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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
AMENDMENT NO. 1
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AUSTIN FUNDING.COM CORPORATION
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(Name of Small Business Issuer in its charter)
NEVADA 74-2923677
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
823 Congress Avenue, Suite 515
Austin, Texas 78701
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(Address of principal executive offices)
Issuer's telephone number: (512) 481-8000
Issuer's Facsimile Number: (512) 481-8001
Securities to be registered under Section 12(b) of the Act: NONE.
Securities to be registered under Section 12(g) of the Act: COMMON STOCK.
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AUSTIN FUNDING.COM CORPORATION
FORM 10-SB
TABLE OF CONTENTS
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Page
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PART I.........................................................................1
Item 1. DESCRIPTION OF BUSINESS........................................1
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PLAN OF OPERATIONS............................................14
Item 3. DESCRIPTION OF PROPERTY.......................................21
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.........................................22
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CORPORATE PERSONS.........................................23
Item 6. EXECUTIVE COMPENSATION........................................27
Item 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS..................................................31
Item 8. DESCRIPTION OF SECURITIES.....................................33
PART II.......................................................................38
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE
COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS...........................................38
Item 2. LEGAL PROCEEDINGS.............................................39
Item 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS...................................................40
Item 4. RECENT SALES OF UNREGISTERED SECURITIES.......................40
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................41
PART F/S......................................................................43
PART III......................................................................43
Item 1. EXHIBITS......................................................43
SIGNATURES....................................................................46
FINANCIAL STATEMENTS.........................................................F-1
EXHIBITS
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PART I
Item 1. DESCRIPTION OF BUSINESS.
The Company is filing this registration statement on a voluntary
basis to (1) provide current, public information to the investment community and
(2) to comply with the OTC Bulletin Board Eligibility Rule.
FORWARD-LOOKING STATEMENTS
This Registration Statement of Austin Funding.com Corporation
includes forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the "Act"). These statements are based on
management's beliefs and assumptions, and on information currently available to
management. Forward-looking statements include statements in which words such as
"expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or
similar expressions are used.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions. The Company's future results
and stockholder values may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict. In
addition, the Company does not have any intention or obligation to update
forward-looking statements after the effectiveness of this Registration
Statement even when new information, future events or other circumstances have
made them incorrect or misleading. For these statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in
Section 21E of the Act.
BACKGROUND OF THE COMPANY
Austin Funding.com Corporation is the parent company for Austin Funding
Corporation ("AFC" or the "Subsidiary"). Unless otherwise specifically indicated
herein, references herein to "the Company" include both the parent and the
Subsidiary. The Company through its subsidiary is a licensed mortgage lender
active in acquiring, holding and ultimately selling first liens secured by
residential real estate (hereinafter, "Mortgages"). Mortgages are acquired
individually at a discount from their ultimate secondary market pooled values.
The Company operates exclusively on a wholesale basis through a network of
approved correspondent brokers that bring loans to the Company for
consideration. Using debt secured by the Mortgages in order to pool these loans,
the Mortgages are sold directly to various private and institutional investors
at a price greater than the Company's acquisition cost. Primarily, the Company
receives income from sources in connection with its sub-prime mortgage lending
activities. The Company charges certain non-refundable mortgage application fees
to potential borrowers and upon closing a loan, receives additional fees payable
by the borrower or investor which fees are based upon a percentage of the loan
and/or the interest rates charged.
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The Subsidiary of the Company, AFC, is a Texas corporation, which has
been in the mortgage business since its incorporation in 1997. In an effort to
reorganize AFC into a holding company form of ownership, the Company was
organized and recently acquired AFC. Prior to acquiring AFC, the Company was a
wholly-owned subsidiary of Innovation International, Inc. ("Innovation
International"), a Delaware corporation. On June 7, 1999, as a result of a
declared stock distribution by Innovation International (the "spin off"), the
Company became separate from and no longer a subsidiary of Innovation
International. The Company entered into a Reorganization Plan and Agreement
dated May 26, 1999 and its subsequent amendment dated June 12, 1999 with the
shareholders of AFC, pursuant to which AFC became a wholly-owned subsidiary of
the Company and the AFC shareholders became Company shareholders. The
Reorganization Plan distributed 1,600,000 shares of the Company's stock to the
shareholders of Innovation International in the ratio of one Company share for
each 25 shares of Innovation International, thereby spinning off the Company
from Innovation International. The Company then issued 19,733,333 shares of its
common stock to the shareholders of AFC in the same proportion as the
shareholder's then current holdings in AFC, in exchange for 100% of the stock in
AFC owned by them, thereby making AFC a wholly-owned subsidiary of the Company.
The Company's executive offices are located at 823 Congress Avenue,
Suite 515, Austin, Texas 78701, and its telephone number is (512) 481-8000.
TRADITIONAL UNITED STATES MORTGAGE MARKET
The Mortgage Bankers Association estimates the United States mortgage
market to total over $4.3 trillion in terms of loans outstanding and projects
mortgage originations to be $1.2 trillion in 1999.
The mortgage industry is divided broadly into four major segments
today:
- mortgage origination -- sourcing, verification and
documentation of mortgage loans, typically done by mortgage
brokers and single-source lenders;
- mortgage funding -- underwriting, funding and selling closed
loans to mortgage loan purchasers;
- securitization -- aggregating loans for sale into the
secondary market; and
- servicing -- ongoing billing, collection and
foreclosure/collateral management.
Over the past two decades, the mortgage industry has evolved
dramatically. Until the late 1970's, the mortgage market was primarily a captive
banking market where retail banks and savings and loan institutions originated
loans through their branches, underwrote and closed loans internally, funded
loans from their own customer deposits and then serviced the loans themselves.
This internal chain of production was broken by the emergence of the pure
mortgage bank that
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could buy mortgages from mortgage brokers and sell to government sponsored
mortgage investors, such as FNMA and FHLMC and the development of a large,
liquid secondary funding and trading market for mortgage debt. This efficient
new market for mortgage funding made it viable for the first time to uncouple
from the large retail banks both the front-end functions of mortgage origination
and mortgage funding and the back-end function of servicing.
A significant transformation of the mortgage origination, banking and
servicing businesses into specialized functions conducted primarily by
independent companies has also occurred during the last two decades. This
transformation has created both a large, concentrated and efficient secondary
mortgage market and a large, fragmented and inefficient mortgage origination and
banking market. There are over 20,000 mortgage brokerage operations in the
United States, according to the National Association of Mortgage Brokers.
CURRENT MARKET ENVIRONMENT
Financing plays an integral part in real estate sales and is
generally handled in one of three ways. One way is conventional financing where
the borrower obtains a loan from a financial institution, such as a bank,
savings and loan or mortgage company. Conventional lending's stringent criteria
create loans which conform to FNMA guidelines. The primary focus of this type of
lending is the creation of loans that may be readily sold to FNMA. The second
possibility is when the seller provides financing on the sale of a property.
This seller financed method is a financial agreement between the buyer and the
seller whereby the parties agree to the sale of the real estate predicated on
the seller "taking back" a real estate secured note as part of the purchase
price. The third method of real estate financing is non-conforming, or
"sub-prime" mortgage lending. Sub-prime lending takes a more common sense
approach to underwriting and makes allowances for unusual circumstances that do
not conform to FNMA underwriting criteria.
In recent years, the sub-prime lending market has grown as the
institutional appetite for high yielding asset backed investments has increased.
These non-conforming mortgages have commanded a greater presence in the market.
The amount and types of alternative loan products in the future will depend
largely upon several factors. These include interest rates, allowable lending
criteria, regional market conditions and money available at any given time in
the conventional financing marketplace. Generally, as interest rates rise,
alternative financing becomes more prevalent because fewer buyers meet the debt
ratios required by conventional lenders. Even with low interest rates,
conventional lending criteria often eliminate potential borrowers with unusual
circumstances (self employed, recently moved, career change, etc.). According to
the U.S. Department of Housing & Urban Development ("HUD") reports, it is
estimated that over $210 billion sub-prime single-family mortgage loans were
originated in 1998.
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BUSINESS STRATEGY
The Company has developed a specific strategy for the future. The
strategy addresses several key needs.
o Management believes that by assuming a role as educator in the
marketplace, the Company will generate extensive credibility as well as assist
its broker network in generating new business. This will be accomplished by
presenting seminars to real estate professionals on deal structuring and
effective use of sub-prime mortgage products in the marketplace. Joe Shaffer and
Glenn LaPointe of the Company have conducted dozens of seminars for mortgage
brokers across Texas in the past. In calendar 1997 they conducted two such
seminars in Austin, in 1998 they put on seminars in El Paso, Dallas, and
McAllen, and in 1999 they have had such seminars in Corpus Christi, Austin and
Las Vegas, Nevada. In addition to creating goodwill in the industry, these
seminars give employees of the Company direct contact with brokers who will be
the source of loan referrals. Management intends to build on those previous
successes to expand the Company's correspondent broker base.
o The Company will aggressively seek out and recruit those
individuals who demonstrate capability in sourcing and closing loan purchases.
The Company will emphasize quality over quantity, only dealing with successful
correspondents. One of the most difficult tasks facing management is that of
determining which sources of product (loans) are profitable and which are not. A
cost/benefit analysis will be performed in which the Company will evaluate
individuals by reviewing ratios of the percentage of closings to loan
submissions, the dollar volume of revenues to loan submissions and several
intangible factors including teamwork with the employees of the Company. Those
brokers or sources of transactions that are not profitable will be eliminated.
In other words, management intends to occasionally "fire" customers that are not
viable.
Those brokers with a demonstrated ability to package and provide
quality product will be frequently contacted and encouraged to do business with
the Company.
In order to have greater control over loan packaging and still
maintain adequate production, the Company intends to market to quasi-retail
sources of loans, such as realtors, title companies and real estate
professionals other than mortgage brokers.
MARKETING
The sub-prime mortgage market place is structured as an imitation of
the conforming market place with regard to marketing techniques. The traditional
approach of sending representatives with no underwriting experience or decision
making authority into mortgage brokers' offices can create an environment of
mistrust and resentment. The Company's approach is to have in-house marketing
representatives with complete underwriting knowledge and discretionary authority
over pricing and purchase transactions. This should give mortgage brokers
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and their clients a dependable, responsive resource for which they will
ultimately be willing to pay higher fees and interest rates.
The Company's marketing efforts are currently focused on existing
mortgage brokers. These brokers are contacted and encouraged to do business with
the Company in several ways. Faxes promoting the Company's loan programs are
sent weekly to the Company's database of over 8,000 mortgage brokers nationwide.
In addition, the Company has sponsored a number of local seminars on home equity
lending, participated in various tradeshows, and been active in several industry
organizations to help create a market presence.
In addition, the Company has produced a number of regional seminars
specifically educating brokers on the use of the Company's loan products. These
seminars are free to the broker and held in exclusive private clubs in various
cities. These have historically brought a large attendance as well as attention
to the Company.
Starting in the third quarter of 1999, a similar campaign will be
conducted with realtors. The plan was to have them encourage their mortgage
brokers to send loans to the Company or to submit the clients directly to the
Company.
Because of events in the asset backed markets in the last quarter of
1998, the types of loan products available in the marketplace have become
restricted. Many brokers developed their businesses over the past several years
by "bottom feeding" as lower and lower quality products became available.
Because of quality concerns surrounding these lower quality mortgage products,
management is developing avenues to bypass brokers and package files directly,
thus ensuring the quality and contents of loan files.
For the fiscal year ended March 31, 1999, the Company expended
approximately $33,000 for sales and marketing activities. In 1999 the Company is
seeking to expand its marketing activities to consistently include nationwide
advertising of its sub-prime effort, and expects to invest more than $80,000 in
marketing and advertising costs.
The Company will focus heavily on providing education as a means to
achieve further market penetration. The Company believes quality of service is a
priority over growth if the Company is to remain a viable enterprise in the long
run. The Company may consider creating strategic alliances with larger
competitors/investors with which the Company may "piggy-back" warehousing, bulk
sales and securitizations.
The Company also may pursue the securitization of the mortgages it
purchases and broker/dealers to sell the Company's securities offerings. This
will allow the Company to control its future to a greater degree than some of
its competition.
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PRICING
The Company originates or purchases individual loans at a desired
interest rate of approximately 11.5% or more, which is typically in excess of
the sub-prime loan secondary market rate. The Company then sells these loans to
various investors in pools of $1 million or more at or below the secondary
market rate (for instance 9.5%) resulting in a gain for the Company.
Historically, the market has paid a 5-10% differential between the sales price
of loans the Company has pooled versus the acquisition price of individual loans
acquired by the Company. This gain is expected to provide the primary source of
profits for the Company. There will likely be changes in the Company's cost of
funds as various factors affect interest rates, including monetary policies of
the Federal Reserve Board, national and international economic conditions and
housing demand, to name a few. The Company will adjust its desired yield range
in order to maintain profitability and competitiveness over time.
The Company invests in loans at prices less than their pooled
secondary market value. The acquisition price varies in any given transaction
depending upon the loan's characteristics and the Company's yield requirements
at the time of purchase. Yield requirements are established in light of capital
costs, market conditions, the characteristics of particular classes or types of
loans and the risk of default by the payor on any given loan. The risk of
default can be affected by changes in general or local economic conditions,
neighborhood values, the value of the specific real estate collateral and by
changes in zoning, land use, and environmental laws.
The Company establishes the yield requirements for its loans by
assuming that all payments on the Mortgages will be paid as scheduled. However,
to the extent that loans are paid off earlier than anticipated (e.g., within 12
months of purchase), the Company may be responsible for partial or full
repayment of any premium received from the investor, thereby reducing the
Company's profits. For example, if the Company sells a loan to an investor in
which a premium is paid on the loan and the loan is prepaid in full within six
months after the date of purchase, typically the Company will be responsible for
repayment of one-half of the premium received by the Company on that loan.
The second method of generating revenues for the Company is to sell
loans into a securitization conduit and receive income in the form of the
interest arbitrage between the loan coupon and the conduit's cost of funds.
While this approach generates substantially greater profits, the Company
receives these profits over time as the loans perform. This creates a greater
potential for recourse and a restriction of immediate cash flow. Diligent
underwriting and the more than doubled profit potential would offset these
risks.
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The following table consolidates the approximate loan production and
fee income for the Company during the periods indicated.
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Fiscal Years Ended June 30,
1999 1998
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Total dollars funded $17,160,047 $11,166,102
Number of Loans 294 226
Gross fee revenue $18,161,192 $11,955,998
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LOAN PROCESSING AND UNDERWRITING
The Company's loan application and approval process generally is
conducted over the telephone with applications usually received from mortgage
bankers, mortgage brokers and consumers at the Company's centralized processing
facility in Austin, Texas. After receiving an application, the information is
entered into the Company's system and processing begins. The information
provided in loan applications is first verified by, among other things, the
following:
- written confirmations of the applicant's income and, if
necessary, bank deposits
- a formal credit bureau report on the applicant from a credit
reporting agency
- a title report
- a real estate appraisal, if necessary
- evidence of flood insurance, if necessary
Loan applications are then reviewed to determine whether or not they
satisfy the Company's underwriting criteria, including loan-to-value ratios,
occupancy status, borrower income qualifications, employment stability,
purchaser requirements and necessary insurance and property appraisal
requirements.
The Company has developed a credit index profile ("CIP") as a
statistical credit based tool to predict likely future performance of a
borrower. Its CIP is similar to other CIP's in the mortgage banking industry,
but since the Company is holding most of its loans for a period of time before
it sells them, the Company underwrites them as though it is the end purchaser. A
significant component of the CIP system is the credit evaluation score
methodology developed by Fair Isaacs Company ("FICO"), a consulting firm
specializing in creating default predictive models using a number of variable
components. A FICO score is calculated by a system of scorecards. FICO uses
actual credit data on millions of consumers, and applies complex mathematical
methods to perform extensive research into credit patterns that attempt to
forecast consumer credit performance. The principal components of the FICO
predictive model include
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a consumer's credit payment history, outstanding debt, availability and pursuit
of new credit and types of credit in use. Through this scorecard process, FICO
identifies distinctive credit patterns, which correspond to a likelihood that
consumers will make their future loan payments. The score is based on all the
credit-related data in the credit report. The other major components of the CIP
include debt-to-income analysis, employment stability, self employment criteria,
residence stability and whether the applicants use the premises as their primary
residence. By using both scoring models together, all applicants are considered
on the basis of their ability to repay the loan obligation while allowing the
Company to price the loan based on the extent of the evaluated risk.
The Company's underwriters review the applicant's credit history,
based on the information contained in the application and reports available from
credit reporting bureaus and the Company's CIP score, to determine whether the
applicant meets the Company's underwriting guidelines. Based on the
underwriter's approval authority level, certain exceptions to the guidelines may
be made when there are compensating factors subject to approval from a more
senior designated authority. The underwriter's decision is communicated to the
broker, banker or consumer depending on the source of the loan and, if approved,
the proposed loan terms are explained.
FUNDING SOURCES
The Company needs substantial cash flow to facilitate the funding and
closing of the originated and purchased loans. These funds are provided on a
short-term basis by financial institutions that specialize in providing lines of
credit known as warehouse lines.
The amount of the warehouse line provided by a lender is based on the
Company's net worth. Typically, the warehouse lender applies a leverage factor
of fifteen to twenty. As of the date of this filing, the Company has several
warehouse agreements in place which provide warehouse lines with funding
capabilities in the aggregate of $10 million. The warehouse agreements have
various financial and operational covenants with which the company must comply.
In addition, the warehouse agreements are personally guaranteed by one or more
of the existing stockholders. The Company submits the mortgage loan to the
warehouse bank for funding along with the investor commitment to purchase the
loan. The warehouse bank receives a per loan fee from the Company plus interest
at two percent over the financial institution's prime rate on the unpaid
principal balance of the loan for the time the loan is in the warehouse.
In the future, the Company will seek to eliminate the personal
guarantees of certain stockholders of the Company from the warehouse agreements.
In accordance with industry practice, the warehouse lines are renewable by the
lenders annually.
LOAN SALES
The Company originates and purchases all of its mortgage loans with
the intent to sell the mortgage loans, without retaining any interest therein,
and the related servicing rights into the
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secondary market. The mortgage loans are sold without recourse primarily to
institutional investors, national banks and mortgage lenders. As part of the
sale, the Company provides representations and warranties which are customary to
the industry and cover such things as compliance with program standards, laws
and regulations as well as the accuracy of the information. In the event of a
breach of these representations and warranties, the Company may be required to
repurchase these mortgage loans and/or may be liable for certain damages.
Normally, any repurchased mortgage loan can be corrected and resold back to the
original investor. Since 1997 when the Company began its business, the Company
has had to repurchase only two mortgage loans.
The Company holds the originated or purchased mortgage loan for sale
from the time that the mortgage loan application is submitted by the borrower
until the time the mortgage loan is sold to an investor. During that time, the
interest rate on the mortgage loan might be higher or lower than the market rate
at which price the Company can sell the mortgage loan to an investor.
Therefore, a market gain or loss results on the mortgage loan.
COMPETITION
The Company faces intense competition in the business of sub-prime
mortgage loans. The Company's competitors in the industry include consumer
finance companies, mortgage banking companies, savings banks, commercial banks,
credit unions, thrift institutions, credit card issuers, insurance companies,
FHLMC and other entities engaged in mortgage lending. The largest direct
competitors are mortgage banking entities specifically formed to engage in
sub-prime lending. Many of these competitors are substantially larger and have
considerably greater financial, technical and marketing resources than the
Company. In addition, many financial services organizations that are much larger
than the Company have formed national loan origination networks or purchased
home equity lenders. While competition is a factor, these larger entities also
create public awareness and acceptance of these loan products. Competition among
industry participants can take many forms, including convenience in obtaining a
loan, customer service, marketing and distribution channels, amount and term of
the loan, loan origination fees and interest rates. To the extent any of these
competitors significantly expand their activities in the Company's market, the
business of the Company could be materially adversely affected. Fluctuations in
interest rates and general economic conditions may also affect the Company and
its competition. During periods of rising rates, competitors that have locked in
lower rates to potential borrowers may have a competitive advantage.
Starting in late 1998, several of the Company's competitors either
became bankrupt or withdrew from the market due to a collapse in liquidity in
asset backed markets. These companies included Southern Pacific Funding
Corporation, First Plus Financial, Inc. and Pacific Investments Corporation. A
number of these companies were engaging in loan practices which paid little
regard to the likelihood of collateral recovery, in the event of default, and
even to the likelihood of loan repayment by borrowers. In addition, many
companies were using gain on sale accounting
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techniques which booked long term interest gains which were never achieved in
most cases. The Company does not engage in either of these practices.
SEASONALITY
The mortgage loan origination business is generally subject to
seasonal trends. These trends reflect the general pattern of sale and resale of
homes. Loan origination typically peaks during the spring and summer seasons,
and declines to lower levels from mid-November through January. The mortgage
servicing business is generally not subject to seasonal trends.
REGULATION
The Company's operations are subject to extensive regulation,
supervision and licensing by federal, state and local governmental authorities
and are subject to various laws and judicial and administrative decisions
imposing requirements and restrictions on part or all of its operations. The
Company's consumer lending activities are subject to the Federal
Truth-in-Lending Act and Regulation Z (including the Home Ownership and Equity
Protection Act of 1994), the Federal Equal Credit Opportunity Act, as amended,
and Regulation B, the Fair Credit Reporting Act of 1970, as amended, the Federal
Real Estate Settlement Procedures Act and Regulation X, the Home Mortgage
Disclosure Act, the Federal Debt Collection Practices Act and the National
Housing Act of 1934, as well as other federal and state statutes and regulations
affecting the Company's activities.
