the payment of any installment of interest on any
Applicable Debenture when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Applicable Debenture at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it,' for the benefit of the
Holders of such Applicable Debentures, the whole amount then due and payable on
such, Applicable Debentures for principal and premium, if any, and interest,
with interest upon 'the overdue principal and premium,
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if any, and, to the extent that payment of such interest shall be legally
enforceable, upon overdue installments of interest, at the rate borne by the
Applicable Debentures; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amount forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Applicable Debentures and
collect the moneys adjudged or decreed to be payable in ' the manner provided by
law out of the property of the Company or any other obligor upon the Applicable
Debentures, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of such Applicable Debentures by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
Section 5-4. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Debentures or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Debentures
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the wh ole amount of principal and
premium, if any, and interest owing. and unpaid in respect of the Debentures and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including' any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Debentureholders allowed in such judicial proceeding,
and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each
Debentureholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Debentureholders, to pay the Trustee any amount due to it for the reasonable
compensation,
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expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 6-7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan or reorganization, arrangement, adjustment or composition affecting the
Debentures or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Debentureholder in any such proceeding.
Section 5-5. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF DEBENTURES.
All rights of action and claims under this Indenture or the Debentures may
be prosecuted and enforced by the Trustee without the possession of any of the
Debentures or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Debentures in respect of which such judgment has been
recovered.
Section 5-6. APPLICATION OF MONEY COLLECTED.
Any money collected or to be applied by the Trustee with respect to a
series of Debentures pursuant to this Article shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal or premium, if any, or
interest, upon presentation of the Outstanding Debentures of such series and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
First: To the payment of amounts due the Trustee under Section 6-7;
Second: To the payment of the amounts then due and unpaid upon the
Debentures of such series for principal and premium, if any, and interest, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Debentures of such series for principal and premium, if
any, and interest, respectively.
Section 5-7. LIMITATION ON SUITS.
No Holder of any Applicable Debenture shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to Applicable Debentures of the same
series;
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(2) the Holders of not less than 25% in principal amount of the
Outstanding Applicable Debentures shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Applicable Debentures;
it being understood and intended that no one or more Holders of Debentures shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Debentures, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all the Holders of Debentures.
Section 5-8. UNCONDITIONAL RIGHT OF DEBENTUREHOLDERS TO RECEIVE PRINCIPAL;
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Debenture shall have the right which is absolute and unconditional to receive
payment of the principal of and premium, if any, and (subject to Section 3-9)
interest on such Debenture on the respective Stated Maturities expressed in such
Debenture (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
Section 5-9. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Debentureholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Debentureholder, then and in every such case the Company,
the Trustee and the Debentureholders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Debentureholders shall continue as though no such proceeding had been
instituted.
Section 5-10. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or to
the Debentureholders is intended to be exclusive of any other right or remedy,
and every right and
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remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5-11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Debenture to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Debentureholders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Debentureholders,
as the case may be.
Section 5-12. CONTROL BY DEBENTUREHOLDERS.
The Holders of a majority in principal amount of the Outstanding Debentures
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Debentures of
such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Section 5-13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Debentures of any series may on behalf of the Holders of all the
Debentures of such series waive any past default hereunder and its consequences,
except a default
(1) in the payment of the principal of or premium, if any, or interest
on any Debenture of such series, or
2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Section 5-14. UNDERTAKING FOR COSTS.
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All parties to this Indenture agree, and each Holder of any Debenture by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the .
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder or group of
Debentureholders, holding in the aggregate more than 10% in aggregate principal
amount of any series of Debentures, or to any suit instituted by any
Debentureholder for the enforcement of the payment of the principal of or
premium, if any, or interest on any Debenture on or after the respective Stated
Maturities expressed in such Debenture (or, in the case of redemption, on or
after the Redemption Date) .
Section 5-15. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every power as though no such law had been enacted.
ARTICLE SIX
The Trustee
Section 6-1. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
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(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act,, or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
Holders of a majority in principal amount of the Outstanding Debentures of any
series relating to the time.. method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or Power conferred
upon the Trustee with respect to the Debentures Of such series, under this
Indenture; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(d) Whether or not herein expressly so provided, every provision of this
Indenture relating to the conduct affecting the liability of or affording
protection to Trustee shall be subject to the provisions of this Section.
Section 6-2. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any default hereunder with respect
to a series of Debentures, the Trustee shall transmit by mail to all Holders of
Debentures of such series, as their names and addresses appear in the Debenture
Register, notice of such default hereunder known to the Trustee, unless such
default shall have been cured or waived; provided, however, that, except in the
case of a default in the payment of the principal of or premium, if any, or
interest on any Debenture of such series or in the payment of any sinking or
purchase fund installment due on such Debenture, the Trustee shall be protected
in withholding such notice if and so long as the Board of Directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interests of the Holders of Debentures of such series; and
provided, further, that in the case of any default of the
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character specified in Section 5-1(3) no such notice to such Holders shall be
given until at least 30 days after the occurrence thereof. For the purpose of
this Section, the term "default' means any event which is, or after notice or
lapse of time or both would become, an Event of Default with respect to
Debentures of such series.
Section 6-3. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 6-1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith-and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Debentureholders pursuant to this Indenture, unless such
Debentureholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion,, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
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Section 6-4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF DEBENTURES.
The recitals contained herein and in the Debentures, except the
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Debentures. The Trustee shall not be accountable for the use or
application by the Company of Debentures or the proceeds thereof.
Section 6-5. MAY HOLD DEBENTURES.
The Trustee, any Paying Agent, Debenture Registrar or any other agent of
the Company, in its individual or -any other capacity, may become the ' owner or
pledgee of Debentures and, subject to Sections 6-8 and 6-13 hereof in the case
of the Trustee, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Debenture Registrar or such
other agent.
Section 6-6. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
Section 6-7. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) , except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust,, including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of its powers
or duties hereunder.
As security for the performance of the obligations of the Company under
this Section the Trustee shall have a lien prior to the Debentures upon all
property and funds held or collected by the
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Trustee as such, except funds held in trust for the payment of principal of and
premium, if any, or interest on Debentures.
Section 6-8. DISQUALIFICATION; CONFLICTING INTERESTS.
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, it shall, within 90 days after ascertaining that it has
such conflicting interest, either eliminate such conflicting interest or resign
in the manner and with the effect hereinafter specified in this Article.
(b) In the event that the Trustee shall fail to comply with the
provisions of Subsection (a) of this Section the Trustee shall, within 10 days
after the expiration of such 90-day period, transmit by mail to all
Debentureholders, as their names and addresses appear in the Debenture Register,
notice of such failure.
(c) For the purpose of this Section, the Trustee shall be deemed to have
a conflicting interest if:
(1) the Trustee is trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
Securities, of the Company are outstanding, unless such other indenture is a
collateral trust indenture under which the only collateral consists of
Debentures issued under this Indenture, provided that there shall be excluded
from the operation of this paragraph any indenture or indentures under which
other securities, or certificates of interest or Participation in other
securities, of the Company are outstanding, if:
(i) this Indenture and such other indenture or indentures are wholly
unsecured and such other indenture or indentures are hereafter qualified under
TIA, unless the Commission shall have found and declared by order pursuant to
Section 305(b) or Section 307(c) of TIA that differences exist between the
provisions of this Indenture and the provisions of such other indenture or
indentures which are so likely to involve a material conflict of interest as to
make it necessary in the public interest or for the protection of investors to
disqualify the Trustee from acting as such under this Indenture and such other
indenture or indentures, or the company shall have sustained the burden of
proving, on application to the Commission and after opportunity for hearing
thereon, that trusteeship under this Indenture and such other indenture or
indentures is not so likely to involve a material conflict of interest as to
make it necessary in the public interest or for the protection of investors to
disqualify the Trustee from acting as such under one of such indentures;
(2) the Trustee or any of its directors or executive officers is an
obligor upon the Debentures or an underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control with the
Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner,
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employee, appointee or representative of the Company, or of an underwriter
(other than the Trustee itself) for the Company who is currently engaged in the
business of underwriting, except that (i) one individual may be a director or an
executive officer, or both, of the Trustee and a director or an executive
officer, or both, of the Company but may not be at the same time an executive
officer of both the Trustee and the Company; (ii) if and so long as the number
of directors of the Trustee in office is more than nine, one additional
individual may be a director or an executive officer, or both, of the Trustee
and a director of the Company; and (iii) the Trustee may be designated by the
Company or by any underwriter for the Company to act in the capacity of transfer
agent, registrar, custodian, paying agent, fiscal agent, escrow agent, or
depositary, or in any other similar capacity, or, subject to the provisions of
paragraph (1) of this Subsection, to act as trustee, whether under an indenture
or otherwise;
(5) 10% or more of the voting securities of the Trustee is beneficially
owned either by the Company or by any director, partner, or executive officer
thereof, or 20% or more of such voting securities is beneficially owned,
collectively, by any two or more of such persons; or 10% or more of the voting
securities of the Trustee is beneficially owned either by an underwriter for the
Company or by any director, partner or executive officer thereof, or is
beneficially owned, collectively, by any two or more such persons;
(6) the Trustee is the beneficial- owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), (i) 5% (5r more of the voting securities, or 10% or more of
any other class of security, of the Company not including the Debentures issued
under this Indenture and securities issued under any other indenture under which
the Trustee is also trustee, or (ii) 10% or more of any class of security of an
underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 5% or more of the voting securities of any person who, to
the knowledge of the Trustee, owns 10% or more of the voting securities of, or
controls directly or indirectly or is under direct or indirect common control
with, the Company;
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined) , 10% or more of any class of security of any person who, to
the knowledge of the Trustee owns 50% or more of the voting securities of the
Company; or
(9) the Trustee owns, on May 15 in any calendar year, in the capacity of
executor, administrator, testamentary or inter vivos trustee, guardian,
committee or conservator, or in any other similar capacity, an aggregate of 25%
or more of the voting securities, or of any class of security, of any person,
the beneficial ownership of a specified percentage of which would have
constituted a conflicting interest under paragraphs (6) , (7) or (8) of this
Subsection. As to any such securities of which the Trustee acquired ownership
through becoming executor, administrator, or testamentary trustee of an estate
which included them, the provisions of the preceding sentence shall not apply,
for a period of two years from the date of such acquisition, to the extent that
such securities included
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in such estate do not exceed 25% of such voting securities or 25% of any such
class of security. Promptly after May 15 in each calendar year, the Trustee
shall make a check. of its holdings of such securities in any of the
above-mentioned capacities as of such May 15. If the Company fails to make
payment in full of the principal of, or the premium, if any, or interest on, any
of the Debentures when and as the same becomes due and payable, and such failure
continue's for 30 days thereafter, the Trustee shall make a prompt check of its
holdings of such securities in any bf the above-mentioned capacities as of the
date of the expiration of such 30-day period, and after such date,
notwithstanding the foregoing provisions of this paragraph, all such securities
so held by the Trustee, with sole or joint control over such securities vested
in it, shall, but only so long as such failure shall continue, be considered as
though beneficially owned by the Trustee for the purposes of paragraphs (6), (7)
and (8) of this Subsection.
The specification of percentages in paragraphs (5) to (9) inclusive, of
this Subsection, shall not be construed as indicating that the ownership of such
percentages of the securities of a person is or is not necessary or sufficient
to constitute direct or indirect control for the purposes of paragraph (3) or
(7) of this Subsection.
For the purposes of paragraphs (6) (7) (8) and (9) of this Subsection only,
(i) the terms "security' and n securities" shall include only such securities as
are generally known as corporate securities, but shall not include any note or
other evidence of indebtedness issued to evidence an obligation to repay moneys
lent to a person by one or more banks, trust companies or banking firms, or any
certificate of interest or participation in any such note or evidence of
indebtedness; (ii) an obligation shall be deemed to be 'in default' when a
default in payment of principal shall have continued for 30 days or more and
shall not have been cured; and (iii) the Trustee shall not be deemed to be the
owner or holder of (A) any security which it holds as collateral security, as
trustee or otherwise, for an obligation which is not in default as defined in
clause (ii) above, or (B) any security which it holds as collateral security
under this Indenture, irrespective of any default hereunder, or (C) any security
which it holds as agent for collection, or as custodian, escrow agent, or
depositary, or in any similar representative capacity.