The Company is also subject to the rules and regulations of, and
examinations by, state and federal regulatory authorities with respect to
originating and processing loans. These rules and regulations, among other
things, impose licensing obligations on the Company, establish eligibility
criteria for mortgage loans, prohibit discrimination, govern inspections and
appraisals of properties and credit reports on loan applicants, regulate
assessment, collection, foreclosure and claims handling, investment and interest
payments on escrow balances and payment features, mandate certain disclosures
and notices to borrowers and, in some cases, fix maximum interest rates, fees
and mortgage loan amounts. Failure to comply with these requirements can lead to
loss of approved status, certain rights of rescission for mortgage loans, class
action lawsuits and administrative enforcement action.
In Spring 1999, the Texas Legislature approved Senate Bill 1074 which
provides for licensing of residential mortgage brokers. The Texas Savings and
Loan Department will be the licensing and regulatory agency. A mortgage broker
or a mortgage broker's loan officer must meet continuing education requirements
in order to maintain that license. The law took effect on September 1, 1999, but
an individual brokering mortgage loans is not required to be licensed until
January 1, 2000. Mortgage bankers and their employees are exempt from this
mortgage broker licensing legislation. A mortgage banker is defined as any
individual or entity who is a HUD approved mortgagee with direct endorsement
underwriting authority or an approved seller or servicer for either FNMA or
FHLMC or an approved issuer for GNMA. The Company has
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recently become a HUD approved mortgagee and is therefore exempt from any
licensing requirements under the new law.
There can be no assurance that the Company will maintain compliance
with these requirements in the future without additional expenses, or that more
restrictive local, state or federal laws, rules and regulations will not be
adopted or that existing laws and regulations will not be interpreted in a more
restrictive manner, which would make compliance more difficult and more
expensive for the Company.
EMPLOYEES
At June 30, 1999, the Company employed approximately 13 persons,
substantially all of whom were full-time employees. All of these are employed at
the Company's Austin, Texas headquarters. None of the Company's employees are
represented by a union. The Company considers it relations with its employees to
be good.
RISK FACTORS RELATING TO THE BUSINESS OF THE COMPANY
The following factors, in addition to the other information discussed
elsewhere in this Registration, should be considered by investors before
deciding whether to purchase the Company's securities.
1. Limited Operating History. The Company was originally organized in
April 1997 and has limited operating history. The Company is, in essence, a
relatively new venture and no assurance can be given that the Company will be
successful. Accordingly, the Company's limited operating history prohibits an
effective evaluation of the potential success of the Company. The Company's
viability and continued operations are dependent upon future profitability, its
ability to generate cash flow from uncertainties related to the mortgage
industry, and other business opportunities. The Company's operations are subject
to all of the risks inherent in the establishment of a young business
enterprise. The likelihood of success for the Company must be considered in
light of the problems, expenses, complications and delays frequently encountered
in connection with the development of a new business and the competitive
environment in which the Company operates. There can be no assurance that the
Company will be able to operate profitably in the future. Its financial
objectives must therefore be considered very speculative.
2. Need for Additional Financing. The Company may require additional
working capital or other funds within the next 12 months for the expansion of
its operations. Management is considering the sale of additional securities,
such as subordinated debentures and preferred stock to increase the Company's
working capital. There is no assurance that the Company will be successful in
obtaining additional financing or that such financing will be available upon
acceptable terms to the Company. See "Management's Discussion and Analysis of
Plan of Operations-Liquidity and Capital Resources."
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3. Conflicts of Interest. The Company's Directors and Officers, are
or may become, in their individual capacities, officers, directors, controlling
shareholders and/or partners of other entities engaged in a variety of
businesses. Thus, there exists potential conflicts of interest including, among
other things, time, effort and corporate opportunity, involved in participation
with other business entities. See "Certain Relationships and Related
Transactions."
4. Interest Rate Risks. Prevailing market interest rates, which have
an impact on borrower decisions to obtain new loans or to refinance existing
loans, affect the Company's ability to originate mortgage loans. When interest
rates decrease, the economic advantages of refinancing mortgage loans increase.
However, when interest rates decrease, increases in the rate of prepayments of
mortgage loans may reduce the period during which the Company earns servicing
income from loan servicing activities. The Company believes that these effects
should be offset by increased loan origination and a related increase in the
size of the Company's servicing portfolio. Furthermore, as a result of the
Company's strategy of maintaining continuing customer relationships, the Company
historically has been able to recapture a substantial amount of refinanced loans
and home purchase mortgages from prior customers. No assurance can be given that
the Company will be able to recapture such loans in the future.
5. Reliance Upon Officers and Consultants. The ability of the Company
to operate successfully depends to a substantial degree upon its management and
consultants. The assembly of a strong management team is critical to the success
of the business.
6. Keyman Insurance. While the Company has obtained keyman insurance
on its Chief Executive Officer in the sum of $1,000,000, the insurance may not
be enough in the event of the loss of such officer. The loss of the Chief
Executive Officer would have an adverse affect on the Company.
7. Competition. The Company may face direct competition from other
mortgage companies in the area and it is possible that additional competitors
will enter the same markets as the Company's. The competitors may offer lower
interest rates than the rates the Company offers, and in some instances, may
have products superior to those of the Company. There can be no assurance that
the Company will be able to compete successfully with present or future
competitors. See "Competition."
8. Risks Associated With Representations and Warranties Made by the
Company. When a mortgage loan originator (retail or wholesale) sells a mortgage
loan to its investors, it makes certain representations and warranties as to the
compliance by the originator with applicable underwriting guidelines. A loan
originator or the purchaser of loan servicing rights generally becomes obligated
to the investor with respect to the accuracy of those representations and
warranties, and if those representations and warranties are incorrect, the
investor may require the servicer or the lender who originated the loan to
repurchase the mortgage loan. Consequently, any loss resulting from a material
inaccuracy in the representations and warranties would fall on the servicer or
the Company as the originating seller/servicer of the loan. The Company will
attempt
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<PAGE> 15
to limit its exposure to repurchase risks through (i) quality control
requirements imposed on its origination staff, both internally and through third
party quality control experts, and (ii) by negotiating appropriate
representations and warranties and indemnification from entities from which it
acquires mortgage loans. In addition, with respect to mortgage loans originated
by it, the Company will be required in the ordinary course of business, to make
representations and warranties to the purchasers of servicing rights, and
investors and insurers of such loans. Losses resulting from a material
inaccuracy in those representations and warranties would fall on the Company.
From time to time, the Company could be obligated to repurchase loans as a
result of breach of such representations and warranties. A breach or breaches of
representations and warranties could have a material adverse affect upon the
financial condition of the Company.
9. Control by the Management. The officers and directors of the
Company currently own approximately 88% of the outstanding Common Stock of the
Company. Accordingly, the Board and the officers of the Company will exercise
control over the Company, including control over the election of directors and
the appointment of officers of the Company.
10. Dependence on Wholesale Brokers. The Company may depend on
independent mortgage brokers, and to a lesser extent, on correspondent lenders,
for the origination and purchase of its mortgage loans. These independent
mortgage brokers deal with multiple lenders for each prospective borrower. The
Company competes with these lenders for the independent brokers' business on the
basis of price, service, loan fees, costs and other factors. The Company's
competitors also seek to establish relationships with such brokers, who are not
obligated by contract or otherwise to do business with the Company.
11. Real Estate Market Conditions. The Company's business may be
adversely affected by periods of economic slowdown or recession, which may be
accompanied by declining property values. Any material decline in property
values reduces the ability of borrowers to use equity in the property to support
any borrowings and increases the loan-to-value ratios of mortgage loans
previously made, thereby weakening collateral coverage and increasing the
possibility of a loss in the event of default.
12. No Prior Public Market for Securities; Possible Volatility of
Securities Prices. Prior to this Registration, there has been no public market
for the Company's securities. Although the Company intends that its securities
will be quoted on the OTC Bulletin Board ("OTCBB") there can be no assurance
that the Company's securities will be designated for quotation on OTCBB or, if
so designated, that the Company will be able to maintain such designation. There
also can be no assurance that an active trading market will develop after this
designation, or that, if developed, it will be sustained. Recent history
relating to the market prices of newly public companies indicates that there may
be significant volatility in the market for such securities because of factors
unrelated, as well as related, to such company's operating performance.
13. Year 2000 Compliance. The Company does not anticipate any
problems with Year 2000 Compliance. The Company, however, has been in contact
with its accountant, bankers and
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<PAGE> 16
loan purchasers and has been assured that all are in Year 2000 Compliance,
However, if these entities are not in compliance, the Company may experience
limited business interruptions. Should noncompliance be an issue, the Company
may need to change its accountant, banking relationship, title companies or
transfer agent.
REPORTS TO SECURITY HOLDERS
The Company intends to provide all of its shareholders with annual
and periodic reports of the Company's operations pursuant to the Securities
Exchange Act of 1934, including an annual report containing audited financial
statements, for the fiscal year ended March 31, 1999.
The public may read and copy any materials that the Company has on
file with the Securities and Exchange Commission ("SEC") at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at (800) SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The SEC's Internet site address is
http://www.sec.gov.
RECENT DEVELOPMENTS
On September 30, 1999, Mr. Bradley G. Farley purchased 1,500,000
shares of the Company's 1999 Series A Preferred Stock in exchange for
approximately $1,433,000 in advances that he has made to the Company. The
Preferred Stock sold to Farley pays no dividend, nor has any conversion or
voting rights. The Company may redeem the 1999 Series A Preferred Stock for
$1.00 per share upon giving Farley 10 days advance notice. Such shares were
issued without registration pursuant to an exemption from registration under
Regulation D of the Securities Act of 1933.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS.
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto and the other
financial information appearing elsewhere in this filing. In addition to
historical information, the following discussion and other parts of this filing
contain forward-looking information that involves risks and uncertainties. The
Company's actual results could differ materially from those anticipated by such
forward-looking information due to competitive factors, risks associated with
the Company's expansion plans and other factors discussed herein.
FINANCIAL CONDITION
June 30, 1999 Compared to March 31, 1999. Total assets increased by
$2.7 million or 110% from March 31, 1999 to June 30, 1999. This increase is
accounted for by two main factors. Loan production increased during this period
resulting in increased inventory of loans
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<PAGE> 17
of $2.0 million. Additionally, $1.2 million of cash and other assets were
contributed to the Company in exchange for common stock.
March 31, 1999 Compared to March 31, 1998. The Company's total assets
at March 31, 1999 were $2.5 million, a decrease of $610,000, or 20%, as compared
to March 31, 1998. This decrease was primarily the result of a decrease of $1.0
million in accounts receivable and inventory due to decreases in loan production
netted with a $485,000 contributed investment in a limited partnership exchange
for preferred stock.
Retained earnings decreased by $215,000 from $137,000 at March 31,
1998 to a loss of $78,000 at March 31, 1999. The decrease was due primarily to a
net loss for the year caused by reduced loan production with tighter spreads.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended June 30,
1999 and June 30, 1998. Sales decreased from $5.9 million for the three months
ended June 30, 1998 to $3.9 million for the three months ended June 30, 1999.
This percentage decrease of approximately 34% is the result of a decline in loan
originations causing a reduction in loan sales for the three month period. Loan
originations decreased due to uncertainty in the sub-prime loan secondary market
which resulted from fewer sub-prime loan securitization going to market, changes
in underwriting standards of investors of sub-prime loans, and a general
unwillingness of investors in the sub-prime loan market to take investment risk.
On a dollar basis, 74.5% of the Company's loan inventory was sold after the
balance sheet date.
Additionally, gross profit as a percentage of cost of goods sold
declined from 6.48% for the three months ended June 30, 1998 to 4.49% for the
three months ended June 30, 1999. This decrease is the result of a severe shake
out of the market for sub-prime loans. Starting in late 1998, many of the large
investors in the sub-prime loan market withdrew or went into bankruptcy due to a
collapse in the liquidity in the asset backed markets. Some of these companies
were engaging in loan practices not followed by the Company, which paid little
regard to the likelihood of collateral recovery in the event of default or full
loan payment by the borrowers. The resulting flight by investors away from
sub-prime loans made it difficult for the Company to sell its loan inventory and
generate revenue. See "Business-Competition."
Selling and administrative expense remained relatively flat for the
two periods. Salaries and wages had the largest change, declining from $207,000
for the three months ended June 30, 1998 to $141,000 for the three months ended
June 30, 1999. The decline was the result of decreased loan production and
overall profitability of the Company.
As a result of the foregoing, net income decreased from $34,000 for
the three months ended June 30, 1998 to a loss of $166,000 for the three months
ended June 30, 1999.
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<PAGE> 18
Comparison of Operating Results for Fiscal Years Ended March 31, 1999
and March 31, 1998. Sales increased from $10.3 million for the year ended March
31, 1998 to $20.5 million for the year ended March 31, 1999. This percentage
increase of approximately 99% is primarily the result of an increase in loans
acquired coupled with the recognition that the year ended March 31, 1998 was the
first year of operation of the Company.
Selling and administrative expenses increased from $465,000 for the
year ended March 31, 1998 to $1.4 million for the year ended March 31, 1999. The
across the board increase in selling and administrative expenses between years
is, again, reflective of the fact that March 31, 1998 was the first year of
operation of the Company.
As loan production increased, additional employees were hired and
correspondingly, other selling and administrative expenses increased.
Net income decreased from $137,000 for the year ended March 31, 1998
to a loss of $195,000 for the year ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities decreased from cash flow
generation of $115,000 for the year ended March 31, 1998 to cash flow used of
$111,000 for the year ended March 31, 1999.
Capital expenditures for the year ended March 31, 1999 were
approximately $29,000 principally in computer technology and to a lesser extent
for the expansion of sales organization facilities. The Company believes it will
continue to make investments in computer technology in the near future to
upgrade and maintain its product and service offerings. The Company believes
that such investments could aggregate $50,000 to $100,000 over the next two
years, but has no specific plans at present for such expenditures.
The Company may consider acquisitions of other mortgage businesses as
part of implementing its strategies. There are no specific plans at present for
such expenditures.
Cash flow requirements depend on the level and timing of the
Company's activities in loan originations in relation to the timing of the sale
of such loans. In addition, the Company requires cash flow for the payment of
operating expenses, interest expense and capital expenditures. Currently, the
Company's primary sources of funding are borrowings under warehouse lines of
credit, proceeds from the sale of loans in the secondary market and internally
generated funds.
Historically, the Company has funded its growth, in large part, from
its access to lines of credit and its operating activities. The Company has been
additionally capitalized by the stockholders of AFC purchasing securities of
AFC. See "Certain Relationships and Related
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<PAGE> 19
Transactions." There can be no assurance that the Company will be able to employ
the additional capital and credit resources to fund transactions which result in
a profit to the Company. The success of the Company's mortgage origination
business is dependent upon the availability of mortgage funding at reasonable
rates. Although there has been no limitation on the availability of mortgage
funding in the last few years, there can be no assurance that mortgages at
attractive rates will continue to be available.
The long-term plans of the Company also are to engage in the business
of servicing mortgage loans. In order to engage in this business, the Company
will be required to retain the servicing rights on the loans which it
originates. Such retention will result in a reduction in the revenue available
to the Company upon the sale of such mortgage loans. In such event, the Company
will be required to employ capital to finance the retention of servicing rights.
Such capital principally would be expended to pay the costs associated with loan
origination, such as loan officer compensation and related overhead expenses.
However, the retention of servicing rights also creates an asset on the
Company's balance sheet.
The Company will be required to obtain additional capital to achieve
its long-term objectives. The Company has no commitments to obtain such capital
and there can be no assurance that such capital will be available to the Company
in the future or, if available, will be on terms acceptable to the Company.
The Company's existing capital and its credit facilities, as well as
cash flow expected to be generated from operations, are expected to satisfy the
Company's cash requirements for at least the next 12 months, and principally
will be applied to originate loans. However, management believes that the
Company will require additional credit over the next three years in order to
expand its loan origination capabilities and expand its loan servicing business.
The Company is presently in discussions with various lenders for additional
lines of credit. If such additional credit is not available to the Company, the
Company could be required to reduce the scope of its operations, which could
adversely affect the Company's results of operation.
The Company ended its fiscal year at March 31, 1999 with $4,000 in
cash and cash equivalents, compared to $115,000 for fiscal year ended March 31,
1998. The Company has generated cash (to cover its operating losses) through the
sale of its common stock.
DISCLOSURE ABOUT MARKET RISK
The Company's business will be adversely affected by periods of
economic slowdown or recession which may be accompanied by decreased demand for
consumer credit and declining real estate values. Any material decline in real
estate values results in increased loan-to-value ratios thereby weakening
collateral coverage and increasing the possibility of a loss in the event of
default. To the extent that prospective borrowers do not meet the Company's
underwriting criteria, the volume of loans originated by the Company could
decline. A decline in loan origination volumes could have a material adverse
effect on the Company's business, prospects,
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<PAGE> 20
financial condition and results of operations. Changes in the level of consumer
confidence, real estate values, prevailing interest rates and investment returns
expected by the financial community could make mortgage loans of the types
originated by the Company less attractive to borrowers or investors because,
among other things, the actual rates of delinquencies and foreclosures on such
loans could be higher under adverse economic conditions than those currently
experienced in the mortgage lending industry in general.
In addition, the Company could experience losses on its inventory of
loans due to changes in economic or financial conditions, including changes in
interest rates, that may be beyond the Company's control.
Interest rate movements may significantly impact the Company's volume
of closed loans. As such, interest rate movements represent a major component of
market risk to the Company. In a higher interest rate environment, consumer
demand for mortgage loans, particularly refinancing of existing mortgages,
declines. Interest rate movements affect the interest income earned on loans
held for sale, interest expense on the warehouse lines payable, the value of
mortgage loans held for sale and ultimately the gain on sale of mortgage loans.
In addition, in an increasing interest rate environment, the Company's mortgage
loan brokerage volume is adversely affected.
The Company currently does not engage in any hedging activities.
Therefore, a rise in interest rates may adversely affect the earnings of the
Company.
The Company currently does not maintain a trading portfolio. As a
result, the Company is not exposed to market risk as it relates to trading
activities. The majority of the Company's portfolio is held for sale which
requires the Company to perform market valuations of its pipeline, its mortgage
portfolio held for sale and related forward sale commitments in order to
properly record the portfolio and the pipeline at the lower of cost or market.
Therefore, the Company monitors the interest rates of its loan portfolio as
compared to prevailing interest rates in the market.
The Company typically does not pre-sell the mortgages it originates
when the Company establishes the borrower's interest rate and therefore has
interest rate exposure on such loans. The Company's future operating results are
more sensitive to interest rate movements than a mortgage lender who pre-sells
the mortgage loans it originates.
INDUSTRY TRENDS
The growth in volume that the mortgage industry has seen over the
past few years has resulted from a general downward trend in interest rates. The
Company believes that mortgage volume may tend to decrease on a relative basis
in higher interest environments, but higher interest rates generally result in
smaller mortgage companies leaving the market resulting in potentially larger
market shares for continuing mortgage bankers. The Company believes that it
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<PAGE> 21
will be able to realize the opportunities in such an environment, but there can
be no assurance that it will be able to do so.
The Company also believes that the industry will continue to offer
broader and more diversified product offerings and that technology will play an
increasing part in real estate transactions, including expanded use of Internet
capabilities. The Company has begun preliminary work to make the necessary
investments in these technologies. Management believes that the Company should
fully automate its accounting and loan underwriting functions and then establish
a website which facilitates electronic commerce between the Company and its
customers, investors and brokers. The Company may need to raise additional
capital to complete these necessary investments in technology.
Although the Company is expanding its business on a national basis,
the Company's business base is concentrated principally in the State of Texas
and to a lesser degree in the States of California and Colorado. As a result,
the Company's business may be subject to the effects of economic conditions and
real estate markets specific to such locales.
INFLATION AND SEASONALITY
The Company believes the effect on inflation, other than its
potential effect on market interest rates, has been insignificant. Seasonal
fluctuations in mortgage originations generally do not have a material effect on
the financial condition or results of operations of the Company.
ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS No. 125"). SFAS No. 125, among other things, provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No. 125 requires that after a transfer of
financial assets, an entity recognize the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
SFAS No. 125 also requires that liabilities and derivatives incurred or obtained
by transferors as part of a transfer of financial assets be initially measured
at fair value. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996 and is to be applied prospectively. The Company expects that the impact of
SFAS No. 125 on the results of operations, financial condition, or liquidity
will be immaterial.
On June 15, 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are
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<PAGE> 22
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company is in the process of
evaluating the impact of SFAS No. 133 on its financial statements.
In October 1998, the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise. SFAS No. 134 amends SFAS No. 65,
Accounting for Certain Mortgage Backed Securities, to require that after an
entity that is engaged in mortgage banking activities has securitized mortgage
loans that are held for sale, it must classify the resulting retained
mortgage-backed securities or other retained interests based on its ability and
intent to sell or hold those investments. This statement is effective for the
first fiscal quarter beginning after December 15, 1998, with earlier application
encouraged. At this time, the Company does not anticipate any impact from the
adoption of this standard.