(d) For the purposes of this Section:
(1) The term "underwriter when used with reference to the Company means
every person who, within three (3) years prior to the time as of which the
determination is made, has purchased from the Company with a view to, or has
offered or sold for the Company in connection with, the distribution of any
security of the Company outstanding at such time, or has participated or has had
a direct or indirect participation in any such undertaking, or has participated
or has had a participation in the direct or indirect underwriting of any such
undertaking, but such term shall not include a person whose interest was limited
to a commission from an underwriter or dealer not in excess of the usual and
customary distributors' or sellers' commission.
(2) The term "director" means any director of a corporation, or any
individual performing similar functions with respect to any organization whether
incorporated or unincorporated.
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(3) The term "Person" means an individual, a corporation, a partnership,
an association, a joint-stock company, a trust, an unincorporated organization,
or a government or political subdivision thereof. As used in this paragraph,
the term "trust" shall include only a trust where the interest or interests of
the beneficiary or beneficiaries are evidenced by a security.
(4) The term "voting security" means any security presently entitling
the owner or holder thereof to vote in the direction or management of the
affairs of a person, or any security issued under or pursuant to any trust,
agreement or arrangement whereby a trustee or trustees or agent or agents for
the owner or holder of such security are presently entitled to vote in the
direction or management of the affairs of a person.
(5) The term "Company" means any obligor upon the Debentures.
(6) The term "executive officer" means the president, every vice
president, every trust officer, the cashier, the secretary, and the treasurer of
a corporation, and any individual customarily performing similar functions with
respect to any organization whether incorporated or unincorporated, and shall
include the chairman of the board of directors.
(e) The percentages of voting securities and other securities specified
in this Section shall be calculated in accordance with the following provisions:
(1) A specified percentage of the voting securities of the Trustee, the
Company or any other person referred to in this Section (each of whom is
referred to as a "Person" in this paragraph) means such amount of the
outstanding voting securities of such person as entitles the holder or holders
thereof to cast such specified percentage of the aggregate votes which the
holders of all the outstanding voting securities of such person are entitled to
cast in the direction or management of the affairs of such person.
(2) A specified percentage of a class of securities of a person means
such percentage of the aggregate amount of securities of the class outstanding.
(3) The term "amount," when used in regard to securities, means the
principal amount if relating to evidences of indebtedness, the number of shares
if relating to capital shares, and the number of units if relating to any other
kind of security.
(4) The term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed outstanding
within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating to
securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating to another
class of securities of the issuer, if the obligation evidenced by such other
class of securities is not in default as to principal or interest or otherwise;
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(iii) securities pledged by the issuer thereof as security for an
obligation of the issuer not in default as to principal or interest or
otherwise; and
(iv) securities held in escrow if placed in escrow by the issuer thereof;
provided, however, that any voting securities of an issuer shall be deemed
outstanding if any person other than the issuer is entitled to exercise the
voting rights thereof.
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; provided, however, that, in the
case of secured evidences of indebtedness, all of which are issued under a
single indenture, differences in the interest rates or maturity dates of various
series thereof shall not be deemed sufficient to constitute such series
different classes and provided, further, that, in the case of unsecured
evidences of indebtedness, differences in the interest rates or maturity dates
thereof shall not be deemed sufficient to constitute them securities of
different classes, whether or not they are issued under a single indenture.
Section 6-9. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any State, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, subject
to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
Section 6-10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6-11.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Debentures, delivered to the
Trustee and to the Company.
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(d) If at any time:
(1) the Trustee shall fail to comply with Section 6-8(a) after written
request therefor by the Company or by any Debentureholder who has been a bona
fide Holder of a Debenture for at least 6 months, or
(2) the Trustee shall cease to be eligible under Section 6-9 and shall
fail to resign after written request therefor by the Company or by any such
Debentureholder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5-14, any Debentureholder who has been a
bona fide Holder of a Debenture for at least 6 months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. if,
within 1 year after such resignation, removal or incapability, or the occurrence
of such vacancy, a successor Trustee shall be appointed by Act of the Holders of
a majority in principal amount of the outstanding Debentures delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Debentureholders and
accepted appointment in the manner hereinafter provided, any Debentureholder who
has been a bona fide Holder of a Debenture for at least 6 months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Debentures as their names and addresses appear in the Debenture Register. Each
notice shall include the name of the successor Trustee and the address of its
principal corporate trust office.
Section 6-11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts
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and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 6-7. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 6-12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, to the extent operative, without the execution or filing of any paper
or any further act on the part of any of the parties hereto. In case any
Debentures shall have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger" conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Debentures
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Debentures.
Section 6-13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
(a) Subject to Subsection (b) of this Section, if the Trustee shall be
or shall become a creditor, directly or indirectly, secured or unsecured, of the
Company within 4 months prior to a default, as defined in Subsection (c) of this
Section, or subsequent to such a default, then, unless and until such default
shall be cured, the Trustee shall set apart and hold in a special account for
the benefit of the Trustee individually, the Holders of the Debentures and the
holders of other indenture securities (as defined in Subsection (c) of this
Section):
(1) an amount equal to any and all reductions in the amount due and
owing upon any claim as such creditor in respect of principal or interest,
effected after the beginning of such four (4) months' period and valid as
against the Company and its other creditors, except any such reduction resulting
from the receipt or disposition of any property described in paragraph (2) of
this Subsection, or from the exercise of any right of set-off which the Trustee
could have exercised if a petition in bankruptcy had been filed by or against
the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as such
creditor, either as security therefor, or in satisfaction or composition
thereof, or otherwise, after the beginning of such four (4) months' period or an
amount equal to the proceeds of any such property, if disposed
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of, subject, however, to the rights, if any, of the Company and its other
creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on account of any
such claim by any Person (other than the Company) who is liable thereon, and
(ii) the proceeds of the bona fide sale of any such claim by the Trustee to a
third person and (iii) distributions made in cash, securities or other property
in respect of claims filed against the Company in bankruptcy or receivership or
in proceedings for reorganization pursuant to the Federal Bankruptcy Act or
applicable State law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the beginning
of such four (4) months' period;
(C) to realize, for its own account, but only to the extent of the claim
hereinafter mentioned, upon any property held by it as security for any such
claim, if such claim was created after the beginning of such four (4) months'
period and such property was received as security therefor simultaneously with
the creation thereof, and if the Trustee shall sustain the burden of proving
that at the time such property was so received the Trustee had no reasonable
cause to believe that a default as defined in Subsection (c) of this Section
would occur within 4 months; or
(D) to receive payment on any claim referred to in paragraph (B) or (C),
against the release of any property held as security for such claim as provided
in paragraph (B) or (C) , as the case may be, to the extent of the fair value of
such property.
For the purposes of paragraphs (B) , (C) and (D) , property substituted
after the beginning of such four (4) months' period for property held as
security at the time of such substitution shall, to the extent of the fair value
of the property released, have the same status as the property released, and, to
the extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned between the
Trustee, the Debentureholders and the holders of other indenture securities in
such manner that the Trustee, the Debentureholders and the holders of other
indenture securities realize, as a result of payments from such special account
and payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Act or applicable State law, the same percentage of their respective
claims, figured before crediting to the claim of the Trustee anything on account
of the receipt by it from the Company of the funds and property in such special
account and before crediting to the respective claims of the Trustee and the
Debentureholders and the holders of other indenture securities dividends on
claims filed against the Company in bankruptcy or receivership or in proceedings
for reorganization pursuant to the Federal Bankruptcy Act or applicable State
law, but after crediting thereon receipts on account of the indebt-
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edness represented by their respective claims from all sources other than
from such dividends and from the funds and property so held in such special
account. As used in this paragraph, with respect to any claim, the term
"dividends" shall include any distribution with respect to such claim, in
bankruptcy or receivership or proceedings for reorganization pursuant to the
Federal Bankruptcy Act or applicable State law, whether such distribution is
made in cash, securities, or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such claim. The
court in which such bankruptcy, receivership or proceedings for
reorganization is pending shall have jurisdiction (i) to apportion between
the Trustee and the Debentureholders and the holders of other indenture
securities, in accordance with the provisions of this paragraph, the funds
and property held in such special account and proceeds thereof, or (ii) in
lieu of such apportionment, in whole or in part, to give to the provisions of
this paragraph due consideration in determining the fairness of the
distributions to be made to the Trustee and the Debentureholders and the
holders of other indenture securities with respect to their respective
claims, in which event it shall not be necessary to liquidate or to appraise
the value of any securities or other property held in such special account or
as security for any such claim, or to make a specific allocation of such
distributions as between the secured and unsecured portions of such claims,
or otherwise to apply the provisions of this paragraph as a mathematical
formula.
Any Trustee which has resigned or been removed after the beginning of such
4 months' period shall be subject to the provisions of this Subsection as though
such resignation or removal had not occurred. If any Trustee has resigned or
been removed prior to the beginning of such 4 months' period, it shall be
subject to the provisions of this Subsection if and only if the following
conditions exist:
(i) the receipt of property or reduction of claim, which would have
given rise to the obligation to account, if such Trustee had continued as
Trustee, occurred after the beginning of such four (4) months'. period; and
(ii) such receipt of property or reduction of claim occurred within 4
months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of this
Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or more
at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of preserving any
property which shall at any time be subject to the lien of this Indenture or of
discharging tax liens or other prior liens or encumbrances thereon, if notice of
such advances and of the circumstances surrounding the making thereof is given
to the Debentureholders at the time and in the manner provided in this
Indenture;
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(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar, custodian,
paying agent, fiscal agent or depositary, or other similar capacity;
(4) an indebtedness created as a result of services rendered qr premises
rented; or an indebtedness created as a result of goods or securities sold in a
cash transaction as defined in Subsection (c) of this Section;
(5) the ownership of stock or of other securities of a corporation
organized under the provisions of Section 15(a) of the Federal Reserve Act, as
amended, which is directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any drafts,
bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper as defined in Subsection (c) of this
Section.
(c) For the purposes of this Section only:
(1) The term "default" means any failure to make payment in full of the
principal of or interest on any of the Debentures or upon the other indenture
securities when and as such principal or interest becomes due and payable.
(2) The term "other indenture securities" means securities upon which
the Company is an obligor outstanding under any other indenture (i) under which
the Trustee is also trustee, (ii) which contains provisions substantially
similar to the provisions of this Section, and (iii) under which a default
exists at the time of the apportionment of the funds and property held in such
special account.
(3) The term "cash transaction" means any transaction in which full
payment for goods or securities sold is made within 7 days after delivery of the
goods or securities in currency or in checks or other orders drawn upon banks or
bankers and payable upon demand.
(4) The term "self-liquidating paper" means any draft, bill of exchange,
acceptance or obligation which is made, drawn, negotiated or incurred by the
Company for the purpose of financing the purchase, processing, manufacturing,
shipment, storage or sale of goods, wares or merchandise and which is secured by
documents evidencing title to, possession of, or a lien upon, the goods, wares
or merchandise or the receivables or proceeds arising from the sale of the
goods, wares or merchandise previously constituting the security, provided the
security is received by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the making, drawing,
negotiating or incurring of the draft, bill of exchange, acceptance or
obligation.
(5) The term "Company" means any obligor upon the Debentures.
ARTICLE SEVEN
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Debentureholders Lists and Reports by Trustee and Company
Section 7-1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
DEBENTUREHOLDERS.
The Company will furnish or cause to be furnished to the Trustee:
(a) semiannually, on or before each April 15 and October 15, a list, in
such form as the Trustee may reasonably require, of the names and addresses of
the Holders of Debentures as of the preceding March 31 and September 30,
respectively, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished.