The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company is in the
process of evaluating the impact of SOP No. 98-1 on its financial statements.
YEAR 2000
As with all financial related businesses, the Company's operations
depend almost entirely on computer systems. Many currently installed computer
systems and software products only accept two digits to identify the year in any
date. Thus, the year 2000 will appear as "00", which the system might consider
to be the year 1900 rather than the year 2000. This could result in system
failures, delays or miscalculations. Computer systems and software that have not
been developed or enhanced recently may need to be upgraded or replaced to
comply with Year 2000 requirements.
The Company believes that each of its software systems on a
stand-alone basis is currently Year 2000 compliant. Testing of the Company's
software for compliance has been completed and was found to be Year 2000
compliant. The Company also uses multiple software systems and products
developed by third party vendors, including systems and products used in
operations and finance, and systems that operate the office of the Company. The
Company has requested and received compliance certificates or other assurances
from these vendors to certify their Year 2000 readiness.
The operations of many of the Company's customers, investors and
suppliers may be affected by Year 2000 complications. The failure of the
Company's customers, investors or suppliers to ensure that their systems are
Year 2000 compliant could have an adverse effect on the
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<PAGE> 23
Company's customers, investors and suppliers, resulting in decreased Internet
usage or the Company's inability to obtain necessary data communication and
telecommunication capacity, which in turn could have an adverse effect on the
Company's business, results of operations and financial condition.
The potential worst case scenario includes:
- slowdown in the communications for some applications due to a
general failure of the Internet;
- corruption of data in the Company's internal information
systems;
- delays in the Company's processing capabilities that depend on
third-party systems;
- financial losses associated with delays in closing loans; and
- failure of infrastructure services provided by third parties,
including public utilities and Internet service providers.
The Company has not incurred significant costs to date complying with
Year 2000 requirements and does not believe that it will incur significant costs
for such purposes in the foreseeable future. Because the Company's loan business
is highly diversified with regard to individual borrowers and types of business
and its primary market area is not significantly dependent on one employer or
industry, the Company does not expect any significant or prolonged difficulties
that could affect net earning or cash flow. However, if the Company discovers
any Year 2000 errors or defects in the Company's internal systems, it could
incur substantial costs in making repairs. The resulting disruption of the
Company's operations could seriously damage the Company's business.
Item 3. DESCRIPTION OF PROPERTY.
All of the operations of the Company are conducted from office space
leased from a non-affiliated landlord. The following table sets forth
information concerning the facility:
<TABLE>
<CAPTION>
Location Tenant Approx. Size Lease Expiration Monthly Rent
- --------------- ------------ ---------------- -------------------
<S> <C> <C> <C>
823 Congress Avenue, Suite 515 3,293 square February 28, 2001 $3,842 to April 30,
Austin, Texas 78701 feet 2000 then $4,391
</TABLE>
The lease provides for rent escalations tied to increases in
operating expenses or fluctuations in the consumer price index. The Company's
management believes this office space is satisfactory for all of its needs for
the foreseeable future and that the property is adequately covered by insurance.
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<PAGE> 24
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of June 30, 1999, the beneficial
ownership of the Company's 21,333,333 outstanding shares of Common Stock by (1)
the only persons who own of record or are known to own, beneficially, more than
5% of the Company's Common Stock; (2) each director and executive officer of the
Company; and (3) all directors and officers as a group.
<TABLE>
<CAPTION>
Name and Address No. of Percent of
of Beneficial Owners Relationship with Company Shares(1) Class (%)(1)
-------------------- ------------------------- ---------- ------------
<S> <C> <C> <C>
Glenn A. LaPointe Chairman, President, Chief 6,783,872 32%
9002 Jolly Hollow Drive Executive Officer and
Austin, Texas 78750 Director
Bradley J. Farley Director 3,391,936 16%
1202 Hallmark
San Antonio, Texas 78216
Glenn G. Farley Director 3,391,936 16%
709 East Calton Road, Suite 101
Laredo, Texas 78041
L.H. Hardy, Jr. Director 2,261,291 11%
325 South Commons Ford
Austin, Texas 78733
Terry G. Hartnett Chief Financial Officer and 2,261,291 11%
6000 Shepherd Mountain Director
Cove, No. 106
Austin, Texas 78730
Shannon D. Stewart Officer and Director 529,994 2%
1901 Aster Way
Round Rock, Texas 78664
Karen R. Heller Officer and Director 106,007 --
17206 Reed Park Road
Jonestown, Texas 78645
Jennifer Ann V. Bullock Officer and Director 106,007 --
6049 Abilene Trail
Austin, Texas 78749
Officers and directors, as a 18,832,334 88%
group (8 persons)
</TABLE>
- ----------------
(1) Does not include options granted to the above persons in the amount of
5,000 shares each.
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<PAGE> 25
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE
PERSONS.
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company currently consists of eight
members. The current members of the Board of Directors and the executive
officers of the Company are:
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held with the Company Age(1) Since Expires
- ---- --------------------------------- ------ -------- -------
<S> <C> <C> <C> <C>
Glenn A. LaPointe Chairman, President, Chief 36 1999 2002
Executive Officer and Director
Terry G. Hartnett Chief Financial Officer and 56 1999 2000
Director
Bradley J. Farley(2) Director 36 1999 2002
Glenn G. Farley(2) Director 42 1999 2002
L.H. Hardy, Jr. Director 44 1999 2001
Shannon D. Stewart Vice President and Director 34 1999 2001
Karen R. Heller Vice President and Director 38 1999 2000
Jennifer Ann V. Bullock Vice President and Director 28 1999 2000
</TABLE>
- ----------
(1) At June 30, 1999.
(2) Messrs. Bradley J. Farley and Glenn G. Farley are brothers.
The following is a brief description of the business experience of
the directors and executive officers of the Company:
GLENN A. LAPOINTE has been Chief Executive Officer and President of
the Company since its inception in 1997. From September 1985 to May 1987, Mr.
LaPointe was employed as a trader's assistant in institutional equities with the
securities brokerage firm of Smith, Barney, Harris Upham & Company in Tampa,
Florida. From June 1987 to June 1988 he was a broker for Kimmins Securities,
Inc., a subsidiary of a publicly held NYSE listed company located in Tampa,
Florida. His duties included syndicating equity capital for over $15,000,000 of
multi-family units in Florida and directing a rights offering of $11,000,000 of
convertible subordinated debentures
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for the parent company. From 1988 to September 1992, Mr. LaPointe was Sole
Director of Financial Resource Group, a marketing and consulting company that
assisted accountants and CPAs in expanding their client base. From October, 1992
to April, 1994, Mr. LaPointe served as Executive Vice President of Marketing for
Capital South Mortgage Investments, Inc., an Austin, Texas based mortgage
lending and investment company. His duties included generating new business and
new sources of funding, effectively negotiating loan acquisitions both directly
with borrowers as well as with brokers as intermediaries, structuring the
creation of mortgages so as to create viable loan programs for the buyers and
sellers of real estate, packaging mortgage acquisitions so that they may be
successfully presented to investors, evaluating the validity and accuracy of
appraisals on the underlying property, ordering and evaluating title policies
and meeting conditions of those policies to insure clear first lien positions,
evaluating and gathering necessary documentation on potential mortgage
acquisitions, securing and servicing end investors and disposing of
non-performing mortgages, both through renegotiations and repossession and
liquidation of the underlying real estate. From May 1994 to present, Mr.
LaPointe developed a start up company that ultimately became Texas Financial
Corporation. As Chief Executive Officer of Texas Financial Corporation, Mr.
LaPointe was instrumental in developing a $10,000,000 revolving line of credit
to purchase non-conforming mortgages and subsequently package them for resale.
In March 1997, Mr. LaPointe sold his interest in Texas Financial to the
remaining partners in order to organize the Company.
TERRY G. HARTNETT has been Chief Financial Officer and Treasurer of
the Company since its inception in 1997. From 1965 to 1973 Mr. Hartnett served
as a Supervising Senior Accountant for the accounting firm of Peat, Marwick,
Mitchell & Co., in the Peoria, Illinois office. From 1973 to 1982, Mr. Hartnett
served as Vice-President and Secretary of American Savings & Loan Association,
in Pekin, Illinois. His duties included overseeing all mortgage origination and
collection activity for the S&L. From 1982 to 1984, Mr. Hartnett worked with
several investment banking firms helping to develop additional asset backed
products as well as expanding their client base. In 1984, Mr. Hartnett
co-founded Capitol Securities, an Austin, Texas based investment banking firm
which specialized in asset based securitizations and was the first firm in the
country to securitize student loans, a now common practice. In 1993, Capitol
Securities Group was sold to Morgan, Keegan Securities, Inc., a Memphis,
Tennessee based regional investment banking firm. Mr. Hartnett and two other
partners from Capitol Securities subsequently formed Tejas Asset Management,
Inc., and Tejas Securities Group, Inc. In 1995, the original partners of Tejas
accepted a buy-out offer from firm employees. Since 1995, Mr. Hartnett has acted
as an investment banking consultant to various companies engaged in asset backed
transactions.
BRADLEY J. FARLEY has been the owner of Farley Financial Services
since 1988. Services provided there include counsel on investments, personal and
corporate finance, and risk management. He also advises businesses in the
correct implementation of 401(k), pension plans, and employee benefits. The
Mortgage Division of Farley Financial Services concentrates on funding
commercial ventures and residential housing. From 1994 to the present Farley has
also been the owner of Seminars for Adult Education, a subsidiary of Farley
Financial Services. The company's primary focus is on financial competencies
with specialization in personal learning in
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<PAGE> 27
corporate and private settings. Additionally, Farley is a franchisee of
Successful Money Management Seminars, corporate and public seminars to equip
individuals with the knowledge for personal financial planning. From 1989 to
1995 Farley was owner of ADA Staff, a company whose primary service was to
provide human resource capacities to small businesses. Farley was responsible
for 400 employees, consolidation of payrolls, reduction of worker's compensation
expenses, and streamlining the cost of employee benefits.
GLENN G. FARLEY has been a director of the Company since 1999. Since
1994, Mr. Farley has worked as an independent business and financial consultant
for various companies and managed his personal investments. Prior to that, he
served as Vice President and Local Recording Agent/Commercial Lines/Office
Manager at Casso-Farley & Quinn Insurance Agency, Inc. from 1988 to 1994. Prior
to that he was Secretary/Treasurer and Local Recording Agent/Commercial
Lines/Office Manager of the company. From 1980 to 1987 Farley was Local
Recording Agent/Office Manager at Austin Insurance Agency, Inc. in Austin,
Texas.
L.H. "RICK" HARDY, JR. has served as a Director of the Company since
March 1998. From February 1998 to January 1999, Mr. Hardy was employed by the
Company to provide strategic and financial consulting. Concurrently, he has
served, since its founding, as the managing partner of Westridge Mortgage, Ltd.,
a privately held financial services company, purchasing sub-prime loans and
seller carried back notes for its own account. Mr. Hardy's primary
responsibilities are in the areas of financial analysis, loan servicing and the
acquisition of mortgage backed securities. Since 1979 Mr. Hardy has successfully
directed the acquisition of real estate investments, real estate secured notes
and a variety of real estate construction opportunities as a principal and as a
consultant or employee for numerous clients and employers. His employment
experience includes City Planner for the City of Galveston, Texas from May 1978
through May 1979; Business Development for Cleveland, Ohio based APCOA, Inc.
from May 1979 through April 1981; Real Estate Acquisitions for Houston, Texas
public traded company National Convenient Stores, Inc. from April 1981 through
September 1983; Taggart, Marryott, Reardon Co. in Columbus, Ohio from January
1988 through September 1988; and Metropolitan Mortgage & Securities, Inc. out of
Spokane, Washington from April 1992 through March 1993. From March 1993 until
March 1998, Mr. Hardy worked exclusively as the managing partner of Westridge
Mortgage, Ltd. He has lectured at numerous seminars and authored training
material for the sub-prime and seller carried back industry. He currently holds
a real estate brokers license in Texas and has previously held brokers license
in the States of Ohio and Oklahoma. His formal education was at the University
of Oklahoma where he received his BS in 1976 and Masters in 1978.
SHANNON D. STEWART has served as Vice President of Marketing
Operations at AFC since 1998. His work there involved developing marketing
strategies and organizing a marketing team. Prior to his work at AFC, Stewart
was area supervisor for American Greetings in Corpus Christi from 1997 to 1998.
He was responsible for account operations and gaining additional growth within
the accounts and managed 40 merchandisers, including hiring and training new
merchandisers. From 1992 to 1997 Stewart was a marketing associate for Sysco
Services in San
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Antonio, Texas where he was responsible for developing the customer base,
customer service and new account development and was involved in the laptop
computer conversion and training for all marketing associates.
KAREN HELLER has been a Senior Acquisition Analyst with the Company
since July 1997. From June 1988 to December 1989, Mrs. Heller worked at Barclays
Bank of North Carolina in Charlotte, North Carolina, as a loan servicing
supervisor. While in Charlotte, Mrs. Heller supervised a team of five customer
service employees. From December 1989 to August 1992, Mrs. Heller worked at
Citizens Federal Bank in Ft. Lauderdale, Florida, as a loan servicing
supervisor. Her duties included supervising a team of 15 customer service
representatives and servicing residential and installment loans in five states.
From August 1992 to April 1994 Mrs. Heller worked at Michael WM Mead, Attorney
in Ft. Walton Beach, Florida, as a real estate closer. Her duties included
closing residential and commercial real estate closings. From April 1994 to June
1995, Mrs. Heller worked at Destin Bank in Destin, Florida, as a mortgage
closing officer. Her duties included originating secondary market residential
mortgage loans, coordinated conventional and VA loans from initial application
and disclosure through closing, funding, and shipping. From October 1995 to
March 1996, Mrs. Heller worked at Ontra, Inc., in Austin, Texas, as a
disposition contracts specialist. While at Ontra, Mrs. Heller was responsible
for the resolution of title problems, closing of sale on REO properties in
numerous states, requiring coordination with buyers, sellers, real estate
agents, attorneys, and title companies. From March 1996 to July 1997, Mrs.
Heller worked at Towne and Country Title, Inc. in Austin, Texas as an Escrow
Officer. Her duties there included coordinating and closing all residential real
estate sales for a National Builder account. Mrs. Heller was involved in all
aspects of settlement including title review, document execution, recording,
balancing, funding, and shipping.
JENNIFER ANN V. BULLOCK has been a Senior Acquisition Analyst with
the Company since June 1997. She worked as a loan processing Officer at Savings
of America from 1993 to 1995. Her duties included processing conventional
residential mortgage loans and contacting applicants to request information and
documentation throughout the loan process. Mrs. Bullock was then promoted to
Senior Loan Processing Officer and Office Manager at Savings of America in
Austin, Texas from 1995 to 1996. Her duties included assisting in the start-up
of a new office, and acting as liaison between Loan Consultants and
Underwriters. Mrs. Bullock functioned as the initial point of contact for
telephone inquiries between brokers and applicants and coordinated and processed
conventional, VA, and FHA mortgage loans. In 1997, Mrs. Bullock worked at First
Equity Corp. in Austin, Texas, as a Loan Processor. Her duties included second
lien mortgage lending, coordinating closings with first lien mortgage lenders
and title companies. Mrs. Bullock processed and closed Home Improvement Loans
and shipped closed loans to investors.
Directors of the Company serve three-year staggered terms so that
approximately one-third of the directors are elected at each annual meeting of
shareholders. The initial terms of five of the eight directors on the classified
Board of Directors may be viewed as inhibiting a change in control of the
Company and having possible anti-takeover effects. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions." The Company
does not
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<PAGE> 29
currently compensate its directors for their service in such capacity. The Board
of Directors acting as a nominating committee nominates directors to be elected
to the Board.
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Company are as set forth in the above table. Executive officers
of the Company receive no remuneration in their capacity as the Company's
executive officers. For information regarding compensation of directors and
executive officers of the Subsidiary, see "Executive Compensation."
BOARD COMMITTEES
The Board of Directors has established an Executive and Policy
Committee, Audit Committee, a Compensation Committee and a Stock Plan Committee.
The Executive and Policy Committee has Glenn A. LaPointe, Terry G. Hartnett,
L.H. Hardy, Jr. and Bradley J. Farley as its members. During intervals between
meetings of the Board, that Committee exercises all of the power of the Board in
the management of the Company. The Audit Committee, consisting of L. H. Hardy,
Jr. and Glenn G. Farley, reviews the adequacy of internal controls and results
and scope of the audit and other services provided by the Company's independent
auditors. The Compensation Committee and the Stock Plan Committee each consist
of Bradley J. Farley and L.H. Hardy, Jr. The Compensation Committee establishes
and recommends salaries, incentives and other forms of compensation for officers
and other key employees. The Stock Plan Committee administers the 1999 Stock
Option and Incentive Plan, including the selection of participants and the
granting of awards.
Item 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
During the year ended March 31, 1999, the Company did not pay
compensation to its executive officers separate from the compensation they
received as employees of the Subsidiary. The Company has a small group of
officers who do not have substantial duties with the Company. These officers
also hold positions with the Subsidiary and each officer has substantial duties
with the Subsidiary. Each officer is compensated by the Subsidiary for the
duties performed for the Subsidiary. Separate compensation will not be paid to
the officers of the Company until such time as the officers of the Company
devote significant time to separate management of Company affairs, which is not
expected to occur until the Company becomes actively involved in additional
significant business beyond that of its Subsidiary.
The following table sets forth information concerning the
compensation paid or granted to the Subsidiary's Chief Executive Officer in
fiscal years ended March 31, 1999 and 1998. No other executive officer of the
Subsidiary had an aggregate salary and bonus which exceeded $100,000 in fiscal
1999.
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<PAGE> 30
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Summary Compensation Table(4)
- ----------------------------------------------------------------------------------------------------------------------
Long Term
Compensation All Other
Annual Compensation Awards Compen-
- ------------------------------------------------------------------------------------------------------- sation(1)($)
Name and Fiscal Other Annual Options/
Principal Position Year(3) Salary ($) Bonus ($) Compensation ($) SAR's(2)(#)
- ------------------------------- --------- ----------- ------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Glenn A. LaPointe, 1999 $ 92,000 $-- $-- -- $9,073
President and Chief 1998 31,000 -- -- -- 1,512
Executive Officer
Terry G. Hartnett, 1999 108,000 -- -- -- 8,362
Executive Vice President 1998 57,500 -- -- -- 1,394
and Chief Financial Officer
L. H. Hardy, Jr., 1999 100,000 -- -- -- 6,800
Consultant 1998 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Taxable fringe benefits including value of personal use of the Company
provided automobile.
(2) The term "SAR" refers to stock appreciation rights.
(3) For the fiscal years ended March 31, 1999 and 1998.
(4) Director Bradley J. Farley entered into a consulting agreement with the
Company in April 1999 by which he is to receive a monthly payment of
$15,000 for his financial and business development consulting services.
The following table provides information regarding stock options
granted to the Subsidiary's officer on July 23, 1999. No stock options or stock
appreciation rights ("SAR's") were granted during fiscal 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
OPTION\SAR GRANTS
- -----------------------------------------------------------------------------------------------
Individual Grants
- -----------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SAR's Exercise
Underlying Granted to or Base
Options/SAR's Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Glenn A. LaPointe 5,000 8.0% $1.10 June 30, 2004
- -----------------------------------------------------------------------------------------------
Terry G. Hartnett 5,000 8.0% $1.10 June 30, 2004
- -----------------------------------------------------------------------------------------------
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Glenn A.
LaPointe providing for an initial term of three years. The employment agreement
will become effective upon July 31, 1999 and provide for an annual base salary
of $180,000 and a bonus based on a
28
<PAGE> 31
profit sharing formula. The agreement provides for an annual extension, subject
to the performance of an annual evaluation by disinterested members of the Board
of Directors. The agreement also provides for termination upon the employee's
death or for cause. The employment agreement is also terminable by the employee
upon 90 days' notice to the Company.
In the event Mr. LaPointe is involuntarily terminated without cause, he
will receive his salary and insurance benefits for a period of 12 months. In
addition, in the event employment involuntarily terminates in connection with a
"change in control" of the Company or within twelve months thereafter, the
employment agreement provides for the payment to LaPointe of an amount equal to
299% of his five-year average annual base compensation. If the employment of
LaPointe had been terminated as of July 31, 1999 under circumstances entitling
him to a change in control severance payment as described above, he would have
been entitled to receive a lump sum cash payment of approximately $538,200. The
agreement also provides for the continued payment to LaPointe of health benefits
for the remainder of the term of his contract in the event he is terminated in
connection with a change in control.
CONSULTING AGREEMENTS WITH DIRECTORS
Directors Bradley J. Farley and L.H. Hardy, Jr. each have consulting
agreements with the Company. Beginning in April 1999, Director Farley has been
acting as a financial and business development consultant to the Company. He has
a written Consulting Agreement under which Mr. Farley is paid $15,000 a month
for his services. The Agreement continues until such time as Mr. Farley sells
his shares of common stock in the Company.
Director L.H. Hardy, Jr. is also serving as a consultant to the Company
where he assists the President with certain operational matters and provides
strategic and financial consulting. The Company pays Director Hardy a monthly
consulting fee of $10,000 per month. In addition to his consulting fee, the
Company leases an automobile for Mr. Hardy at a cost of approximately $680 per
month. The Company does not have a written consulting agreement with Mr. Hardy
and the Company may terminate his services at any time.