Section 7-2. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Debentures of each series
received by the Trustee as provided in Section 7-1. The Trustee may destroy any
list furnished to it as provided in Section 7-1 upon receipt of a new list so
furnished.
(b) If three (3) or more Holders of Debentures of a series (hereinafter
referred to as "applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each such applicant has owned a Debenture of the
stated series for a period of at least 6 months preceding the date of such
application, and such application states that the applicants desire to
communicate with other Holders of Debentures of such series or of all series
with respect to their rights under this Indenture or under the appropriate
Debentures and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall,
within 5 Business Days after the receipt of such application, at its election,
either
(i) afford such applicants access to the information preserved at the
time by the Trustee in accordance with Section 7-2(a), or
(ii) inform such applicants as to the approximate number of Holders of
Debentures whose names and addresses appear in the information preserved at the
time by the Trustee in accordance with Section 7-2(a), and as to the approximate
cost of mailing to such Debentureholders the form of proxy or other
communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Debentureholder whose name and address appear in the information
preserved at the time by the Trustee in accordance with Section 7-2 (a) , a copy
of the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable expenses
of mailing, unless within five (5) days after
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such tender, the Trustee shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed, a written
statement to the effect that, in the opinion of the Trustee, such mailing would
be contrary to the best interests of the Holders of Debentures or would be in
violation of applicable law. Such written statement shall specify the basis of
such opinion. If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all such Debentureholders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Debentures, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Holders of Debentures in accordance with
Section 7-2(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 7-2 (b) .
Section 7-3. REPORTS BY TRUSTEE.
(a) The term "reporting date", as used in this Section, means the first
day of the tenth calendar month following the date of this Indenture and the
same day in every year thereafter so long as any Debentures of any series are
outstanding hereunder. Within 60 days after the reporting date in each year,
the Trustee shall transmit by mail to all Holders of a given series of
Debentures, as their names and addresses' appear in the Debenture Register, a
brief report dated as of such reporting date with respect to:
(1) its eligibility under Section 6-9 and its qualifications under
Section 6-8, or in lieu thereof, if to the best of its knowledge it has
continued to be eligible and qualified under said Sections, a written statement
to such effect;
(2) the character and amount of any advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) which remain unpaid on the date of such report, and for the
reimbursement of which it claims or may claim a lien or charge, prior to that of
the Debentures of any series, on any property or funds held or collected by it
as Trustee, except that the Trustee shall not be required (but may elect) to
report such advances if such advances so remaining unpaid aggregate not more
than 1/2 of 1% of the principal amount of the Debentures of such series
outstanding on the date of such report;
(3) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the Debentures) to
the Trustee in its individual capacity, on the date of such report, with a brief
description of any property held as collateral security therefor,
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except an indebtedness based upon a creditor relationship arising in any manner
described in Section 6-13(b) (2) (3) (4) or (6);
(4) the property and funds, if any, physically in the possession of the
Trustee (as such) on the date of such report;
(5) any additional issue of Debentures of any series which the Trustee
has not previously reported; and
(6) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Debentures of any series, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee in
accordance with Section 6-2.
(b) The Trustee shall transmit by mail to all Debentureholders, as their
names and addresses appear in the Debenture Register, a brief report with
respect to the character and amount of any advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) since the date of the last report transmitted pursuant to
Subsection (a) of this Section (or if no such report has yet been so
transmitted, since the date of execution of this instrument) for the
reimbursement of which it claims or may claim a lien or charge, prior to that of
the Debentures of any series, on property or funds held or collected by it as
Trustee, and which it has not previously reported pursuant to this Subsection,
except that the Trustee shall not be required (but may elect) to report such
advances if such advances remaining unpaid at any time aggregate 10% or less of
the principal amount of the Debentures of any series Outstanding at such time,
such report to be transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such transmission
to Debentureholders, be filed by the Trustee with each stock exchange upon which
the Debentures are listed, and also with the Commission. The Company will
notify the Trustee when the Debentures are listed on any stock exchange.
Section 7-4. REPORTS BY THE COMPANY.
The Company will:
(1) file with the Trustee, within fifteen (15) days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15 (d) of the Securities Exchange
Act of 1934; or, if the Company is not required to file information, documents
or reports pursuant to either of said Sections, then it will file with the
Trustee and the Commission, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Securities Exchange Act
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of 1934 in respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(3) transmit by mail to all Debentureholders, as their names and
addresses appear in the Debenture Register, within thirty (30) days after the
filing thereof with the Trustee, such summaries of any information, documents
and reports required to be filed by the Company pursuant to paragraphs (1) and
(2) of this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
Section 8-1. COMPANY MAY CONSOLIDATE, MERGER, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other corporation
or convey or transfer its properties and assets substantially as an entirety to
any Person, unless:
(1) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer the
properties and assets of the Company substantially as an entirety shall be a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of
and premium,, if any, and interest on all the Debentures and the performance of
every covenant of this Indenture on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default; shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that such consolidation, merger,
conveyance or transfer and such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with.
Section 8-2. SUCCESSOR CORPORATION SUBSTITUTED.
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Upon any consolidation or merger, or any conveyance or transfer of the
properties and assets of the Company substantially as an entirety in accordance
with Section B-1, the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance or transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
corporation had been named as the Company herein; provided, however, that no
such conveyance or transfer shall have the effect of releasing the Person named
as the "Company' in the first paragraph of this Indenture or any successor
corporation which shall theretofore have become such in the manner prescribed in
this Article from its liability as obligor and maker on any of the Debentures.
ARTICLE NINE
Supplemental Indentures
Section 9-1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF DEBENTUREHOLDERS.
(a) Without the consent of the Holders of any Debentures, the Company,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company,
and the assumption by any such successor of the covenants of the Company herein
and in the Debentures contained; or
(2) to add to the covenants of the Company, for the benefit of the
Holders of the Debentures or any series thereof, or to surrender any right or
power herein conferred upon the Company; or
(3) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided such action shall not adversely affect the interest of the Holders of
the Debentures or any series thereof; or
(4) to provide for the creation of any series of Debentures (other than
Investment Debentures of Series I) as provided in Article Three.