From time to time in the past, the Company has asked Mr. Hardy to
assist the President or other officers on special projects. Since 1997, Mr.
Hardy has served in this capacity as a consultant on some occasions and as an
employee on others. During fiscal year ended March 31, 1999, Mr. Hardy was
employed by the Company from April 1998 to January 1999. He was paid a total
salary of $100,000 during fiscal year 1999.
STOCK OPTION AND INCENTIVE PLAN
The stockholders and the Board of Directors of the Company have adopted
a Stock Option and Incentive Plan as set forth in Exhibit 6(a) (the "Stock
Option Plan"). Under the terms of the proposed Stock Option Plan, stock options
covering shares representing an aggregate of up to 2,000,000 shares of Common
Stock may be granted to directors, officers and employees of the
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<PAGE> 32
Company or its subsidiaries under the Stock Option Plan. The shares covered by
the Stock Option Plan if granted and exercised would equal approximately 10% of
the issued and outstanding shares of the Company.
Options granted under the Stock Option Plan may be either options that
qualify under the Internal Revenue Code as "incentive stock options" (options
that afford preferable tax treatment to recipients upon compliance with certain
restrictions and that do not normally result in tax deductions to the employer)
or options that do not so qualify. The exercise price of stock options granted
under the Stock Option Plan is required to be at least equal to the fair market
value per share of the stock on the date of grant. All grants are made in
consideration of past and future services rendered to the Company, and in an
amount deemed necessary to encourage the continued retention of the officers and
directors who are considered necessary for the continued success of the Company.
The proposed Stock Option Plan provides for the grant of stock
appreciation rights ("SAR's") at any time, whether or not the participant then
holds stock options, granting the right to receive the excess of the market
value of the shares represented by the SAR's on the date exercised over the
exercise price. SAR's generally will be subject to the same terms and conditions
and exercisable to the same extent as stock options.
Limited SAR's may be granted at the time of, and must be related to,
the grant of a stock option or SAR. The exercise of one will reduce to that
extent the number of shares represented by the other. Limited SAR's will be
exercisable only for the 45 days following the expiration of the tender or
exchange offer, during which period the related stock option or SAR will be
exercisable. However, no SAR or Limited SAR will be exercisable by a 10%
beneficial owner, director or senior officer within six months of the date of
its grant. The Company has no present intention to grant any SAR's or Limited
SAR's.
The proposed Stock Option Plan will be administered by a Stock Plan
Committee of the Company which will consist of at least two disinterested
directors. The Stock Plan Committee will select the recipients and terms of
awards made pursuant to the Stock Option Plan.
The Committee currently intends to grant options in the amount of 5,000
shares to each employee of the Subsidiary (13 persons). In addition, under the
terms of the Stock Option Plan, each non-employee director of the Company at the
time of stockholder ratification of the Stock Option Plan will be granted an
option to purchase 5,000 shares of Common Stock (3 persons). The remaining
balance of the available awards is unallocated and reserved for future use. All
options will expire 10 years after the date such option was granted, provided
that options to persons who hold more than 10% of the outstanding stock will
expire in five years. All proposed option grants to officers are subject to
modification by the Stock Plan Committee based upon its performance evaluation
of the option recipients at the time of stockholder ratification of the Stock
Option Plan.
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<PAGE> 33
The Stock Option Plan will be funded either with shares purchased in
the open market or with authorized but unissued shares of Common Stock. The use
of authorized but unissued shares to fund the Stock Option Plan could dilute the
holdings of stockholders who own Common Stock in the Company.
Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and immediately resell,
which under the SEC regulations applies to stock option plans in general, allows
the optionee to realize the benefit of an increase in the market price for the
stock without the market risk which would be associated with a required holding
period for the stock after payment of the exercise price. Under SEC regulations,
the short-swing liability period now runs for six months before and after the
option grant.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1998, Glenn LaPointe, Terry Hartnett, L.H. Hardy, Jr. and an officer
of the Company organized a business named CalTex Funding Corporation ("CalTex")
for the initial purpose of purchasing seller-financed mortgage notes and then
selling such notes to investors of the Company. After six months, CalTex
discontinued that business. CalTex next served as a vehicle to acquire mobile
homes and put them on real estate for sale to home buyers. On May 5, 1998 the
Company began making advances to CalTex in order to fund its operations. At
March 31, 1999, the Company had advances of $28,830. As homes were sold, the
Company would make loans to borrowers who were purchasing the homes. In an
effort to close out sales of certain homes, employees of the Company and their
family members purchased some homes and borrowed money from the Company to
finance those purchases. As a result, the Company holds six loans aggregating
approximately $500,000 to employees and their family members secured by homes
sold by CalTex.
In October 1998, Director Hardy had a limited partnership interest in
CertAustin, Ltd., a Texas limited partnership, which owned loans and other
financial assets. In an effort to enhance AFC's financial position, AFC
exchanged 500 shares of its Class A Preferred Stock for a 98% limited
partnership interest in CertAustin, Ltd. owned by L.H. Hardy, Jr. The Company
participated in the partnership until April 1999 when the Company assigned the
limited partnership interest back to Mr. Hardy for the cancellation of the 500
shares of preferred stock. At the same time, Mr. Hardy conveyed his 1,000 shares
of Common Stock back to AFC.
In April 1999, AFC issued 500 shares of its Class B Preferred Stock to
Bradley J. Farley and Glenn G. Farley in exchange for a $500,000 certificate of
deposit and the assignment of a $500,000 note receivable. The $500,000 note
receivable is from Banks International Global Services, Inc., an affiliate of
Mr. Glenn G. Farley. As a part of the Class B Preferred Stock transaction, AFC
entered into a consulting agreement with Bradley J. Farley to pay him a monthly
consulting fee of $15,000. See "Executive Compensation-Consulting Agreements
with Directors."
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<PAGE> 34
Under the terms of the Preferred Stock Purchase Agreement, either of the Farleys
could at their election cause the Company to purchase the 500 shares or the
Company could cause the Farleys to sell such shares. In May 1999, the Farley's
converted their 500 shares of Class B Preferred Stock to 324,324 shares of
Common Stock of AFC, which was then exchanged for 6,783,872 of the Company
Common Stock.
Since its organization in 1997, the Company from time to time has
borrowed monies from and sold loans to L.H. Hardy, Jr. and Bradley J. Farley. In
one such transaction, Mr. Hardy provided through affiliated entities short term
lines of credit to AFC in amounts up to $267,000 charging back to AFC interest
on funds advanced short term. Total interest collected from the Company for
fiscal 1998 was approximately $10,000. These loans and purchase arrangements
were on terms favorable to the Company and not in excess of then market rates.
None of these loans are outstanding and none of the directors or executive
officers have any agreement with or obligation to purchase loans from the
Company.
Glenn LaPointe, Terry Hartnett, Joe Shaffer, Bradley J. Farley and
Glenn G. Farley have each guaranteed the indebtedness of the Company on one or
more loan agreements and the Company's office lease. LaPointe and Hartnett have
each jointly and severally guaranteed the payment by the Company of a $500,000
line of credit with a financial institution. LaPointe, Hartnett, Glenn Farley
and Brad Farley have each jointly and severally guaranteed two separate
$5,000,000 warehouse facilities. In addition, LaPointe, Hartnett and Shaffer
have guaranteed the lease of office space for the Company. Each of these
guarantees have been in an effort to assist the Company and none of these
guarantors have been compensated for their assurances.
During the period ended March 31, 1998, the Company purchased a
contract to sell property from a relative of Glenn A. LaPointe, the President of
the Company, for approximately $89,000. The property was subsequently sold to an
unrelated third party resulting in a net gain of $47,258 to the Company.
L.H. "Rick" Hardy, Jr. has had various business involvements with AFC
since its foundation. Initially he provided a personal guarantee and pledged
collateral consisting of $250,000 in mortgage notes to secure a warehouse line
of credit. Mr. Hardy's personal guarantee and the initial collateral pledged
continue as of this filing. Under a business arrangement with AFC, Mr. Hardy
participated in the profits of the Company with total amount received for fiscal
year 1997 being $76,928.09 and for 1998 being $21,854.05. The profit sharing
arrangement was discontinued after February 1998 and Mr. Hardy became the holder
of 1,000 shares of Common Stock and was paid a salary.
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<PAGE> 35
Item 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue 80,000,000 shares of Common Stock,
$.001 par value. The holders of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors then up for election. The holders of
Common Stock are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining which are available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the Common Stock.
Holders of shares of Common Stock, as such, have no conversion, preemptive or
other subscription rights, and there are no redemption provisions applicable to
the Common Stock. All of the outstanding shares of Common Stock are fully paid
and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of Preferred
Stock with rights, preferences and limitations to be determined by the Board of
Directors. As of June 30, 1999, no shares of Preferred Stock have been issued.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER DEFENSIVE PROVISIONS
The following discussion is a summary of material provisions of the
Company's Articles and Bylaws and certain other state law provisions, which may
be deemed to have an "anti-takeover" effect and could potentially discourage or
even prevent a bid for the Company which might otherwise result in stockholders
receiving a premium for their stock. Further, ownership restrictions imposed by
state and federal law could potentially serve as a basis to invalidate or
otherwise restrict the use or exercise by management or others of revocable
proxies. The following description of certain of these provisions is necessarily
general and, with respect to provisions contained in the Company's Articles and
Bylaws, reference should be made in each case to the document in question.
Provisions of the Company's Articles and Bylaws Affecting a Change in
Control. Certain provisions of the Articles and Bylaws may provide the Board
with more negotiating leverage by delaying or making more difficult unsolicited
acquisitions or changes of control of the Company. It is believed that such
provisions will enable the Company to develop its business in a manner that will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by the Board to be in the best interests of the Company and
its stockholders. Such provisions could have the effect of discouraging third
parties from making proposals involving
33
<PAGE> 36
an unsolicited acquisition or change of control of the Company, although such
proposals, if made, might be considered desirable by a majority of the Company's
stockholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the management of the
Company without the concurrence of the Board. These provisions include (i) the
availability of capital stock for issuance from time to time at the discretion
of the Board, (ii) the classification of the Board into three classes, each of
which serves for a term of three years, (iii) requirements for advance notice
for raising business or making nominations at stockholders' meetings and (iv)
the requirement of a super-majority vote to remove directors with or without
cause.
Classified Board; Removal of Directors. The Articles provide that the
Board's membership is divided into three classes as nearly equal in number as
possible, each of which serves until the third succeeding annual meeting with
one class being elected at each annual meeting of stockholders. As a result, at
least two annual meetings of stockholders may be required for the Company's
stockholders to change a majority of the members of the Board. In addition,
directors may be removed, with or without cause, only by the affirmative vote of
the holders of at least 70% of the voting power of all shares of voting stock of
the Company, voting together as a single class. The Articles contain a provision
requiring the affirmative vote of the holders of at least 70% of the voting
power of all shares of voting stock of the Company, voting together as a single
class, to alter, amend, repeal or adopt provisions inconsistent with the
classified board provision of the Articles, and the provision requiring a 70%
vote to remove directors. The Bylaws prohibit increases in the size of the Board
that have the effect of delaying the ability of stockholders to change a
majority of the directors for more than two annual meetings.
The classified board provision and the requirement of a 70%
supermajority vote to remove directors may make it more difficult to change the
composition of the Board.
The Company believes that a classified board of directors will assure
continuity and stability of the Company's management and policies, without
diminishing accountability to stockholders. The Company's classified Board will
ensure that a majority of directors at any given time will have experience in
the business, competitive affairs and regulatory environment of the Company's
business. The Company believes that an experienced board is best situated to
enhance the value of the Company's business. A classified board and the
continuity it fosters will be important in developing, refining and executing
the Company's long-term strategic plan. The Company's classified Board will be
better positioned to make fundamental decisions that are in the best interests
of the Company. A classified board will also prevent an abrupt change in the
composition of the Board and will therefore eliminate delays inherent in the
familiarization by the new Board with the Company and its business and will
moderate changes in corporate policies, decisions and strategies that may not be
in the best interests of the Company and its stockholders and other appropriate
constituencies. At the same time, stockholders have the power to propose and
elect their own nominees for the class of directors to be elected at each annual
meeting, and in that manner change the Board's composition. By reducing the
threat of an abrupt change in the composition of the entire board,
classification of directors will give the Board sufficient time to
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<PAGE> 37
review any takeover proposal, study appropriate alternatives and achieve the
best results for all stockholders and other appropriate constituencies. The
Company believes that a classified board will enhance the Company's ability to
resist an abusive takeover attempt or to negotiate a fair price and appropriate
protections for other constituencies. The Company does not expect the classified
Board necessarily to discourage takeover offers or ultimately prevent a hostile
acquisition at a fair price and with appropriate protections for other corporate
constituents. The Company believes that a classified board of directors is fully
accountable to stockholders. To ensure this accountability, the Bylaws prohibit
increases in the size of the Board that have the effect of delaying the ability
of stockholders to change a majority of the directors for more than two annual
meetings. The classified board provision also will not prevent persons from
making unsolicited proposals to acquire the Company. The Company believes that a
classified board of directors thus remains accountable to stockholders.
Moreover, directors are bound by fiduciary duty to serve stockholders' interests
throughout their term of office.
Advance Notice for Raising Business or Making Nominations at Meetings.
The Bylaws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of stockholders and for nominations by
stockholders of candidates for election as directors at an annual or special
meeting at which directors are to be elected. Only such business may be
conducted at an annual meeting of stockholders as has been brought before the
meeting by, or at the direction of, the Board, or by a stockholder who has given
to the Secretary of the Company timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. The chairman
of such meeting has the authority to make the determination of whether business
has been properly brought before such meeting. Only persons who are nominated
by, or at the direction of, the Board, or who are nominated by a stockholder who
has given timely written notice, in proper form, to the Secretary prior to a
meeting at which directors are to be elected will be eligible for election as
directors of the Company.
To be timely, notice of business to be brought before an annual meeting
or nominations of candidates for election as directors at an annual meeting must
be personally delivered or sent by United States mail, postage prepaid, to the
Secretary of the Company not less than 90 nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting; provided, however,
that in the event the date of the annual meeting is more than 30 days earlier or
more than 60 days later than such anniversary date, notice by the stockholder
must be so delivered or received not earlier than the 120th day prior to such
annual meeting and not later than the close of business on the later of the 90th
day prior to such annual meeting or the tenth day following the day on which
public announcement of the scheduled date of such meeting is first made.
Similarly, notice of nominations to be brought before a special meeting must be
received by the Secretary not earlier than the 90th day prior to such special
meeting and not later than the close of business on the 60th day prior to such
special meeting or the tenth day following the date on which notice of such
meeting is first given to stockholders.
The notice of business to be brought before an annual meeting by a
stockholder must set forth, as to each matter the stockholder proposes to bring
before the annual meeting, a brief
35
<PAGE> 38
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting and, in the event that such
business includes a proposal to amend either the Articles or the Bylaws, the
text of the proposed amendment; the name and address, as they appear on the
Company's books, of the stockholder proposing such business; a representation
that the stockholder is a holder of record of stock of the Company entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to propose such business; any material interest of the stockholder in such
business; and if the stockholder intends to solicit proxies in support of such
stockholder's proposal, a representation to that effect.
The notice of any nomination for election as a director must set forth
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; a representation that the stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; such other information regarding
each nominee proposed by such stockholder as would have been required to be
included in the proxy statement filed pursuant to the proxy rules of the
Commission had each nominee been nominated, or intended to be nominated, by the
Board; the consent of each nominee to serve as a director if so elected; and, if
the stockholder intends to solicit proxies in support of such stockholder's
nominee(s) without such stockholder having made the foregoing representation, a
representation to that effect.
The Company expects to hold its first annual meeting of stockholders in
August 2000. Each stockholder will have until the close of business on the tenth
day following the day on which the first public disclosure of the date of such
first annual meeting is made to give notice to the Company, in proper form, of
such stockholder's intention to bring any matter before such first annual
meeting.
Nevada General Corporation Law ("NGCL"). The terms of Chapter 78 of the
NGCL apply to the Company since it is a Nevada corporation. Under certain
circumstances, the following selected provisions of the NGCL may delay or make
more difficult acquisitions or changes of control of the Company. The Articles
and By-laws do not exclude the Company from such provisions of the NGCL. Such
provisions also may have the effect of preventing changes in the management of
the Company. It is possible that such provisions could make it more difficult to
accomplish transactions that stockholders may otherwise deem to be in their best
interests.
Control Share Acquisitions. Pursuant to Sections 78.378 to 78.3793 of
the NGCL, an "acquiring person" who acquires a "controlling interest" in an
"issuing corporation" may not exercise voting rights on any "control shares"
unless such voting rights are conferred by a majority vote of the disinterested
stockholders of the issuing corporation at a special meeting of such
stockholders held upon the request and at the expense of the acquiring person.
In the event that the control shares are accorded full voting rights and the
acquiring person acquires control shares
36
<PAGE> 39
with a majority or more of all the voting power, any stockholder, other than the
acquiring person, who does not vote in favor of authorizing voting rights for
the control shares is entitled to demand payment for the fair value of his or
her shares, and the corporation must comply with the demand. For purposes of the
above provisions, "acquiring person" means (subject to certain exceptions) any
person who, individually or in association with others, acquires or offers to
acquire, directly or indirectly, a controlling interest in an issuing
corporation. "Controlling interest" means the ownership of outstanding voting
shares of an issuing corporation sufficient to enable the acquiring person,
individually or in association with others, directly or indirectly, to exercise
(i) one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority and/or (iii) a majority or more of the voting power of the
issuing corporation in the election of directors. Voting rights must be
conferred by a majority of the disinterested stockholders as each threshold is
reached and/or exceeded. "Control shares" means those outstanding voting shares
of an issuing corporation that an acquiring person acquires or offers to acquire
in an acquisition or within 90 days immediately preceding the date when the
acquiring person became an acquiring person. "Issuing corporation" means a
corporation which is organized in Nevada, has 200 or more stockholders (at least
100 of whom are stockholders of record and residents of Nevada) and does
business in Nevada directly or through an affiliated corporation. The above
provisions do not apply if the articles of incorporation or bylaws of the
corporation in effect on the 10th day following the acquisition of a controlling
interest by an acquiring person provide that said provisions do not apply. As
noted above, the Articles and Bylaws do not exclude the Company from the
restrictions imposed by such provisions.
Certain Business Combinations. Sections 78.411 to 78.444 of the NGCL
restrict the ability of a "resident domestic corporation" to engage in any
combination with an "interested stockholder" for three years after the
interested stockholder's date of acquiring the shares that cause such
stockholder to become an interested stockholder, unless the combination or the
purchase of shares by the interested stockholder on the interested stockholder's
date of acquiring the shares that cause such stockholder to become an interested
stockholder is approved by the board of directors of the resident domestic
corporation before that date. If the combination was not previously approved,
the interested stockholder may effect a combination after the three-year period
only if such stockholder receives approval from a majority of the disinterested
shares or the offer meets certain fair price criteria. For purposes of the above
provisions, "resident domestic corporation" means a Nevada public corporation
that has 200 or more stockholders. "Interested stockholder" means any person,
other than the resident domestic corporation or its subsidiaries, who is (i) the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding voting shares of the resident domestic corporation or (ii) an
affiliate or associate of the resident domestic corporation and, at any time
within three years immediately before the date in question, was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding shares of the resident domestic corporation. The above provisions do
not apply to corporations that so elect in a charter amendment approved by a
majority of the disinterested shares. Such a charter amendment, however, would
not become effective for 18 months after its passage and would apply only to
stock acquisitions occurring after its effective
37
<PAGE> 40
date. As noted above, the Articles and Bylaws do not exclude the Company from
the restrictions imposed by such provisions.
Rights and Options. Section 78.200 of the NGCL provides that a
corporation may create and issue, whether in connection with the issue and sale
of any shares of stock or other securities of the corporation, rights or options
for the purchase of shares of stock of any class of the corporation, to be
evidenced by such instrument as is approved by the board of directors. The terms
upon which, the time or times, which may be limited or unlimited in duration, at
or within which, and the price at which, any such shares may be purchased from
the corporation upon the exercise of any such right or option must be fixed and
stated in the Articles or in a resolution adopted by the board of directors
providing for the creation and issuance of such rights or options, and, in every
case, set forth or incorporated by reference in the instrument evidencing the
rights or options.
Directors' Duties. Section 78.138 of the NGCL allows directors and
officers, in exercising their respective powers with a view to the interests of
the corporation, to consider the interests of the corporation's employees,
suppliers, creditors and customers, the economy of the state and the nation, the
interests of the community and of society and the long and short-term interests
of the corporation and its stockholders, including the possibility that these
interests may be best served by the continued independence of the corporation.
Directors may resist a change or potential change in control if the directors,
by a majority vote of a quorum, determine that the change or potential change is
opposed to or not in the best interest of the corporation upon consideration of
the interests set forth above or if the board has reasonable grounds to believe
that, within a reasonable time, the debt created as a result of the change in
control would cause the assets of the corporation or any successor to be less
than the liabilities or would render the corporation or any successor insolvent
or would lead to bankruptcy proceedings.
PART II
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
The Company's Common Stock, at the time of this filing, has no
established public trading market. The Company intends to apply to have the
Common Stock traded on the OTC Bulletin Board. No assurance can be given that
such application will be approved and, if approved, that an active trading
market for the Common Stock will be established or maintained.
Except for the stock options for 80,000 shares issued to employees and
directors under the 1999 Stock Option and Incentive Plan, there are no
outstanding options or warrants to purchase, or securities convertible into,
shares of Common Stock. See "Executive Compensation."
When the Company was spun off from Innovation International,
shareholders of Innovation International received the rights to 1,600,000 shares
of common stock of the Company.
38
<PAGE> 41
Shareholders of Innovation International are free to trade their shares upon
effectiveness of this Registration Statement. The remaining shareholders of the
Company who acquired their shares in the Company as a part of an acquisition of
the Company's subsidiary, will have their shares eligible for sale on the first
anniversary of their issuance, subject to the restrictions and volume
limitations of Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned his or her restricted shares for at least
one year, including persons who may be deemed "affiliates" of the Company, as
that term is defined under the Act, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then-outstanding shares of the Company's Common Stock or the average weekly
trading volume in the over-the-counter market during the four calendar weeks
preceding such sale. A person who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such person, and who
has beneficially owned his or her restricted shares for at least two years,
would be entitled to sell such shares under Rule 144 at any time and without
regard to the volume limitations described above.
The Company intends to file a registration statement under the Act by
December 31, 1999 to register the 2,000,000 shares of Common Stock reserved
under the Company's stock option programs. See "Executive Compensation - Stock
Option and Incentive Plan." Such registration statement is expected to be filed
shortly after the date of this filing and to become effective as promptly as
practicable thereafter. This registration is not being done for the purpose of
securing capital. Shares issued upon exercise of outstanding stock options after
the effective date of such registration statement generally will be available
for sale in the open market.
None of the holders of any shares of Common Stock of the Company are
entitled to any registration rights.
The Company has not paid any dividends on its Common Stock and intends
to retain all earnings for use in its operations and to finance the development
and the expansion of its business. It does not anticipate paying any dividends
on the Common Stock in the foreseeable future. The payment of dividends is
within the discretion of the Company's Board of Directors. Any future decision
with respect to dividends will depend on future earnings, future capital needs
and the Company's operation and financial condition, among other factors.
As of September 30, 1999, there were approximately 360 holders of
record of the Company's common stock and no holders of record of the Company's
preferred stock.
Item 2. LEGAL PROCEEDINGS.
On June 14, 1999, the Company, holder of a defaulted $160,000 real
estate lien note and beneficiary of a deed of trust to Lot 9, Ridge Haven
Estates, in Rockwall County, Texas, securing payment of the note, posted through
its Substitute Trustee a notice of foreclosure on Lot 9. On
39
<PAGE> 42
June 30, 1999, an action was filed in the 382nd Judicial District Court of
Rockwall County, Texas, by Vernon Oland Hogue, Jr., and Judy Hogue, as
Plaintiffs, against Richard Franks, Laurie I. Davis, LaSalle Anders, SAFECO Land
Title of Collin County, SAFECO Land Title of Plano, the Company and IMC Mortgage
Company, as Defendants. The complaint alleges, among other things, that the
Company has no interest in Lot 9 due to a gap in the chain of title and may not
proceed with a scheduled trustee's sale. The Plaintiffs sought, and received, a
temporary injunction which restrains the trustee sale on the property. The
Plaintiffs seek a permanent injunction restraining foreclosure, ask the Court to
void the Company's liens and deed of trust on Lot 9, request a declaration that
the Plaintiffs have a first lien against Lot 9 in the amount of $55,000, and
seek an unspecified amount of damages for fraud, costs, attorney's fees and such
other relief as the Court may grant. The parties to the action are conducting
discovery and no trial date has been set. The Company believes that it has
meritorious defenses to this lawsuit and that resolution of this matter will not
have a material adverse effect on the business or financial condition of the
Company.
From time to time in the ordinary course of its business, the Company
is named in lawsuits. The Company believes that it has meritorious defenses to
the above lawsuit and that resolution of these matters will not have a material
adverse effect on the business or financial condition of the Company.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not changed its independent auditor within the
Company's last two fiscal years or reported disagreements on any matter of
accounting principles or procedures or financial statement disclosures within
the Company's last two fiscal years.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES.
On June 7, 1999 Innovation International authorized the Company to
distribute 1,600,000 common shares of the Company to the shareholders of
Innovation International as a dividend-in-kind and as a result of this
distribution ("spin-off"), the Company became separate from and was no longer a
subsidiary of Innovation International. Such shares were issued without
registration because the shares were a spin-off transaction not involving a
sale of the securities of the Company as described in SEC Staff Legal Bulletin
No. 4, dated September 16, 1997.
The Company entered into an agreement with the shareholders of AFC
pursuant to which it became a subsidiary of the Company. The Company issued
19,733,333 common shares to the former shareholders of AFC in consideration for
their AFC shares. In addition, the former shareholders of AFC (and not the
former shareholders of Innovation International) may receive the rights of up to
a total of 2,500,000 additional shares over the next five calendar years if
certain targeted compound internal growth rates of the Company are achieved.
Under the terms of the agreement with Innovation International, if the audited
consolidated Pretax Income of AFC shall have reflected a 25% compound internal
growth rate for three consecutive years, then AFC (or its successor the Company)
shall issue and deliver an additional 2,500,000 shares of common stock to the
former AFC shareholders on a pro rata basis.
40
<PAGE> 43
AFC has issued shares of its common stock and preferred stock since its
inception in 1997. None of the securities discussed herein were registered under
the Securities Act of 1933. The first such sale occurred when AFC was
organized. It issued Terry G. Hartnett and Glenn A. LaPointe 1,000 shares each
for cash contributions totaling $25,000. Such shares were issued without
registration pursuant to an exemption from registration under Section 4(2) of
the Securities Act of 1933.
In 1998 AFC issued 500 shares of its Series A Preferred Stock to L.H.
Hardy, Jr. for a 98% limited partnership interest in a limited partnership. In
that same year, AFC issued 1,000 shares to Mr. Hardy for his help in arranging
for a loan for AFC. The 500 shares of Series A Preferred Stock and the 1,000
shares of Common Stock conveyed to Hardy have been repurchased by AFC and such
shares have been canceled. Such shares were issued without registration pursuant
to an exemption from registration under Section 4(2) of the Securities Act of
1933.
In April 1999, AFC issued 500 shares of its Class B Preferred Stock in
exchange for a $500,000 certificate of deposit and the assignment of a $500,000
note receivable from Bradley J. Farley and Glenn G. Farley. See "Certain
Relationships and Related Transactions." In May 1999 the Farleys converted their
500 shares of Class B Preferred Stock to 324,324 shares of Common Stock of AFC,
which was then exchanged for 6,783,872 of the Company Common Stock. In June 1999
AFC issued 78,549 of its shares (approximately 1,643,006 Company shares after
the exchange) to a group of six employees for services rendered. Such shares
were issued without registration pursuant to an exemption from registration
under Section 4(2) of the Securities Act of 1933.
In each of the above transactions, no general advertising or
solicitation was utilized in connection with any such sale. Investors were
offered access to the Company's books and records and the opportunity to meet
with officers of the Company.
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of the Company waive the personal liability of a director
or officer for damages for breach of fiduciary duty except for (i) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (ii) the payment of distributions in violation of Section 78.300 of the
NGCL, which concerns the unlawful payment of distributions to stockholders.
While the Articles provide directors and officers with protection from
awards for monetary damages for breaches of their duty of care, they do not
eliminate such duty. Accordingly, the Articles will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's or officer's breach of his or her duty of care.
The Bylaws provide for indemnification of the directors and officers of
the Company to the fullest extent permitted by applicable state law, as then in
effect. The indemnification rights conferred by the Bylaws are not exclusive of
any other right to which a person seeking indemnification may otherwise be
entitled. The Company plans to purchase liability insurance for the directors
and officers for certain losses arising from claims or charges made against them
while acting in their capacities as directors or officers.
41
<PAGE> 44
The SEC has taken the position that the provisions discussed in this section do
not eliminate the monetary liability of directors or officers under the Federal
securities laws.
42
<PAGE> 45
PART F/S
The following financial statements of the Company are included herein:
Austin Asset Management Corporation
<TABLE>
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 to F-12
</TABLE>
PART III
Item 1. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Page Number Description
- ----------- ----------- -----------
<S> <C> <C>
2(a) Certificate of Amended and Restated Articles of
Incorporation of the Company*
2(b) Bylaws of the Company*
2(c) Certificate of Designation, Preferences, Rights
and Limitations of 1999 Series A Preferred
Stock of Austin Funding.com Corporation
3 Not applicable
5 Not applicable
6(a) 1999 Stock Option and Incentive Plan of the
Company*
</TABLE>
43
<PAGE> 46
<TABLE>
<S> <C> <C>
6(b) Employment Agreement as of July 19, 1999
between the Company and Glenn A. LaPointe*
6(c) Consulting Agreement between Subsidiary and
Bradley J. Farley dated April 14, 1999*
6(d) Whole Loan Purchase Agreement between
Subsidiary and EquiCredit Corporation of
America dated March 17, 1998*
6(e) Master Agreement for Sale and Purchase of
Mortgages between Contimortgage Corporation and
Subsidiary*
6(f) Bulk Continuing Loan Purchase Agreement between
Household Financial Services, Inc. and
Subsidiary dated June 28, 1999*
6(g) Mortgage Loan Purchase and Sale Agreement
between Life Bank and Subsidiary dated February
22, 1999*
6(h) Seller Agreement between Impac Funding
Corporation and Subsidiary dated April 7, 1999*
6(i) Commercial Loan and Servicing Agreement between
First National of North America, LLC and
Subsidiary dated December 22, 1998*
6(j) Mortgages Purchase Agreement between
Residential Mortgage Services of Texas, Inc.
and Subsidiary dated October 14, 1998*
6(k) Loan and Security Agreement between Capital
First Mortgage Corporation and Pioneer
Commercial Funding Corp. dated June 2, 1997*
6(l) Lease Agreement between 823 Congress Ltd. and
Capital First Mortgage Corporation dated April,
1997*
6(m) First Amendment to Lease Agreement dated
September 1, 1998*
</TABLE>
44
<PAGE> 47
<TABLE>
<S> <C> <C>
6(n) Mortgages Purchase Agreement between
Residential Mortgage Services of Texas, Inc.
and Subsidiary dated June 11, 1999
6(o) Master Repurchase Agreement between Impac
Warehouse Lending Group and Austin Funding
Corporation dated June 22, 1999
6(p) Stock Exchange Agreement between Bradley J.
Farley and the Company
7 Not applicable
8(a) Reorganization Plan and Agreement dated October
7, 1999 May 26, 1999 by and among Innovation
International, Inc., the Company and Austin
Funding Corporation*
8(b) Amendment to Reorganization Plan and Agreement
dated June 12, 1999*
10 Consent of Sprouse & Winn
FDS Financial Data Schedule*
</TABLE>
*previously filed
45
<PAGE> 48
SIGNATURES
In accordance with Section 12 of the Exchange Act of 1934, the Company
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized this 14th day of October, 1999.
AUSTIN FUNDING.COM CORPORATION
By: /s/ GLENN A. LAPOINTE
---------------------------------
Glenn A. LaPointe
President
By: /s/ TERRY G. HARTNETT
---------------------------------
Terry G. Hartnett
Chief Financial Officer
46
<PAGE> 49
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET
MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND 1998 (UNAUDITED),
MARCH 31, 1999 AND 1998
<PAGE> 50
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
AUSTIN, TEXAS
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-13
</TABLE>
<PAGE> 51
Austin Funding.com Corporation
(formerly Austin Asset Management Corporation)
And Its Wholly-Owned Subsidiary
Austin, Texas
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Austin
Funding.com Corporation (formerly Austin Asset Management Corporation) (AFCC)
and its wholly-owned subsidiary as of March 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year ended March 31, 1999 and the period from inception, April 4, 1997, to
March 31, 1998. The consolidated financial statements are the responsibility of
AFCC's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Austin Funding.com
Corporation (formerly Austin Asset Management Corporation) and its wholly-owned
subsidiary as of March 31, 1999 and 1998, and the results of its operations and
its cash flows for the year ended March 31, 1999 and the initial period ended
March 31, 1998 in conformity with generally accepted accounting principles.
June 22, 1999
SPROUSE & WINN, L.L.P.
AUSTIN, TEXAS
<PAGE> 52
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, MARCH 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 58,909 $ 36,996 $ 4,245 $ 115,482
Accounts receivable -0- -0- -0- 1,611,768
Inventory (Notes 2 and 5) 3,860,365 1,953,471 1,852,937 1,288,416
----------- ----------- ----------- -----------
Total Current Assets 3,919,274 1,990,467 1,857,182 3,015,666
----------- ----------- ----------- -----------
OTHER RECEIVABLES
Stockholder receivable (Note 5) 36,560 39,360 48,760 36,560
Other receivables (Note 5) (776) 143,073 28,830 -0-
Notes receivable 500,000 11,952 11,866 11,952
----------- ----------- ----------- -----------
Total Other Receivables 535,784 194,385 89,456 48,512
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 45,802 19,014 45,802 17,080
Accumulated depreciation (11,535) (1,700) (11,535) (1,700)
----------- ----------- ----------- -----------
Net Property and Equipment 34,267 17,314 34,267 15,380
----------- ----------- ----------- -----------
DEPOSITS 205,356 3,217 5,669 2,107
----------- ----------- ----------- -----------
INVESTMENT IN LIMITED PARTNERSHIP (Note 6) 509,452 -0- 484,968 -0-
----------- ----------- ----------- -----------
TOTAL ASSETS $ 5,204,133 $ 2,205,383 $ 2,471,542 $ 3,081,665
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 141,522 $ -0- $ 115,962 $ 58,468
Deferred income 60,918 30,678 73,476 25,677
Income taxes payable -0- -0- -0- 40,966
Other liabilities -0- -0- 20 133
Current maturities of long-term debt (Note 3) 109,516 -0- 9,226 -0-
Lines of credit and mortgage purchase agreement (Note 2) 3,355,446 1,953,205 1,823,312 2,790,232
Deferred income taxes (Note 7) -0- -0- -0- 769
----------- ----------- ----------- -----------
Total Current Liabilities 3,667,402 1,983,883 2,021,996 2,916,245
LONG-TERM DEBT, net of current maturities (Note 3) 14,672 -0- 17,162 -0-
DEFERRED INCOME TAXES LESS CURRENT PORTION
(Note 7) -0- -0- -0- 3,076
----------- ----------- ----------- -----------
Total Liabilities 3,682,074 1,983,883 2,039,158 2,919,321
STOCKHOLDERS' EQUITY 1,522,059 221,500 432,384 162,344
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,204,133 $ 2,205,383 $ 2,471,542 $ 3,081,665
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-2-
<PAGE> 53
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1999 AND 1998 (UNAUDITED),
THE YEAR ENDED MARCH 31, 1999,
AND THE PERIOD APRIL 4, 1997 (INCEPTION) TO MARCH 31, 1998
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, MARCH 31,
------------------------- --------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 3,917,526 $ 5,940,313 $ 20,548,383 $ 10,345,625
COST OF SALES 3,749,270 5,578,754 19,432,063 9,753,230
----------- ------------ ------------ ------------
GROSS PROFIT 168,256 361,559 1,116,320 592,395
----------- ------------ ------------ ------------
SELLING AND ADMINISTRATIVE
Salaries and wages 140,666 207,370 866,275 260,883
Office expense and supplies 8,502 15,367 64,055 37,855
Occupancy (Note 4) 13,567 6,890 41,921 12,495
Travel and entertainment 30,221 16,323 90,041 11,509
Telephone 14,894 8,913 71,914 26,263
Depreciation -0- -0- 9,834 1,700
Automobile expenses (Note 4) 7,009 5,732 25,065 2,297
Professional fees 47,250 15,822 70,700 29,466
Insurance 8,269 7,823 34,115 14,586
Equipment rental and maintenance (Note 4) 3,814 1,465 13,207 4,993
Advertising and marketing 4,632 13,842 33,310 5,576
Telemarketing 4,135 58 3,635 8,693
Other expenses 63,759 29,645 73,997 48,494
----------- ------------ ------------ ------------
Total Selling and Administrative 346,718 329,250 1,398,069 464,810
----------- ------------ ------------ ------------
OPERATING INCOME (LOSS) (178,462) 32,309 (281,749) 127,585
GAIN ON SALE OF PROPERTY (Note 5) -0- -0- -0- 47,258
OTHER INCOME (EXPENSES) 12,121 2,034 42,009 9,617
----------- ------------ ------------ ------------
INCOME, before income taxes (166,341) 34,343 (239,740) 184,460
INCOME TAX EXPENSE (BENEFIT)
(Note 7) -0- -0- (44,812) 47,116
----------- ------------ ------------ ------------
NET INCOME (LOSS) $ (166,341) $ 34,343 $ (194,928) $ 137,344
=========== ============ ============ ============
EARNINGS (LOSS) PER SHARE $ (.04) $ 17.17 $ (97.46) $ 235.63
=========== ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-3-
<PAGE> 54
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSETS MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED),
THE YEAR ENDED MARCH 31, 1999,
AND THE PERIOD APRIL 4, 1997 (INCEPTION) TO MARCH 31, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock*
--------------------------- ------------------------
Shares Shares Additional Retained
(Issued and (Issued and Paid-In Earnings
Outstanding) Amount Outstanding) Amount Capital (Deficit) Total
----------- ------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1997 $ -0- $ -0- $ -0- $ -0- $ -0-
Issued 2,000
common shares -0- 2,000 20 24,980 -0- 25,000
Net income -0- -0- -0- 137,344 137,344
----------- ----------- ---------- ----------- ----------- -----------
Balance at March 31,
1998 -0- 2,000 20 24,980 137,344 162,344
Issued 500 preferred
shares - April 1998 500 5 -0- 484,963 -0- 484,968
Dividend paid -0- -0- -0- (20,000) (20,000)
Net income (loss) -0- -0- -0- (194,928) (194,928)
----------- ----------- ----------- ---------- ----------- ----------- -----------
Balance at March 31,
1999 500 5 2,000 20 509,943 (77,584) 432,384
Redeemed 500
preferred shares -
April 1999 (500) (5) -0- (484,963) -0- (484,968)
Issued 500 preferred
shares - April 1999 500 5 -0- 995,695 -0- 995,700
Conversion of
preferred stock to
common stock (500) (5) 500 5 -0- -0- -0-
Issued 108,108
common shares -
June 1999 108,108 1,081 744,203 -0- 745,284
Net income (loss) -0- -0- -0- (166,341) (166,341)
Distribution of shares -0- 21,333,333 21,333 (21,333) -0- -0-
Elimination of
intercompany
accounts -0- -0- (110,608) (1,106) 1,106 -0- -0-
----------- ----------- ----------- ---------- ----------- ----------- -----------
Balance at June 30,
1999 -0- $ -0- $21,333,333 $ 21,333 $ 1,744,651 $ (243,925) $ 1,522,059
=========== =========== =========== ========== =========== =========== ===========
</TABLE>
*100,000,000 shares authorized, $0.001 par value as of June 30, 1999
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE> 55
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1999 AND 1998 (UNAUDITED),
THE YEAR ENDED MARCH 31, 1999,
AND THE PERIOD APRIL 4, 1997 (INCEPTION) TO MARCH 31, 1998
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, MARCH 31,
------------------------ --------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (166,341) $ 34,343 $ (194,928) $ 137,344
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation -0- -0- 9,834 1,700
(Increase) decrease in receivables -0- 1,611,768 1,611,768 (1,611,768)
(Increase) decrease in inventories (1,771,596) (665,055) (564,435) (1,288,416)
(Increase) decrease in other receivables 53,672 (145,873) (41,010) (48,512)
(Increase) decrease in deposits (3,249) (1,110) (2,452) (2,107)
Increase (decrease) in accounts payable and accrued
liabilities 25,560 (58,468) 57,383 58,468
Increase (decrease) in deferred tax liabilities -0- (3,845) (2,735) 3,845
Increase (decrease) in federal income taxes payable -0- 3,847 (43,187) 40,966
Increase in deferred income and other liabilities 12,578 4,868 47,799 25,810
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,849,376) 780,475 878,037 (2,682,670)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment -0- (1,934) (28,722) (17,080)
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES -0- (1,934) (28,722) (17,080)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 100,000 -0- 30,218 -0-
Net borrowings on line of credit 1,806,240 (837,027) (966,920) 2,790,232
Principal payments on long-term debt (2,200) -0- (3,830) -0-
Proceeds from issuance of common stock -0- -0- -0- 25,000
Dividends paid -0- (20,000) (20,000) -0-
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,904,040 (857,027) (960,532) 2,815,232
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 54,664 (78,486) (111,217) 115,482
CASH, Beginning of Year or Period 4,245 115,482 115,482 -0-
----------- ----------- ----------- -----------
CASH, End of Year or Period $ 58,909 $ 36,996 $ 4,265 $ 115,482
=========== =========== =========== ===========
TAXES PAID $ -0- $ 1,110 $ 1,110 $ 2,304
=========== =========== =========== ===========
INTEREST PAID $ 55,080 $ 72,656 $ 414,573 $ 153,141
=========== =========== =========== ===========
</TABLE>
NON-CASH FINANCING ACTIVITY:
o 500 shares of preferred stock were issued in exchange for a limited
partnership interest in April 1998. These shares were subsequently redeemed
back in exchange for the limited partnership interest in April 1999.
o 500 shares of preferred stock was issued in exchange for a $500,000
certificate of deposit and a $500,000 negotiable security in April 1999.
o All remaining shares of preferred stock (500 shares) were converted into
500 shares of common stock in June 1999.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE> 56
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Austin Funding.com Corporation (formerly Austin Asset Management
Corporation) (AFCC) was incorporated in Nevada, on April 29, 1999,
as a wholly owned subsidiary of Innovation International, Inc.