(b) It shall not be necessary to obtain any consent from the Trustee
with regard to any action taken pursuant to this Section, but the Trustee shall
execute any instrument requested in a Company Request for the purpose of
confirming such action, upon receipt by the Trustee of an Officers' Certificate
and an Opinion of Counsel, each stating that the Company was authorized by this
indenture to take the action taken by it and that the execution of such
instrument is appropriate to confirm such action, provided, however, that the
Trustee shall have no obligation to execute any
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supplemental indenture the purpose of which is to create a series of Debentures
other than Investment Debentures, Series I unless all the terms and conditions
applicable to such series of Debentures affecting the rights, compensation, and
duties of the Trustee shall be satisfactory to the Trustee.
Section 9-2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent of the Holders of not less than 66-2/3% in principal
amount of the Outstanding Debentures, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders of the Debentures under this Indenture; provided, however, if
such additional, changed or eliminated provision applies only to a particular
series of Debentures, or the rights of the Holders of only a particular series
would be modified, the consent of 66-2/3% in principal amount of Outstanding
Debentures of only such series shall be required; and provided, further, that no
such supplemental indenture shall, without the consent of the Holder of each
Outstanding Debenture affected thereby,
(l) change the Stated Maturity of the principal of, or any installment of
interest on, any Debenture, or reduce the principal amount thereof or the
interest thereon or any premium payable upon the redemption thereof, or change
any Place of Payment where, or the coin or currency in which, any Debenture or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding.
Debentures, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section 5-13, except
to increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each Debenture affected thereby.
It shall not be necessary for any Act of Debentureholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Section 9-3. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6-1) shall be fully protected in relying
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upon, and Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Section 9-4. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Debentures theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9-5. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of TIA as then in effect.
Section 9-6. REFERENCE IN DEBENTURES TO SUPPLEMENTAL INDENTURES.
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as-to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Debentures so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated by the Trustee in exchange for
Outstanding Debentures, and be delivered as authorized by the Company.
ARTICLE TEN
Covenants
Section 10-1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of and premium, if
any, and interest on each series of Debentures in accordance with the terms of
each such series and this Indenture.
Section 10-2. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain an office or agency in the Place of Payment for
Debentures of each series where Debentures of such series may be presented or
surrendered for payment, where
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Debentures may be surrendered for transfer or exchange and where notices and
demands to or upon the Company in respect of such Debentures and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
the location, and of any change in the location, of such office or agency. If
at any time the Company shall fail to maintain such office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the principal corporate
trust office of the Trustee, and the Company hereby appoints the Trustee its
agent to receive all such presentations, surrenders, notices and demands.
Section 10-3. MONEY FOR DEBENTURE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of and premium, if any, or interest on,
any of the Debentures, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal, premium, if any,
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly. notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of and premium, if any, or interest on, any
Debentures, deposit with a Paying Agent a sum sufficient to pay the principal,
premium, if any, or interest, so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of principal of, premium,
if any, or interest on Debentures in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Debentures) in the making of any such payment of principal,
premium, if any, or interest; and
(3) at anytime during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by the Company or any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
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Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Debenture and remaining unclaimed for 6 years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Debenture shall thereafter,
as an unsecured general creditor, -look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in an Authorized Newspaper in each Place of Payment of such
Debenture, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
Section 10-4. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income, profits or property, and
(2) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon its property; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
Section 10-5. MAINTENANCE OF PROPERTIES.
The Company will cause all its properties used or useful in the conduct of
its business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business and not disadvantageous in any material respect
to the Debentureholders.
Section 10-6. STATEMENT AS TO COMPLIANCE.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year, a written statement signed by the Chairman of the Board,
President or a Vice President and by the Treasurer, an Assistant Treasurer, the
Controller or an Assistant Controller of the- Company, stating, as to each
signer thereof, that
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(1) a review of the activities of the Company during such year and of
performance under this Indenture has been made under his supervision, and
(2) to the best of his knowledge, based on such review, the Company has
fulfilled all its obligations under this Indenture throughout such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to him and the nature and status thereof.
Section 10-7. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Debentureholders.
Section 10-8. BORROWINGS.
The Company may from time to time, in order to further its business, borrow
monies from third parties. The total amount of any loans or other financing
arrangements (the "borrowings") may not exceed thirty-five percent (35%) of the
total principal amount due under the issued and outstanding Debentures at the
time each borrowing is obtained by the Company. In order to secure these
borrowings the Company may agree to pledge some or all of its assets and/or
subordinate payment of the Debentures to payments due to the lenders under the
borrowing arrangements. The Trustee shall have the power to and shall be
obligated to take all actions reasonably necessary to assist the Company in
securing such borrowings, including executing collateral assignment agreements
and subordination agreements related to the Debentures, as may be required by a
lender.
ARTICLE ELEVEN
Redemption of Debentures
Section 11-1. RIGHT OF REDEMPTION.
Notwithstanding anything to the contrary herein contained, the Investment
Debentures, Series I are not redeemable prior to Maturity; the Company may,
however, pay principal and premium, if any, and interest on such Debentures
either upon mutual agreement between the Holders of an Investment Debenture,
Series I and the Company or as provided in this Indenture in the event of the
death of any registered owner or any registered joint owner without such payment
constituting a redemption. The Debentures of each other series, if redeemable,
shall be redeemable on a pro rata basis or by lot or otherwise as set forth in
the supplemental indenture creating such series.
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Section 11-2. APPLICABILITY OF ARTICLE.
Redemption of Debentures at the election of the Company or otherwise as
permitted or required by any provision of this Indenture or any supple ' mental
indenture, shall be made in accordance with such provision and this Article.
Section 11-3. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Debentures shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
the Debentures of any series, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee in writing of such Redemption
Date, the Redemption Price and the principal amount of Debentures to be redeemed
and the series thereof.
Section 11-4. SELECTION BY TRUSTEE OF DEBENTURES TO BE REDEEMED.
If less than all the Debentures of any series are to be redeemed, otherwise
than on a pro rata basis, the particular Debentures to be redeemed shall be
selected not more than 45 days prior to the Redemption Date by the Trustee, from
the Outstanding Debentures of such series not previously called for redemption,
by lot or by such other method as the Trustee shall deem fair and appropriate
and which may provide for the redemption of portions of the principal of
Debentures of a denomination larger than $1,000 or the smallest authorized
denomination of the Debentures, whichever is greater, or an integral multiple
thereof. If redemption is to be other than on a pro rata basis, the Trustee
shall promptly notify the Company in writing of the Debentures selected for
redemption and, in the case of any Debenture selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Debentures shall relate,, in the
case of any Debenture redeemed or to be redeemed only in part, to the portion of
the principal of such Debenture which has been or is to be redeemed.
Section 11-5. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Debentures to be redeemed, at his address appearing in the
Debenture Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
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(3) if less than all Outstanding Debentures of. any series are to be
redeemed, the identification (and, in the case of partial redemption, the
respective principal amounts) of the Debentures to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Debenture, and that interest thereon shall cease to
accrue from and after said date, and
(5) the place where such Debentures are to be surrendered for payment of
the Redemption Price, which shall be the of f ice or agency of the Company in
each Place of Payment for the Debentures of the series being redeemed.
Notice of redemption of Debentures to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 11-6. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 10-3) an amount of money
sufficient to pay the Redemption Price of all the Debentures which are to be
redeemed on that date.
Section 11-7. DEBENTURES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Debentures so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price) such Debentures
shall cease to bear interest. upon surrender of such Debentures for redemption
in accordance with said notice, such Debentures shall be paid by the Company at
the Redemption Price. Installments of interest the Stated Maturity of which is
on or prior to the Redemption Date shall be payable to the Holders of such
Debentures registered as such on the relevant Record Dates according to the
terms of such Debentures and the provisions of Section 3-9.
If any Debenture called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid,
bear interest from the Redemption Date at the rate borne by the Debenture.
Section 11-8. DEBENTURES REDEEMED IN PART.
Any Debenture of any series which is to be redeemed only in part shall be
surrendered at a Place of Payment for Debentures of such series (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing) and the
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Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Debenture without service charge, a new Debenture or Debentures
of the same series, of any authorized denomination as requested by such Holder
in aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Debenture so surrendered.
IN WITNESS WHEREOF, SFG MORTGAGE & INVESTMENT COMPANY, INC. has caused this
Indenture to be signed in its corporate name by its Chairman of the Board, its
President or a Vice President and its corporate seal to be affixed hereunto, and
the same to be attested by the signature of its Secretary or an Assistant
Secretary; and US BANK, in evidence of its acceptance of the trust hereby
created, has caused this Indenture to be signed in its corporate name by one of
its Corporate Trust Officers, and its corporate seal to be affixed hereunto, and
the same to be attested by one of its Corporate Trust Officers.
Executed and delivered as of the date first Above written.
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EXHIBIT 6.1
MANAGEMENT AGREEMENT WITH CAPITAL MANAGEMENT GROUP, INC.
<PAGE>
MANAGEMENT AGREEMENT
AGREEMENT made September 21, 1998, between SFG MORTGAGE AND INVESTMENT
COMPANY, INC., a Washington corporation with offices located at 923 Powell
Avenue SW, Suite 101, Renton, WA, 98055 ("SFG MORTGAGE"), and CAPITAL MANAGEMENT
GROUP, INC., a Washington corporation with offices located at 923 Powell Avenue
SW, Suite 101, Renton, WA, 98055 ("CMGI").
Whereas SFG MORTGAGE has been formed to engage in non-conventional mortgage
lending and real estate investment activities, and
Whereas SFG MORTGAGE has agreed to retain CMGI in the capacity of
supervisory managing agent upon the terms and conditions hereinafter set forth,
Now, therefore, in consideration of the foregoing and the covenants
hereinafter contained, it is mutually agreed as follows:
1. EMPLOYMENT OF AGENT. SFG MORTGAGE hereby employs CMGI to act in the
capacity of supervisory managing agent to perform the administrative and
ministerial functions with respect to the conduct of SFG MORTGAGE's mortgage
lending business as set forth herein. Provided that, CMGI shall at all times
serve in its capacity as supervisory managing agent at the direction of SFG
MORTGAGE's managers who shall set all policies for SFG MORTGAGE.
2. UNDERTAKING OF AGENT. CMGI shall devote such time and attention as it
considers proper and necessary to act in the capacity of supervisory managing
agent, to conduct the mortgage lending and real estate investment activities of
SFG MORTGAGE, including but not limited the following: to prepare for execution
such contracts, deeds, assignments, releases, and other instruments as are
necessary to conduct SFG MORTGAGE's mortgage lending and real estate investment
business; to maintain all records of the interest of SFG MORTGAGE's Debenture
holders; to arrange for the preparation and execution of all Debentures and
assignments of Debentures issued by SFG MORTGAGE and to record the issuance and
assignments of such Debentures; to maintain SFG MORTGAGE's financial books and
records; and to calculate and make all payments due under the Debentures; and
to calculate and pay all expenses from its own account incurred in the ordinary
course of the business of SFG MORTGAGE. In addition, CMGI will supervise the
maintenance of SFG MORTGAGE's books and records, prepare all necessary tax and
information returns of SFG MORTGAGE, and prepare and distribute to SFG
MORTGAGE's various partners an annual profit and loss statement and balance
sheet of SFG MORTGAGE. All costs related thereto shall be borne by CMGI.
CMGI shall also pay all expenses incurred by SFG MORTGAGE related to the
offer and sale of the Debentures by SFG MORTGAGE, in an amount estimated at One
Hundred Thousand Dollars ($100,000). CMGI may borrow up to Sixty Thousand
Dollars ($60,000) from SFG MORTGAGE to pay these expenses. The terms of such
loans shall require that payments of principal and interest
<PAGE>
due to SFG MORTGAGE be made from the amounts due to CMGI under paragraph 3 of
this agreement as its management fee and/or overhead allowance and shall be paid
to SFG MORTGAGE in the form of an offset equal to fifty percent (50%) of all
amounts to be paid to CMGI under paragraph 3, until any such loan is paid in
full. Such loans shall be interest at the rate of thirteen percent (13%) per
annum.