(Innovation).
On June 7, 1999, Innovation's Board of Directors authorized the
pro-rata distribution to its shareholders of 1,600,000 shares of the
$.001 par value common stock of AFCC as a dividend-in-kind.
Effective with the June 14, 1999, notice to shareholders concerning
that ("spin-off") distribution, and the acquisition described below,
AFCC became separate from and was no long a subsidiary of
Innovation.
On June 14, 1999, pursuant to an Agreement dated May 26, 1999, AFCC
acquired 100% of the capital stock of Austin Funding Corporation
(AFC) from eleven individuals representing all of the holders of
said stock. Effective with the completion of that acquisition, AFC
became a wholly-owned subsidiary of AFCC.
As of June 30, 1999, the capital stock of AFCC consists of
100,000,000 shares of common stock, par value of one tenth of a cent
($.001) per share, and 20,000,000 shares of preferred stock, par
value of one tenth of a cent ($.001). Consideration in the
acquisition of AFC included the issuance of 19,733,333 common shares
to the former shareholders of AFC. In addition, the former
shareholders of AFC may receive up to a total of 2,500,000
additional shares over the next five calendar years if certain
targeted compound internal growth rates, as defined, are achieved.
AFCC, through its subsidiary AFC, is engaged primarily in the
business of buying and selling real estate mortgages to secondary
markets. When loans are purchased they are categorized as inventory
until they can be resold into the secondary market. Revenues are
generally recognized when the closing sale is completed. Revenue
includes loan amounts as well as various fees.
Generally, neither AFCC or AFC retain any servicing rights on loans
acquired for resale.
-6-
<PAGE> 57
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS ACQUISITION
The acquisition of AFC has been accounted for under the purchase
method in accordance with APB 16. The assets and liabilities of AFC
were transferred at fair value which approximated book value at the
date of acquisition.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Austin
Funding.com Corporation and its wholly owned subsidiary Austin
Funding Corporation. Austin Funding.com Corporation was incorporated
in Nevada on April 29, 1999 and acquired Austin Funding Corporation,
as detailed above, on June 14, 1999. All significant intercompany
accounts and transactions have been eliminated.
ACCOUNTING BASIS
AFCC prepares its financial statements on the accrual basis of
accounting.
BASIS OF PRESENTATION
The accompanying balance sheets as of June 30, 1999 and 1998, and
March 31, 1999 and 1998, and statements of income and cash flows for
the three months ended June 30, 1999 and 1998, and the twelve months
ended March 31, 1999, and from April 4, 1997(inception) to March 31,
1998, include the accounts of AFCC and AFC.
ESTIMATES
The preparation of financial statements in conformity 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. Actual results could differ
from those estimates.
INVENTORY
Inventory consists of real estate mortgages held for resale.
Mortgages are accounted for under the specific identification
method. They are recorded at the lower of cost or market.
-7-
<PAGE> 58
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Assets are depreciated
using the straight-line method over their estimated useful lives
which range from three to seven years.
Maintenance and repairs are charged to operations as incurred, and
betterments of existing assets are capitalized.
AFCC accounts for long-lived assets as prescribed by the Financial
Accounting Standards Board issued Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment
are present and undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. There has
been no impairment recorded in the financial statements.
INCOME TAXES
AFCC is a corporation subject to federal and state income taxes.
AFCC has elected to be taxed on a separate entity since its
inception on April 29, 1999. AFCC and its wholly owned subsidiary
intend to file a consolidated tax return for 1999.
AFCC accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
CONCENTRATION OF CREDIT RISK
Accounts receivable potentially expose AFCC to concentrations of
credit risk as defined by Statement of Financial Accounting Standard
No. 105, Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations
of Credit Risk.
AFCC purchases mortgages in the normal course of business from
customers located throughout the United States.
-8-
<PAGE> 59
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREFERRED STOCK - Subsidiary AFC
The preferred stock of AFC is redeemable at the option of the
stockholders or AFC at any time. AFC must redeem the stock five
years after the date of issuance, or upon notification from a
stockholder that AFC has materially breached the stock purchase
agreement.
ADVERTISING
Advertising costs are expensed when incurred.
INTERIM FINANCIAL STATEMENTS
The results of operations for the three months ended June 30, 1999
and 1998, are not necessarily indicative of the results to be
expected for the full fiscal year. All information as of and for the
three months ended is unaudited, but, in the opinion of management,
contains all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the combined financial
position, results of operations and cash flows of AFCC.
RECLASSIFICATION
Certain amounts in March 31, 1998, have been reclassified to be
consistent with the financial statement presentation in March 31,
1999.
-9-
<PAGE> 60
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 2: LINES OF CREDIT AND MORTGAGE PURCHASE AGREEMENT
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1999 1998
---------- -----------
<S> <C> <C>
AFCC had a $3,000,000 line of credit with a financial
institution which was terminated in February 1999. The line of
credit is due on demand. Proceeds from sales of loans are made
directly to the line of credit to the extent of original cost,
plus interest at prime rate plus two percent through maturity
date, and prime rate plus three percent after maturity date.
The debt is secured by the mortgage inventory and all assets
of AFCC. The debt is additionally secured by personal
guarantees of the stockholders and an affiliate of AFCC, as
well as $250,000 in collateral pledged by the affiliate. The
available line of credit at March 31, 1999 is $-0-. $1,388,550 $2,790,232
AFCC has a $2,000,000 mortgage purchase agreement with a
financial institution. Each loan is individually accepted or
rejected by the lender and the agreement has no expiration
date. Proceeds from sales of loans are made directly to the
mortgage purchase agreement, and interest is calculated at
prime rate plus two percent through maturity date, and prime
rate plus three percent after maturity date. The debt is
secured by the mortgage inventory. 24,866 -0-
AFCC has a $500,000 line of credit with a financial
institution. The line of credit expires on January 1, 2000.
Proceeds from sales of loans are made directly to the line of
credit, and interest is calculated using a weighted-average of
interest rates for loans held through maturity date, and the
weighted-average plus 2 percent after maturity. The debt is
secured by the mortgage inventory and is personally guaranteed
by the stockholders. 162,971 -0-
AFCC has a $250,000 line of credit with a financial
institution. The line of credit expires on June 9, 1999.
Interest is calculated at 9.75%. The debt is personally
guaranteed by an employee of AFCC. 246,925 -0-
---------- -----------
$1,823,312 $ 2,790,232
========== ===========
</TABLE>
-10-
<PAGE> 61
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 3: LONG-TERM DEBT
AFCC has a note payable with an individual. The original amount of
the note was $36,000 and was dated October 5, 1998. Payments of
$1,000 are due in monthly installments which include interest at
12.5% beginning November 1, 1998 and continuing until November 1,
2001, when the balance is due. The note is secured by the assets of
AFCC.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------
<S> <C>
Current $ 9,226
Long-term 17,162
-------
Total $26,388
=======
</TABLE>
Future commitments on long-term debt are:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
<S> <C>
2000 $ 9,226
2001 10,444
2002 6,718
-------
Total $26,388
=======
</TABLE>
NOTE 4: LEASES
AFCC leases office space, vehicles and certain office equipment
under operating leases which terminate at various dates. The lease
for office space is personally guaranteed by both stockholders and a
former employee of AFCC. In addition, the Vice-President of AFCC has
personally guaranteed a lease for a vehicle. Rentals paid under
these leases were approximately $80,192 and $19,784 for March 31,
1999 and 1998, respectively. Future commitments on these leases are:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
<S> <C>
2000 $ 67,681
2001 66,541
2002 5,507
--------
Total $139,729
========
</TABLE>
-11-
<PAGE> 62
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 5: RELATED PARTY TRANSACTIONS
Included in stockholder receivable at March 31, 1999 and 1998, are
advances of $48,760 and $36,560 made to a stockholder.
Included in other receivables at March 31, 1999, is an amount of
$28,830 due from a separate corporation owned by the stockholders of
AFCC.
Included in inventory is a loan of $79,721 to a sister of an officer
of AFC.
During the period ended March 31, 1998, AFCC purchased a property
from a relative of a stockholder for approximately $89,000. The
property was subsequently sold to an unrelated third party resulting
in a net gain of $47,258.
During the period ended March 31, 1998, an employee of AFCC
personally funded outstanding loans of approximately $267,400. Upon
the sale of loans, these amounts were included in revenue and cost
of sales of AFCC. The employee was reimbursed for the amount funded
plus interest for the period from which loans were funded through
the date of sale. Amounts paid to the employee were not materially
different from amounts funded.
NOTE 6: INVESTMENT IN LIMITED PARTNERSHIP
AFCC received a 98% limited partnership interest in exchange for 500
shares of preferred stock. The investment is accounted for using the
equity method. Partnership income is first allocated based on the
aggregate of net loss that has been allocated, and then based on
partnership interest percentages; partnership losses are allocated
50 percent to limited partners and 50 percent to general partners.
NOTE 7: INCOME TAXES
The income tax provision shown in the statements of operations is
comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
<S> <C> <C>
1999 1998
-------- -------
Current $ -0- $43,271
Deferred (44,812) 3,845
-------- -------
Total taxes $(44,812) $47,116
======== =======
</TABLE>
-12-
<PAGE> 63
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998 (UNAUDITED), MARCH 31, 1999 AND 1998
NOTE 7: INCOME TAXES (CONTINUED)
Deferred income taxes reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. These temporary
differences are determined in accordance with SFAS No. 109 and are
more inclusive in nature than "timing differences" as determined
under previously applicable accounting principles.
The net deferred tax liability as of March 31, 1998 relates to the
following temporary differences:
<TABLE>
<S> <C>
Depreciation $15,380
-------
Net temporary differences $15,380
=======
Calculated tax liability from temporary
differences at statutory rates $ 3,845
=======
Current portion $ 769
Long-term portion 3,076
-------
Total deferred taxes $ 3,845
=======
United States Federal $ 3,845
-------
Total deferred taxes $ 3,845
=======
</TABLE>
NOTE 8: SUBSEQUENT EVENTS
During April 1999, AFC issued 500 shares of its preferred stock in
exchange for a $500,000 certificate of deposit and a $500,000
negotiable security assigned to AFCC by the shareholder.
During April 1999, AFC redeemed 500 shares of its preferred stock,
releasing the shareholder from a collateral agreement for a line of
credit.
During June 1999, preferred stock shareholders converted all
preferred stock to common stock.
During May 1999, AFC made three mortgage loans to a stockholder in
the amount of $266,500.
-13-
<PAGE> 64
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2(a) Certificate of Amended and Restated Articles of Incorporation
of the Company*
2(b) Bylaws of the Company*
2(c) Certificate of Designation, Preferences, Rights and
Limitations of 1999 Series A Preferred Stock of Austin
Funding.com Corporation
3 Not applicable
5 Not applicable
6(a) 1999 Stock Option and Incentive Plan of the Company*
6(b) Employment Agreement as of July 19, 1999 between the Company
and Glenn A. LaPointe*
6(c) Consulting Agreement between Subsidiary and Bradley J. Farley
dated April 14, 1999*
6(d) Whole Loan Purchase Agreement between Subsidiary and
EquiCredit Corporation of America dated March 17, 1998*
6(e) Master Agreement for Sale and Purchase of Mortgages between
Contimortgage Corporation and Subsidiary*
6(f) Bulk Continuing Loan Purchase Agreement between Household
Financial Services, Inc. and Subsidiary dated June 28, 1999*
6(g) Mortgage Loan Purchase and Sale Agreement between Life Bank
and Subsidiary dated February 22, 1999*
6(h) Seller Agreement between Impac Funding Corporation and
Subsidiary dated April 7, 1999*
6(i) Commercial Loan and Servicing Agreement between First National
of North America, LLC and Subsidiary dated December 22, 1998*
6(j) Mortgages Purchase Agreement between Residential Mortgage
Services of Texas, Inc. and Subsidiary dated October 14, 1998*
6(k) Loan and Security Agreement between Capital First Mortgage
Corporation and Pioneer Commercial Funding Corp. dated June 2,
1997*
6(l) Lease Agreement between 823 Congress Ltd. and Capital First
Mortgage Corporation dated April, 1997*
6(m) First Amendment to Lease Agreement dated September 1, 1998*
6(n) Mortgages Purchase Agreement between Residential Mortgage
Services of Texas, Inc. and Subsidiary dated June 11, 1999
6(o) Master Repurchase Agreement between Impac Warehouse Lending
Group and Austin Funding Corporation dated June 22, 1999
6(p) Stock Exchange Agreement between Bradley J. Farley and the
Company
7 Not applicable
8(a) Reorganization Plan and Agreement dated October 7, 1999 May
26, 1999 by and among Innovation International, Inc., the
Company and Austin Funding Corporation*
8(b) Amendment to Reorganization Plan and Agreement dated June 12,
1999*
10 Consent of Sprouse & Winn
FDS Financial Data Schedule*
</TABLE>
*previously filed
<PAGE> 1
EXHIBIT 2(C)
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS OF
1999 SERIES A PREFERRED STOCK
OF
AUSTIN FUNDING.COM CORPORATION
Pursuant to Section 78.1955 of the Nevada General Corporation Law of
the State of Nevada and Article Fourth of its Certificate of Amended and
Restated Articles of Incorporation, Austin Funding.com Corporation, a
corporation organized and existing under the laws of the State of Nevada (the
"Corporation"),
DOES HEREBY CERTIFY that pursuant to the authority conferred upon the
Board of Directors of the Corporation by the Certificate of Amended and
Restated Articles of Incorporation of the Corporation and the General
Corporation Law of the State of Nevada, said Board of Directors, at a meeting
duly called and held on September 29, 1999, providing for the creation of one
series of Preferred Stock, to be designated "1999 Series A Preferred Stock"
consisting of not more than 1,800,000 shares, which resolution is and reads as
follows (said resolution hereby effected being prior to the issuance of any
shares of the 1999 Series A Preferred Stock):
RESOLVED, that, pursuant to the authority provided in the
Corporation's Certificate of Amended and Restated Articles of
Incorporation and expressly granted to and vested in the Board of
Directors of Austin Funding.com Corporation (the "Corporation"), this
Board of Directors hereby creates out of the Preferred Stock, par
value One Dollar ($0.01) per share, one series of Preferred Stock to
be designated "1999 Series A Preferred Stock" consisting of 1,800,000
shares such series being identical in all respects except as
specifically set forth herein, and this Board of Directors hereby
fixes the designation and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, to the extent not
otherwise provided in the Corporation's Certificate of Amended and
Restated Articles of Incorporation of the shares of such series as
follows:
(a) Designation of Series. The designation of the
series of Preferred Stock created by this resolution shall be "1999
Series A Preferred Stock" (the "Series A Preferred").
(b) Dividends. The holders of the Series A Preferred
shall not be entitled to receive any dividends of the Corporation.
(c) Liquidation Rights. In the event of any
liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of shares
of the Series A Preferred shall be entitled to receive pro rata out of
the assets of the Corporation available for distribution to
1
<PAGE> 2
stockholders, but before any distribution or payment shall be made in
respect of the Common Stock, an amount equal to a preference
liquidation distribution in an amount of up to One Dollar ($1.00) per
share. The consolidation or merger of the Corporation or any
subsidiary of the Corporation with or into any other corporation or
entity, a statutory share exchange to which the Corporation is a party
and is not the successor, and the sale or transfer by the Corporation
of all or substantially all of its assets may, at the option of each
holder of shares of Series A Preferred, be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this
Paragraph (c).
(d) Non-participation Right. After the payment to
the holders of the shares of Series A Preferred of the full
preferential amounts provided for in either paragraph (a) or (b) of
this section, as applicable, the holders of Series A Preferred as such
shall have no right or claim to any of the remaining assets of the
Corporation.
(e) Redemption.
1. Notice Procedure. Subject to
restrictions imposed by state law, the Corporation may, at
its option, redeem the shares of Series A Preferred
outstanding, in whole or in part, at any time. The
Corporation shall give notice to the Holder by certified
mail, return receipt requested, at least 10 days in advance
of the date set forth in such notice as the date on which
such redemption is to be effected. The shares shall be
redeemed upon payment by the Corporation to the Holder of One
Dollar ($1.00) per share, together with the amount of any
dividends accrued and unpaid thereon, if any, as of the
redemption date. The Corporation shall be required to redeem
pro rata among the Holders at any time it elects to redeem
the Series A Preferred in part. Any redemptions hereunder
shall be subject to restrictions imposed by state law
regarding the circumstances under which such a redemption may
be effected.
2. Payment Procedures. In order to
facilitate the redemption of any shares of Series A
Preferred, as provided in this paragraph (d), the directors
shall be authorized to cause the transfer books of the
Corporation to be closed prior to the designated redemption
date. Any notice mailed by the Corporation shall contain the
information required by the applicable state laws and shall
be mailed to the Holder at its address, certified mail,
return receipt requested, as the same shall appear on the
books of the Corporation. If fewer than all the outstanding
shares of Series A Preferred are to be redeemed, the
redemption shall be made pro rata, but to the extent and in
such a manner so as to minimize the number of fractional
shares of Series A Preferred which remain outstanding as a
result of such redemption. From and after the date fixed in
any notice from the
2
<PAGE> 3
Corporation as the date of redemption, and after all amounts
necessary to effect such redemption have been set aside for
such purpose, all rights of the Holder thereof as a
shareholder of the Corporation with respect to the shares
redeemed, except the right to receive the redemption price,
shall cease and terminate.
3. Delivery of Certificates. The Holder
shall be entitled to receive the redemption price upon actual
delivery to the Corporation or to such other entity as may be
designated by the notice referred to in subdivision 2 of this
paragraph (e) of certificates for the number of shares to be
redeemed, duly endorsed in blank or accompanied by proper
instruments of assignment and transfer duly endorsed in
blank. Series A Preferred redeemed pursuant to the provisions
of this paragraph may be held in the treasury of the
Corporation or retired and canceled and given the status of
authorized and unissued preferred stock.
(f) Voting Rights. The shares of Series A Preferred
shall not entitle the holder to any voting rights.
(g) Conversion. Shares of Series A Preferred may not
be converted into any other securities of the Corporation.
IN WITNESS WHEREOF, Austin Funding.com Corporation has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by its
President and Secretary this 30 day of September, 1999.
AUSTIN FUNDING.COM CORPORATION, a
Delaware corporation
By: /s/ GLENN A. LAPOINTE
--------------------------------
Glenn A. LaPointe, President
By: /s/ TERRY G. HARTNETT
--------------------------------
Terry G. Hartnett, Secretary
STATE OF TEXAS }
}
3
<PAGE> 4
COUNTY OF TRAVIS }
Before me, the undersigned, a Notary Public, on this day personally
appeared Glenn A. LaPointe, known to me through a Texas drivers license to be
the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of Austin Funding.com Corporation,
a corporation, and that he executed the same as the act of such corporation for
the purposes and consideration therein expressed, and in the capacity therein
stated.
Given under my hand and seal of office this 30 day of September,
1999.
(Seal)
-------------------------------------------
Notary Public in and for the State of Texas
STATE OF TEXAS }
}
COUNTY OF TRAVIS }
Before me, the undersigned, a Notary Public, on this day personally
appeared Terry G. Hartnett, known to me through a Texas drivers license to be
the person whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of Austin Funding.com Corporation,
a corporation, and that he executed the same as the act of such corporation for
the purposes and consideration therein expressed, and in the capacity therein
stated.
Given under my hand and seal of office this 30 day of September,
1999.
(Seal)
-------------------------------------------
Notary Public in and for the State of Texas
4
<PAGE> 1
EXHIBIT 6(n)
RESIDENTIAL MORTGAGE SERVICES
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of Texas
June 11, 1999
Austin Funding Corporation
823 Congress Avenue, Suite 707
Austin, TX 78701
Attention: Glenn A. LaPointe
MORTGAGES PURCHASE AGREEMENT
Dear Mr. LaPointe:
OVERVIEW
Section 1. WAREHOUSE FACILITY. HSA Residential Mortgage Services of Texas, Inc.
("RMST") has established a mortgage gestation facility with various financial
institutions pursuant to which the institutions, at the request of RMST, will
purchase certain mortgage loans which are originated to finance the purchase or
re-financing of owner-occupied and investor owned, 1-4 family residential
dwellings and the land on which they are situated.
Section 2. CERTAIN TERMS. We are pleased to advise you that RMST has approved
the participation by the Company in the Warehouse Facility on the terms set
forth in this agreement (as it may from time to time be supplemented, amended or
restated, this "AGREEMENT"). The following are certain terms of the Company's
participation. (See Section 3 for additional defined terms.)
<TABLE>
<S> <C>
COMPANY Austin Funding Corporation
KEY PRINCIPALS Glenn A. LaPointe, Terry Hartnett, Glenn Farley,
Bradley Farley
PURCHASE LIMIT Five Million Dollars ($5,000,000)
NON-AGENCY RATE Prime + 2%
DEFAULT RATE Prime + 3%
LOAN SET UP FEE Fifty dollars ($50.00) per Mortgage
BULK MORTGAGE TAKEOUT Five Hundred Thousand Dollar ($500,000) Money Market
PROTECTION AMOUNT Acct
MINIMUM NET WORTH Nine Hundred Thousand Dollars ($900,000)
GUARANTOR(S) Glenn A. LaPointe, Terry Hartnett, Glenn Farley,
Bradley Farley
</TABLE>
Section 3. CERTAIN DEFINITIONS. The following terms shall have the
meaning set forth below in this Agreement:
(a) AFFECTED MORTGAGE. The term "AFFECTED MORTGAGE" is defined
in Section 23 and Section 26.
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MORTGAGES PURCHASE AGREEMENT PAGE 1
<PAGE> 2
(b) AGENCY MORTGAGE. An "AGENCY MORTGAGE" is a Mortgage that is
eligible for purchase by the Federal Home Loan Mortgage Association, the
Federal National Mortgage Corporation or the Government National Mortgage
Association.
(c) AGENT. The person acting at the time as administrative agent and
collateral agent for the Warehouse Purchasers is referred to as the
"AGENT." All references to the Agent are to the Agent in its capacity as
administrative agent and collateral agent for the Warehouse Purchasers and
not in its own capacity or for its own account. The Agent currently is
Chase Bank of Texas, National Association. RMST will promptly advise the
Company of any successor Agent.
(d) APPLICABLE REPURCHASE AMOUNT. The term "APPLICABLE REPURCHASE
AMOUNT" means the payment to the Agent in good, collected Bank funds of
the sum of (y) an amount equal to the Minimum Net Share which would have
been earned in respect of that Mortgage if its purchase by the Investor
provided for in the Commitment represented by the Company to have most
recently covered it (whether or not it was actually so covered) were
completed in strict accordance with its terms and on its stated expiration
date plus (z) (without duplication of any payment) an amount equal to
any increase in the Minimum Net Share due to the passage of time or to
RMST's or the Agent's having provided additional custodial-type services
since that expiration date.
(e) BANK PRIME. The "BANK PRIME" is the prime rate as announced by
Chase Bank of Texas, National Association from time to time. This rate is
a reference rate and does not necessarily represent its best or lowest
rate and is not necessarily a favored rate. Bank Prime shall be adjusted
as of the effective date of each change in the prime rate announced by
Chase Bank of Texas, National Association.
(f) BANK. The term "BANK" is defined in Section 19.
(g) BANKING BUSINESS DAY. The term "BANKING BUSINESS DAY" is defined
in the RMST Procedures.
(h) BULK MORTGAGE TAKEOUT PROTECTION ACCOUNT. The term "BULK MORTGAGE
TAKEOUT PROTECTION ACCOUNT" is defined in Section 33.
(i) BULK PURCHASE MORTGAGE TAKEOUT DATE. The term "BULK PURCHASE
MORTGAGE TAKEOUT DATE" is defined in Section 9.
(j) BULK PURCHASE MORTGAGE. A "BULK PURCHASE MORTGAGE" is an Eligible
Mortgage that meets RMST's criteria for funding without a Commitment.
(k) CLOSER. The term "CLOSER" is defined in Section 12.
(l) COMMITMENT. A "COMMITMENT" is a written commitment to purchase a
Mortgage as a whole loan obtained by the Company and approved in writing
by RMST, issued by a reputable investor or securities broker-dealer (the
"INVESTOR") acceptable to RMST and the Agent. In addition to any other
criteria established by RMST from time to time by notice given to the
Company, each Commitment shall be written, describe the types of Mortgages
the Investor agrees to purchase, state the settlement date, price
(including any applicable servicing release premium) and expiration date
for the purchase, be (or be endorsed to be) in favor of RMST and its
assigns, be enforceable and be irrevocable until a date shown on the
Commitment.
(m) DEBTOR LAWS. The term "DEBTOR LAWS" is defined in Section 44.
(n) DEFAULT. The term "DEFAULT" is defined in Section 44.
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MORTGAGES PURCHASE AGREEMENT PAGE 2
<PAGE> 3
(o) DEFECTIVE MORTGAGE. A "DEFECTIVE MORTGAGE" is a Mortgage which
has been purchased by the Warehouse Purchasers but meets RMST's criteria
for Defective Mortgages which are attached as Appendix 7. RMST may change
the criteria by notice given to the Company.
(p) DOCUMENT FILE. The term "DOCUMENT FILE" is defined in Section 9.
(q) ELIGIBLE MORTGAGE. An "ELIGIBLE MORTGAGE" is Mortgage which meets
RMST's criteria for funding under the Warehouse Facility. RMST's current
criteria for Eligible Mortgages is attached as Appendix 8. RMST may change
the criteria by notice given to the Company.
(r) ENCLOSURES. The term "ENCLOSURES" is defined in Section 9.
(s) FAILURE DATE. The term "FAILURE DATE" is defined in Section 22.
(t) GUIDE. The term "GUIDE" is defined in Section 34.
(u) INCLUDES. Wherever the words "INCLUDING," "WHICH INCLUDES" or any
correlative appears in this Agreement, it shall be read to mean,
"including by way of example but not without limiting the generality of the
subject or concept referred to."
(v) INVESTOR. An "INVESTOR", is a person issuing a Commitment to the
Company or otherwise agreeing to purchase a Mortgage from the Warehouse
Purchasers.
(w) LOST COMMITMENT MORTGAGES. The term "LOST COMMITMENT MORTGAGES"
is defined in Section 20.
(x) MAKE WHOLE PAYMENT. The term "MAKE WHOLE PAYMENT" is defined in
Section 30.
(y) MINIMUM NET SHARE. The term "MINIMUM NET SHARE" is defined in
Section 17.
(z) MORTGAGE DEFAULT DATE. The "MORTGAGE DEFAULT DATE" is defined in
Section 20, Section 22 and Section 24.
(aa) MORTGAGE PURCHASE COST. The term "MORTGAGE PURCHASE COST" is
defined in Section 17.
(bb) MORTGAGE. A "MORTGAGE" is a mortgage loan secured by residential
real property.
(cc) OFFER. The term "OFFER" is defined in Section 9.
(dd) PERIOD HELD. The term "PERIOD HELD" is defined in Section 17.
(ee) PROCEEDS ACCOUNT. The term "PROCEEDS ACCOUNT" is defined in
Section 19.
(ff) QUALIFIED SUBSTITUTE TAKEOUT. The term "QUALIFIED SUBSTITUTE
TAKEOUT" is defined in Section 20.
(gg) RMST ADVANCE. The term "RMST ADVANCE" is defined in Section 13.
(hh) RMST PROCEDURES. The "RMST PROCEDURES" are those procedures
promulgated by RMST from time to time specifying the times by which
certain actions are to be taken in connection with purchases under the
Warehouse Facility. The current RMST Procedures are attached as Appendix
2.
(ii) SALE PROCEEDS. The term "SALES PROCEEDS" is defined in Section
17.
(jj) SECOND LIEN MORTGAGE. A "SECOND LIEN MORTGAGE" is a Mortgage
that is secured by a second priority lien on the real property that
secures it.
(kk) SETTLEMENT ACCOUNT. The term "SETTLEMENT ACCOUNT" is defined in
Section 19.
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MORTGAGES PURCHASE AGREEMENT PAGE 3
<PAGE> 4
(ll) SHORTFALL AMOUNT. The term "SHORTFALL AMOUNT" is defined in
Section 25.
(mm) SUBSTITUTE MORTGAGE. The term "SUBSTITUTE MORTGAGE" is defined
in Section 24.
(nn) WAREHOUSE FACILITY. The facility described in Section 1 as it
may be amended, supplemented, modified or replaced is referred to as the
"WAREHOUSE FACILITY."
(oo) WAREHOUSE PURCHASERS. The institutions purchasing Eligible
Mortgages under the Warehouse Facility from time to time are referred to
collectively as the "WAREHOUSE PURCHASERS," and individually as a
"WAREHOUSE PURCHASER."
(pp) VALUE REPLACEMENT PAYMENTS. The term "VALUE REPLACEMENT
PAYMENTS" is defined in Section 32.
(qq) YEAR 2000 COMPLIANT. The term "YEAR 2000 COMPLIANT" is defined
in Section 48(aa).
PURCHASE OF ELIGIBLE MORTGAGES
Section 4. REVOLVING PURCHASE FACILITY. Although the Company will offer
the Mortgages to RMST for purchase under the Warehouse Facility on a
case-by-case basis and RMST will evaluate each Mortgage to determine whether it
is an Eligible Mortgage, the Company and RMST mutually contemplate that this
will be a revolving purchase facility pursuant to which the Company will sell
Mortgages to the Warehouse Purchasers.
Section 5. NO OBLIGATION. THIS AGREEMENT DOES NOT OBLIGATE RMST TO CAUSE
THE WAREHOUSE PURCHASERS TO PURCHASE MORTGAGES FROM THE COMPANY. RMST, IN ITS
SOLE DISCRETION, MAY ELECT TO CAUSE THE WAREHOUSE PURCHASERS TO PURCHASE A
MORTGAGE FROM THE COMPANY OR MAY ELECT NOT TO CAUSE THEM TO PURCHASE THE
MORTGAGE.
Section 6. LIMITS. The outstanding balance of the aggregate purchase
prices paid to the Company by the Warehouse Purchasers for Eligible Mortgages
(including Second Lien Mortgages and Bulk Purchase Mortgages, if any) which
have not yet been sold to an Investor shall not exceed the Purchase Limit at
any time. The outstanding balance of the aggregate purchase prices paid to the
Company by the Warehouse Purchasers for Second Lien Mortgages which have not
yet been sold to an Investor shall not exceed the Second Lien Sub-Limit at any
time. The outstanding balance of the aggregate purchase prices paid to the
Company by the Warehouse Purchasers for Bulk Purchase Mortgages which have not
yet been sold to an Investor shall not exceed the Bulk Purchase Sub-Limit at
any time. RMST reserves the right to reduce the Purchase Limit, the Second Lien
Sub-Limit or Bulk Purchase Sub-Limit by giving sixty (60) days' written notice
to the Company specifying the new limit at any time and for any reason.
Section 7. PRIOR APPROVAL OF INVESTORS. Each Investor shall have been
approved by RMST and the Agent prior to the Offer of a Mortgage as to which the
Commitment applies. To be considered for approval by RMST, the Investor must,
at a minimum, meet the criteria set forth on Appendix 9. RMST may change the
minimum criteria for approval of an investor by notice given to the Company.
The approval of an Investor by RMST or the Agent shall not cause RMST or the
Agent to be a guarantor of the Investor's performance. Any dealings by the
Company with an Investor (whether or not approved by RMST or the Agent) shall
be at the sole risk of the Company.
Section 8. COMMITMENT. Each Eligible Mortgage acquired from the Company
under the Warehouse Facility except Bulk Purchase Mortgages shall have a
Commitment. The Company shall provide RMST a copy of the Commitment at the same
time the Company delivers to RMST the Document File. If RMST is dissatisfied,
in its sole discretion, with either the form or terms of any Commitment, it
shall have no obligation to cause the Warehouse Purchasers to acquire any
Mortgage covered by that Commitment.
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MORTGAGES PURCHASE AGREEMENT PAGE 4
<PAGE> 5
Section 9. OFFER. If the Company wishes to sell a Mortgage through RMST to
the Warehouse Purchasers under this Agreement, the Company shall submit a
written Offer to Sell Mortgages in the form attached as Appendix 1 to this
Agreement (the "OFFER") with all enclosures required by Appendix 4 to this
Agreement (the "ENCLOSURES"), and with all blocks and blanks in the Offer and
the Enclosures properly completed (the Offer and Enclosures together are called
the "DOCUMENT FILE"). Appendix 1 and Appendix 4 are subject to modification by
RMST by notice given to the Company. If the Mortgage is requested to be a Bulk
Purchase Mortgage, the Offer shall state the date by which an Investor will
purchase the Mortgage (the "BULK PURCHASE MORTGAGE TAKEOUT DATE"). The
purchase price for an Eligible Mortgage shall be the least of (i) the price the
Investor has promised to pay for the Mortgage pursuant to the Commitment (this
factor is inapplicable to a Bulk Purchase Mortgage); (ii) the face principal
amount of the promissory note evidencing the Mortgage; or (iii) the unpaid
principal balance of the promissory note. Upon acceptance of the Offer, any
Commitment referred to in the Offer shall be deemed assigned and transferred to
RMST and its assigns without any further act by the Company.
Section 10. ACCEPTANCE OR REJECTION. If RMST elects to accept an Offer,
then if the Mortgage is an Eligible Mortgage and the Company is in compliance
with all the terms of this Agreement, RMST will cause the Warehouse Purchasers
to pay the purchase price for the Eligible Mortgages stated in the Offer and,
upon that acceptance, to cause the Warehouse Purchasers to become the owner of
the Eligible Mortgages. RMST has no obligation to accept any Offer.
Section 11. ENDORSEMENT AND CLOSING INSTRUCTIONS. The Company shall
endorse in blank the promissory note to evidence each Eligible Mortgage which
is the subject of an accepted Offer when, or before, the note is executed by
its maker. The Company hereby declares its intent that each such endorsement be
effective as to each such note from such note's inception, regardless of when
the endorsement is actually made. The Company shall give the Closer of each
Eligible Mortgage the written instructions for the closing of the transaction
set forth on Appendix 5, and will not give any rescinding, inconsistent or
conflicting instructions. Appendix 5 is subject to modification by RMST by
notice given to the Company. The Company or the Closer shall deliver to RMST
the Eligible Mortgage and all of its related documentation (including for each
Eligible Mortgage the documents listed on Appendix 4) to be physically held by
the Agent until the Mortgages are either (i) shipped by the Agent to an
Investor or its document custodian for purchase or (ii) the Company repurchases
the Mortgage in accordance with its obligations stated in Section 20, Section
22 or Section 24.
Section 12. PAYMENT BY WAREHOUSE PURCHASERS. The purchase price for
Eligible Mortgages shall be paid at the request of RMST by the Agent (i) to the
Company, in the case of Eligible Mortgages purchased after the Company has
closed them; or (ii) in all other instances, by providing money for the
original funding of the Mortgages directly to the title company or other person
or entity handling the closing (the "CLOSER"), net of origination, discount
points, and any other fees and other prepaid items the Company may stipulate.
The payment will be made at the time and in the manner specified in the RMST
Procedures.
Section 13. ADVANCES BY RMST. In its sole discretion, RMST may advance
funds to the Company, in the case of Eligible Mortgages purchased after the
Company has closed them, or to the Closer, in all other instances, to pay
amounts relating to the origination of a Mortgage. These funds so advanced (an
"RMST ADVANCE") are a loan from RMST to the Company, are secured by the
security interest created by Section 39, bear interest at the Default Rate and
are due on demand unless earlier repaid in connection with the sale of the
Mortgage to which the RMST Advance relates.
SALE TO INVESTORS
Section 14. SALE TO INVESTORS. The Company will take all steps necessary
to cause:
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MORTGAGES PURCHASE AGREEMENT PAGE 5
<PAGE> 6
(a) all Eligible Mortgages and their related mortgage files to be
correctly closed, funded, documented and completed;
(b) the sale as whole loans of all Eligible Mortgages to be timely
completed in accordance with any related Commitment;
(c) the entire sale price due from Eligible Mortgages sold to be
transferred by Fed funds wire directly to the account of the Agent at
Chase Bank of Texas, National Association or at a bank designated by RMST.
Section 15. INSTRUCTION TO INVESTORS. Promptly after any Eligible
Mortgages which is subject to a commitment is purchased by the Warehouse
Purchasers, the Company shall: (i) direct the Investor which issued the
Commitment to pay the entire amount of the purchase consideration for those
Eligible Mortgages directly to the Agent and to confirm receipt of that
direction directly with the Agent, with a copy to RMST; (ii) not issue any
conflicting instructions to the Investors; and (iii) not cause or permit any
cash proceeds of any of those Mortgages to be issued to, registered in the name
of, or paid to, anyone other than the Agent.
Section 16. SHIPMENT TO INVESTORS. Mortgages shipped to Investors for
purchase shall be shipped under letters substantially in the form of letter
attached as Appendix 10, in the case of Mortgages sold by the Agent, or
Appendix 11, in the case of Mortgages sold by RMST. The letters may be revised
by RMST by notice given to the Company.
PAYMENT TO RMST AND DISTRIBUTION TO COMPANY
Section 17. MINIMUM NET SHARE. The Agent will retain, for the benefit of
the Warehouse Purchasers and RMST--or, in the case of Mortgages sold by RMST,
RMST will retain for its benefit--from the sale proceeds (the "SALE PROCEEDS")
received for and allocable to each Mortgage sold to an Investor hereunder an
amount (the "MINIMUM NET SHARE") equal to the sum of __________:
(i) the purchase price paid by the Warehouse Purchasers for the
Eligible Mortgage reduced by any amounts paid to the Warehouse
Purchasers by the obligor of the Mortgage as principal or
interest on the Mortgage and also reduced by any Value
Replacement Payments made with respect to the Mortgage (the
"MORTGAGE PURCHASE COST");
plus (ii) a return on the daily balance of the Mortgage Purchase Cost
which accrues daily during the period (the "PERIOD HELD")
consisting of the actual number of days from (and including) the
date on which the Warehouse Purchasers funded the acquisition of
the Mortgage to (but excluding) the date on which the Agent (or
RMST) receives the Sale Proceeds for the Mortgage, at a per
annum rate equal to the Agency Rate if the Mortgage is an Agency
Mortgage or equal to the Non-Agency Rate if the Mortgage is not
an Agency Mortgage. After the Mortgage Default Date the per
annum rate as to any Affected Mortgage shall be the greater of
(y) the Default Rate or (z) the annual interest rate stated on
the promissory note related to the Affected Mortgage. After the
occurrence of a Default, the per annum rate as to all Mortgages
shall be the Default Rate. The calculations based on the per
annum rates shall be made on a daily basis during the Period
Held and on the basis of a 360-day year;
plus (iii) any RMST Advance with respect to that Mortgage together
with interest on the RMST Advance at the Default Rate from the
date on which the RMST Advance was made to (but excluding) the
date on which the Agent (or RMST) receives the Sales Proceeds
for the Mortgage;
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MORTGAGES PURCHASE AGREEMENT PAGE 6
<PAGE> 7
plus (iv) the Loan Set Up Fee for the Mortgage.
Section 18. INTEREST COLLECTED AND REMITTED. Interest on an Eligible
Mortgage collected by the Company and remitted to the Agent shall be treated as
part of the proceeds received for the sale of the Mortgage to the Investor for
purposes of determining the Minimum Net Share.
Section 19. BALANCE OF SALES PROCEEDS. Provided that the Company is not
then in default of any of its obligations under this Agreement, RMST shall
deposit the balance of the Sales Proceeds remaining after deducting the Minimum
Net Share in a demand deposit account maintained at Chase Bank of Texas,
National Association (in its capacity as a depository institution, the "BANK")
in the name of RMST for the benefit of the Company (the "PROCEEDS ACCOUNT"), but
as to which the Company shall have no rights of withdrawal. As long as the
Company is not then in default of any of its obligations under this Agreement,
RMST shall transfer the collected funds in the Proceeds Account to a demand
deposit account (the "SETTLEMENT ACCOUNT") maintained at the Bank in the name of
the Company and under the exclusive control of the Company. If, there is a
Default, then any amounts then remaining in the Proceeds Account shall be cash
collateral securing any rights RMST shall have pursuant to this Agreement and
the Company shall not withdraw any funds from the Settlement Account without the
prior consent of RMST.
FAILURE OF COMMITMENT
Section 20. LOSS OF COMMITMENT. If for any reason, except the willful or
grossly negligent act or omission of RMST, the Agent or the Warehouse
Purchasers, any Commitment in respect of any Eligible Mortgage is canceled,
paired off or revoked by any means, or if the Investor shall at any time have a
defense to performance of its obligations under the Commitment either on account
of offsetting obligations against the Company or for any other reason, or the
Commitment is terminated for any reason (other than expiration by the passage of
time) (collectively, these Mortgages are referred to as the "LOST COMMITMENT
MORTGAGES"), then, on or before the date (the "MORTGAGE DEFAULT DATE" for that
Mortgage) that is ten (10) days after the date on which the Commitment was
terminated or cancelled or otherwise lost, the Company shall either (i) obtain
and furnish to RMST for the Warehouse Purchasers a replacement Commitment
acceptable (and issued by an Investor acceptable) to RMST and the Agent and
having characteristics all of which can be satisfied by the Eligible Mortgage
and providing for the purchase of the Mortgage for no less than the Minimum Net
Share for that Mortgage (a "QUALIFIED SUBSTITUTE TAKEOUT"), or (ii) repurchase
the Lost Commitment Mortgage from the Warehouse Purchasers (or RMST if RMST has
purchased the Mortgage) for the Applicable Repurchase Amount.
Section 21. ASSISTANCE BY RMST. RMST will exert reasonable efforts to
assist the Company to obtain a Qualified Substitute Takeout, but RMST shall do
so only as an accommodation to the Company. RMST shall have no additional
obligation to the Company as a result of its efforts and no liability to the
Company for the results (or failure) of its efforts.