3. COMPENSATION AND REIMBURSEMENT OF AGENT. SFG MORTGAGE shall pay to CMGI
as full compensation for all services rendered by CMGI a yearly sum in an amount
equal to one and one-half percent (1.5%) of the then outstanding total principal
balance due under all Debentures issued by SFG MORTGAGE, payable in equal
quarterly installments at the end of each and every calendar quarter during the
term of this agreement, commencing with the end of the first quarter from the
date hereof. SFG MORTGAGE shall pay to CMGI as full reimbursement for all
expenses incurred and paid by CMGI on SFG MORTGAGE's behalf, a yearly sum of in
amount equal to one percent (1%) of the then outstanding principal balance due
under all Debentures issued by SFG MORTGAGE, payable in equal quarterly
installments at the end of each and every calendar quarter during the term of
this agreement, commencing with the end of the first quarter from the date
hereof. Payment of all such amounts due hereunder shall be subordinated to
payment of the Company's payment of all amounts currently due under the
Debentures.
4. TERMINATION OF AGREEMENT. This agreement shall terminate if any of the
following events shall occur:
(a) Termination and dissolution of SFG MORTGAGE.
(b) Misconduct on the part of CMGII.
5. TERM. This agreement shall continue for a period of five (5) years
from the date hereof, and shall be automatically renewed for additional two (2)
year periods thereafter, unless terminated by either party upon written notice
sent to the other party not less than sixty (60) days before any expiration
date.
6. ARBITRATION. The parties shall submit any dispute as to the
application or interpretation of any term of this agreement to arbitration under
the governing rules and regulations of the American Arbitration Association in
the City of Seattle. Any arbitration hereunder shall be by three arbitrators.
The parties shall bear equally the cost of such arbitrators unless the
arbitrators determine that either party is acting in bad faith, in which event
the arbitrators may require such party to bear the entire cost of the
arbitration.
7. MODIFICATION. This agreement may not be modified, altered, or amended
in any manner except by a written agreement executed by both parties.
8. ASSIGNMENT. This agreement is not assignable by either party without
the express written consent of the other.
-2-
<PAGE>
9. ENTIRE AGREEMENT. This Agreement supersedes all agreements previously
made between the parties relating to its subject matter. There are no other
understandings or agreements between them.
10. NOTICES. All notices under this Agreement shall be in writing and
delivered personally or mailed by certified mail, postage prepaid, addressed to
the parties at their last known addresses.
11. NON-WAIVER. No delay or failure by either party to exercise any right
under this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
provided herein.
12. HEADINGS. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Washington.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
15. BINDING EFFECT. The provisions of this Agreement shall be binding
upon and inure to the benefit of both parties and their respective legal
representatives, successors, and assigns.
In witness whereof the parties hereto have hereunto set their hands and
seals the day and year first above written.
SFG MORTGAGE AND INVESTMENT
COMPANY, INC.
By /s/John Odegard
------------------------------
John Odegard, President
CAPITAL MANAGEMENT GROUP, INC.
By /s/Gregory B. Elderkin
-------------------------------
Gregory B. Elderkin, Vice-President
-3-
<PAGE>
EXHIBIT 10.1
CONSENT OF PETERSON SULLIVAN, L.L.P.
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS'/ACCOUNTANTS' CONSENT
We consent to the use in this Registration Statement of SFG Mortgage and
Investment Company, Inc. on Form SB-2 of our report dated November 9, 1998,
appearing in the Prospectus, which is part of this Registration Statement,
and of our attestation report (a review) dated December 8, 1998, relating to
the Schedule of Managed Funds of the SFG Income Funds and SFG Equity Fund
appearing elsewhere in the Prospectus.
We also consent to the reference to us under the headings "The Company and
Affiliates' Loans on Real Estate" and "Experts" in such Prospectus.
/s/ Peterson Sullivan PLLC
December 29, 1998
Seattle, Washington
<PAGE>
EXHIBIT 10.2
CONSENT OF LAW OFFICES OF JACK G. ORR, P.S.
<PAGE>
[LETTERHEAD]
January , 1999
We hereby consent to the filing of our opinion regarding the validity
of the Investment Debentures, Series I as an exhibit to the SB-2 Registration
Statement of SFG Mortgage and Investment Company, Inc. We further consent to
the use of our name in the Prospectus and Registration Statement.
LAW OFFICES OF JACK G. ORR, P.S.
JGO/st
sfgmort.cons.0114
<PAGE>
EXHIBIT 11
OPINION OF LAW OFFICES OF JACK G. ORR, P.S.
<PAGE>
[LETTERHEAD]
January , 1999
PROPOSED
SFG Mortgage and Investment Company, Inc.
923 Powell Avenue SW
Renton, WA 98057
Dear Sirs:
The undersigned serves as your counsel in connection with the filing of
the Registration Statement on Form SB-2 under the Securities Act of 1933, as
amended, filed by you with the United States Securities and Exchange
Commission on January , 1999. Pursuant to such Registration Statement, you
propose to register $25,000,000 of Investment Debentures, Series I of SFG
Mortgage and Investment Company, Inc. (the "Company") to be offered and sold
to the investing public.
We have reviewed the Articles of Incorporation, Bylaws and Minutes of
the meetings and records of action of the Board of Directors of the Company
and such other documents and representations as we deemed necessary.
Based upon the foregoing, we are of the opinion that:
1. The Company is a validly existing corporation in good standing under
the laws of the State of Washington; and
2. Upon issuance of the aforementioned investment debentures in
conformity with the Registration Statement, such debentures will be validly
issued and outstanding and the repayment of all amounts due under such
debentures will be a legal and binding obligation upon the Company.
LAW OFFICES OF JACK G. ORR, P.S.
JGO/st
sfgmort.opn.0114