Section 22. FAILURE TO SELL. If for any reason, except the willful or
grossly negligent act or omission of RMST, the Agent or the Warehouse
Purchasers, the Company has not caused any Eligible Mortgage to be sold to an
Investor on or before the date (the "FAILURE DATE") that is the earlier of:
(a) sixty (60) days after the Warehouse Purchasers purchased the
Eligible Mortgage or
(b) (i) in the case of Bulk Purchase Mortgages, the Bulk Mortgage
Takeout Date or, (ii) as to all other Eligible Mortgages, the date the
Commitment which relates to that Eligible Mortgage expires,
then, on or before the date (the "MORTGAGE DEFAULT DATE" for that Mortgage) that
is three (3) Banking Business Days after the Failure Date, the Company shall
repurchase the Eligible Mortgages from the
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MORTGAGES PURCHASE AGREEMENT PAGE 7
<PAGE> 8
Warehouse Purchasers (or RMST if RMST has purchased the Mortgage) for the
Applicable Repurchase Amount.
Section 23. EFFECT OF COMPANY'S FAILURE. If by the Mortgage Default Date
the Company has not repurchased the Lost Commitment Mortgage or obtained a
Qualified Substitute Takeout in the case of a failure under Section 20, or
repurchased the Mortgage in the case of a failure under Section 22, then the
Company shall be in default of its obligations under this Agreement with regard
to that Mortgage (which shall be "AFFECTED MORTGAGE" after that failure) and
shall have committed a breach of this Agreement.
DEFECTIVE MORTGAGES
Section 24. DEFECTIVE MORTGAGES. If RMST determines that any Eligible
Mortgage is a Defective Mortgage the Company shall wholly cure (to the
satisfaction of RMST and the Agent) such defects in the Mortgage upon notice
from RMST. If the Company fails to wholly cure such defects by the day which is
three (3) Banking Business Days after the notice to cure from RMST (the
"MORTGAGE DEFAULT DATE" for that Mortgage), then, by notice given to the
Company, RMST may require that by the close of the next Banking Business Day
following receipt of RMST's notice, the Company shall either (i) repurchase the
Defective Mortgage from the Warehouse Purchasers (or RMST if RMST has purchased
the Mortgage) for the Applicable Repurchase Amount, or (ii) substitute a new
Eligible Mortgage (the "SUBSTITUTE MORTGAGE"), which is in all respects
acceptable to RMST and the Agent in their reasonable discretion.
Section 25. PAYMENT OF SHORTFALL AMOUNT. If the aggregate principal
balances of all Substitute Mortgages are less than the aggregate principal
balances of all Defective Mortgages being replaced, then the Company shall remit
with such Substitute Mortgages an amount equal to the difference (the "SHORTFALL
AMOUNT") between the aggregate principal balance of the Substitute Mortgages and
the Defective Mortgages, plus any fees that would have been earned under this
Agreement on the aggregate principal balance difference calculated as if, on the
date of such remittance, the Company were repurchasing a Mortgage in principal
amount equal to the Shortfall Amount and covered by the same Commitment as the
Defective Mortgages which were only partially replaced, with the Period Held
applicable to such hypothetical Mortgage being repurchased ending on the date of
such remittance. Absent manifest error, or if the Company does not object in
writing to RMST's calculation of a Shortfall Amount and fees on or before thirty
(30) days after RMST gives the Company written notice of RMST's calculated value
of that Shortfall Amount and fees, RMST's calculation of the Shortfall Amount
and fees shall be conclusive and binding.
Section 26. EFFECT OF COMPANY'S FAILURE. If by the close of the next
Banking Business Day after notice under Section 24 the Company has not delivered
a Substitute Mortgage or repurchased the Defective Mortgage, then the Company
shall be in default of its obligations under this Agreement with regard to that
Mortgage (which shall be "AFFECTED MORTGAGE" after that failure) and shall have
committed a breach of this Agreement.
REMEDIES--AFFECTED MORTGAGES
Section 27. EFFECT OF BREACH. Upon the occurrence of a breach under Section
23 or Section 26, RMST, in addition to its rights otherwise provided for under
this Agreement, may elect then, or at any time thereafter, to: (i) terminate the
Company's rights and obligations to service the Affected Mortgage; (ii) obtain a
new Commitment from a third party to purchase the Affected Mortgage; (iii) cause
the Warehouse Purchasers to sell--or, if RMST has purchased the Affected
Mortgage, sell--the Affected Mortgage to a third party; (iv) terminate this
Agreement by giving notice to the Company in which event the provisions of
Section 45 shall apply; or (v) do any combination of those things.
Section 28. EFFECT ON VALUE REPLACEMENT OBLIGATIONS. The Company's breach
of this Agreement under Section 23 or Section 26 shall not terminate or abate
the Company's value replacement
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MORTGAGES PURCHASE AGREEMENT PAGE 8
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obligations to RMST with regard to the Affected Mortgage, as provided for in
Section 32 of this Agreement, and the value replacement obligations to RMST with
regard to the Affected Mortgage shall only terminate upon (i) the sale of the
Affected Mortgage to a third party, or (ii) the repurchase by the Company of the
Affected Mortgage from the Warehouse Purchasers (or RMST if RMST has purchased
the Mortgage) for the Applicable Repurchase Amount.
Section 29. SALE TO THIRD PARTY. If RMST causes the Warehouse Purchasers to
sell any Affected Mortgage to a third party as permitted under Section 27, then,
in the absence of manifest error, the purchase price obtained by the Warehouse
Purchasers shall be conclusively presumed to be the fair market value of that
Affected Mortgage (which may or may not be the same as the quoted market value
for comparable mortgages as quoted on the quotation system which is used for
calculating the value replacement obligations to RMST as provided for in Section
32).
Section 30. MAKE WHOLE PAYMENT. Upon the sale of any Affected Mortgage to a
third party, the Company shall promptly pay to the Agent an amount (the "MAKE
WHOLE PAYMENT") equal to the Minimum Net Share as of the sale date, less the net
proceeds realized by the Warehouse Purchasers upon the sale of the Affected
Mortgage. RMST may offset any value replacement previously paid by the Company
with respect to the Affected Mortgage against the Company's obligation to
pay the Make Whole Payment, and if there is any excess of value replacement
related to the Affected Mortgage after applying the value replacement to the
Make Whole Payment, RMST will refund such excess to the Company, provided that
the Company is not then in default in performance of any of its obligations
under this Agreement in any other respect. However, application of the value
replacement related to the Affected Mortgage to the Make Whole Payment shall in
no way limit or waive any rights RMST may possess under or diminish any
obligations of the Company with respect to, any provision of the Agreement for
any Mortgage, including the Affected Mortgage.
VALUE PROTECTION
Section 31. RELIANCE BY RMST. The Company acknowledges that when arranging
for the purchase of Mortgages, RMST will rely on the Company's representations
that: (i) the Commitment obtained by the Company in respect of each Offer (other
than an Offer relating to a Bulk Purchase Mortgage) will be the source for RMST
and the Warehouse Purchasers to recover the Minimum Net Share in respect of the
Mortgage and the Mortgage will be purchased by the Investor no later than the
date prescribed in the Commitment; and (ii) each Bulk Purchase Mortgage will be
acquired by Investors by its Bulk Purchase Mortgage Takeout Date for an amount
at least sufficient to permit RMST and the Warehouse Purchasers to recover the
Minimum Net Share with respect to the Mortgage.
Section 32. VALUE REPLACEMENT PAYMENT. If the Warehouse Purchasers or
RMST hold any Bulk Purchase Mortgages or if there are any Lost Commitment
Mortgages which have not been sold to Investors or repurchased by the
Company, then RMST may require the Company to make payments to the Warehouse
Purchasers--or to RMST if RMST holds the Bulk Purchase Mortgages or Lost
Commitment Mortgages--to reduce the purchase price for the Lost Commitment
Mortgages and the Bulk Purchase Mortgages ("VALUE REPLACEMENT PAYMENTS").
The amount of the Value Replacement Payment on any day for a Bulk Purchase
Mortgage or Lost Commitment Mortgage is the amount, if greater than zero,
sufficient to cause (i) the Minimum Net Share for that day for that Mortgage
based on the purchase price paid by the Warehouse Purchasers for that
Mortgage (reduced by this and any prior Value Replacement Payment), to be no
greater than (ii) the value on that day of mortgage-backed securities based
on and backed by mortgage loans comparable to the Mortgage. In determining
the Value Replacement Payment, RMST may use such reasonable averaging,
allocation and attribution methods as it shall elect, and absent manifest
error, the market value quoted for any such security as quoted on the
quotation system to which RMST subscribes (or any comparable system to which
RMST may hereafter
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MORTGAGES PURCHASE AGREEMENT PAGE 9
<PAGE> 10
subscribe and RMST may elect to use for the purposes of determining the market
value of mortgage-backed securities) shall be conclusive evidence of the market
value of such security. The Company shall pay the Value Replacement Payment to
RMST no later than the next Banking Business Day after RMST makes demand by
notice to the Company.
Section 33. BULK MORTGAGE TAKEOUT PROTECTION. The Bank shall maintain the
Bulk Mortgage Protection Amount on deposit in an account (the "BULK MORTGAGE
TAKEOUT PROTECTION ACCOUNT") in a bank designed by RMST. The Bulk Mortgage
Takeout Protection Account shall be an account in the name of RMST for the
benefit of the Company but as to which the Company shall have no rights of
withdrawal. If there is a Default, any amounts remaining in the Bulk Mortgage
Takeout Protection Account shall be cash collateral securing any rights RMST
shall have pursuant to this Agreement.
SERVICING
Section 34. SERVICING AFTER PURCHASE. After the Eligible Mortgages are
purchased, the Company agrees to service and administer the Eligible Mortgages
for the benefit of the Warehouse Purchasers in accordance with prudent mortgage
loan servicing standards and procedures generally accepted in the mortgage
banking industry and in accordance with the servicing provisions of the
applicable GNMA, FNMA or FHLMC mortgage-backed securities seller/servicer guide
("GUIDE") for the account, however, of the Warehouse Purchasers instead of GNMA,
FNMA or FHLMC, provided that the Company shall at all times comply with
applicable law, FHA regulations and VA regulations and the requirements of any
private mortgage insurer so that the FHA insurance, VA guarantee or any other
applicable insurance or guaranty applicable to any Mortgage is not voided or
reduced.
Section 35. REMITTANCES. As long as the Warehouse Purchasers own a
Mortgage, the Company agrees to remit to the Agent by the fifth (5th) day
following the day the Company receives any principal and interest payments and
principal prepayments all such sums received for deposit to an account for the
benefit of the Warehouse Purchasers.
Section 36. ESCROW ACCOUNTS. All escrow amounts relating to all Eligible
Mortgages shall be maintained on deposit in an individual custodial account at a
bank designated by RMST until the Eligible Mortgage is sold to an Investor.
Section 37. NO CHARGE FOR SERVICES. The Company's services under Section 34
shall be provided without charge.
Section 38. TERMINATION OF SERVICING. If RMST terminates the Company's
rights and obligations to service a Mortgage, the Company shall promptly deliver
all files and papers related to that Mortgage to RMST. Any ancillary income
received by RMST related to the servicing of the Mortgage shall not be applied
to or reduce the Minimum Net Share for the Mortgage.
SECURITY
Section 39. SECURITY AGREEMENT. To secure performance of all of the
Company's obligations under this Agreement and under each Offer, the Company
hereby grants to RMST, for itself, the Agent and the Warehouse Purchasers, a
security interest in all of the Company's present and future right, title and
interest in and to: (i) the Company's share of Sale Proceeds, if any; (ii) each
unexpired Commitment; (iii) the Settlement Account; (iv) the Proceeds Account;
and (v) the Bulk Mortgage Takeout Protection Account. All such security
interests granted hereby shall be first and prior and shall continue in full
force and effect, notwithstanding any termination of this Agreement, until all
of the Company's obligations to RMST, the Agent and the Warehouse Purchasers
under this Agreement and every accepted Offer have been fully performed and
satisfied. RMST shall have all of the rights of a secured party under the laws
of
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MORTGAGES PURCHASE AGREEMENT PAGE 10
<PAGE> 11
the state where such collateral is located, and shall have the express right to
transfer any collateral into its own name, either before or after default.
Section 40. RIGHT OF OFFSET. RMST shall also have a right of offset against
the Proceeds Account for, and to secure, any and all sums due RMST, the Agent or
the Warehouse Purchasers under this Agreement.
Section 41. SUBROGATION TO RIGHTS UNDER COMMITMENT. The Company recognizes
that by virtue of the Warehouse Purchasers' ownership of the Mortgages and
RMST's rights under this Agreement, RMST, the Agent and the Warehouse Purchasers
have a valuable property right in the Commitment, and to secure that right the
Company shall permit RMST to subrogate to all rights the Company may have in the
Commitment if the Company fails to perform any of its obligations under this
Agreement.
Section 42. CONSTRUCTION AS FINANCING. Without limiting any of the
foregoing provisions, if for any reason any court of competent jurisdiction
shall construe the purchase by the Warehouse Purchasers of any Eligible
Mortgages to be a loan or extension of credit rather than the absolute and
unconditional sale to the Warehouse Purchasers which the Company and RMST
expressly hereby declare that they intend it to be, then the provisions of
this Agreement shall be construed and given effect so as to create and
perfect in RMST, for itself, the Agent and the Warehouse Purchasers, a
first, prior and continuous security interest in all of the Company's
interests in each of the affected Eligible Mortgages and all proceeds from
(1) the earlier of (a) the date the Warehouse Purchasers give value for the
Eligible Mortgage or (b) the date the Company acquires (or reacquires) an
interest in the Eligible Mortgage until (2) the earlier of (x) the sale of
the Eligible Mortgage to an Investor pursuant to the terms of this Agreement
or (y) complete fulfillment of all of the Company's obligations to RMST
under this Agreement. The term "proceeds" shall be construed to include each
Commitment related to the Mortgage. In the event of such a construction, the
amount of all fees and realizations owed to, earned by or payable to RMST or
the Warehouse Purchasers for the transaction or transactions so construed
shall be absolutely limited to the maximum non-usurious amount of interest
allowed by whichever of applicable Texas (or other applicable state law) or
federal laws permit the higher amount of interest to be contracted for,
reserved, charged or received (as applicable to the circumstance), it being
the intention of the parties to comply with, and not to evade, all usury and
other applicable laws.
INDEMNITY
Section 43. INDEMNIFICATION OF RMST AND OTHERS. The Company agrees to
and does hereby indemnify and hold harmless RMST, the Agent and the
Warehouse Purchasers against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, cost, expenses and
disbursements of any kind or nature whatsoever, which may be imposed on,
incurred by, or assessed against RMST, the Agent or the Warehouse Purchasers
in any way related to, or arising out of any of the loan papers or any of
the transactions contemplated therein, to the extent that any of the same
results directly or indirectly from any claims made or actions, suits or
proceedings commenced by or on behalf of any person other than RMST, the
Agent or the Warehouse Purchasers, provided that RMST, the Agent and the
Warehouse Purchasers shall not have the right to be indemnified hereunder
for their own fraud or negligence. The indemnities contained in this section
shall survive the termination of this Agreement.
DEFAULT
Section 44. DEFAULT. The following shall be a Default under this
Agreement:
(a) as to any FNMA, FHLMC, GNMA or HUD programs for which the Company
has, at any time, represented to RMST that the Company was eligible to
participate, the Company loses its eligibility to participate in that
program;
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MORTGAGES PURCHASE AGREEMENT PAGE 11
<PAGE> 12
(b) the Company's participation in a take out program is suspended by
the Investor offering that program for a reason other than termination of
the program as a whole by the Investor;
(c) any one of the Key Principals ceases to be actively involved in
the management of the Company for any reason (including death, disability
or retirement) or the ceases to own an equity interest in the Company;
(d) any equity interest in the Company is issued to any person who is
not a Key Principal;
(e) there is, in the reasonable judgement of RMST, a material adverse
change in the Company's financial condition, the prospects for the
Company's timely and complete performance of its obligations under this
Agreement or the prospects for the Company's continuing in business as a
going concern;
(f) the Agent determines that the Company is no longer eligible to
participate in the Warehouse Facility;
(g) the fair value of the Company's assets do not exceed its
liabilities, or the Company does not have sufficient cash flow to enable it
to pay its debts as they mature or the Company has an unreasonably small
capital to conduct its business;
(h) the Company voluntarily seeks, consents to, or acquiesces in the
benefit of any liquidation, conservatorship, bankruptcy, moratorium,
arrangement, receivership, insolvency, reorganization or similar laws from
time to time in effect and affecting creditors' rights generally
(collectively "DEBTOR LAWS") or becomes a party to, or is made the subject
of, any proceeding provided for by any Debtor Law (other than as a creditor
or claimant) that could stay the enforcement of RMST's rights or the rights
of the Warehouse Purchasers;
(i) the Company is not, in the reasonable judgement of RMST, able to
comply with any of the material terms of this Agreement for any reason;
(j) the Company is not, in the reasonable judgement of RMST, able to
comply with the underwriting, closing, delivery and funding requirements of
any of its institutional end-loan investors; or
(k) the Company commits a breach of this Agreement which is not cured
within five (5) Banking Business Days of the giving of the notice of
default by RMST provided there shall be no cure period for a breach under
Section 23 or Section 26.
Section 45. REMEDIES. Upon the occurrence of a Default, in addition to its
rights under Section 27, RMST may by notice given to the Company (i) terminate
the Company's rights and obligations to service any or all Eligible Mortgages
purchased by the Warehouse Purchasers; (ii) terminate any obligations RMST has
to cause future purchases to be funded under this Agreement; (iii) cause the
Warehouse Purchasers to sell--or, if RMST has purchased some or all of the
Eligible Mortgages, sell--any or all of the Eligible Mortgages to one or more
third parties; (iv) terminate this Agreement by giving notice to the Company; or
(v) do any combination of those things.
Section 46. EFFECT OF TERMINATION. Upon termination, this Agreement will
survive and otherwise remain in full force and effect with respect to all of
Company's obligations and responsibilities for Mortgages purchased hereunder
except that all monetary obligations of the Company to RMST, the Agent or the
Investors shall bear interest at the Default Rate and the determination of
Minimum Net Share shall be determined using the Default Rate for all periods
after the occurrence of the Default. The Company will, after such termination,
reasonably cooperate with RMST, the Agent, the Warehouse Purchasers and the
Investors in completing all transactions, documents, reports, payments and acts
contemplated or provided hereunder.
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MORTGAGES PURCHASE AGREEMENT PAGE 12
<PAGE> 13
Section 47. COSTS OF COLLECTION AND ENFORCEMENT. The Company shall pay (i)
all fees, charges, or taxes for the recording or filing of any document to
create or perfect the security interest created by Section 39; (ii) all amounts
reasonably expended, advanced or incurred by RMST, the Agent or the Warehouse
Purchasers to satisfy any obligation of the Company under this Agreement, to
collect the any obligations arising under this Agreement or to enforce the
rights of RMST, the Agent or the Warehouse Purchasers under this Agreement,
including all court costs, attorneys' fees (whether for trial, appeal, other
proceedings or otherwise), fees of auditors and accountants and investigation
expenses reasonably incurred by RMST, the Agent or the Warehouse Purchasers in
connection with any such matters; and (iii) interest at an annual interest rate
equal to the Default Rate on each item specified in clauses (i) and (ii) above
from ten (10) days after the date of written demand or request for reimbursement
to the date of reimbursement.
REPRESENTATIONS AND WARRANTIES; COVENANTS
Section 48. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants (and such representations and warranties shall be deemed remade at the
time any Mortgage is sold to the Warehouse Purchasers pursuant to this
Agreement) as set forth below.
(a) BLANK ASSIGNMENTS' VALIDITY. The written assignment of each
Mortgage in blank from the Company is valid and effective and RMST or the
Agent and each of its successors, substitutes and assigns are each duly
authorized to complete the blanks in each such assignment and to take such
other steps as are necessary or appropriate, in the judgment of the person
acting, to transfer the Mortgage and any related Commitment, as
contemplated by the Specific Power of Attorney form attached as Appendix 3
(and the Company hereby agrees to execute one or more originals of such
Specific Power of Attorney and any supplement to it which RMST may from
time to time request from the Company.)
(b) DOCUMENTS GENUINE, STATEMENTS TRUE. All documents submitted in
connection with each Offer are genuine, the statements contained in the
Offer submitted to RMST and all other statements and representations as to
any such Mortgages are accurate, true and correct in all material respects
and meet each of the requirements and specifications of this Agreement.
(c) DELIVERY RISK AND RESPONSIBILITY. All deliveries of all Mortgage
documents shall be at the Company's risk and (except only for deliveries of
Mortgages required to be made by the Agent as custodian under the relevant
GNMA, FNMA or FHLMC Guide) the Company's responsibility, and the Company
agrees to indemnify RMST, the Agent and the Warehouse Purchasers and hold
each of them harmless from all bona fide and reasonable claims, loss, cost,
damage or expense (including reasonable attorneys' fees) arising out of or
incurred in connection therewith, including any resulting in whole or in
part from RMST's, the Agent's or the Warehouse Purchaser's own acts except
only to the extent that any such loss, cost or expense results solely from
their negligent acts or omissions or breach of this Agreement.
(d) EACH MORTGAGE VALID. Each Mortgage sold to the Warehouse
Purchasers has been duly executed by the mortgagor(s), acknowledged and
recorded (or duly sent by the Closer to be recorded) and is valid and
binding upon such mortgagor(s) and enforceable in accordance with its
terms.
(e) MORTGAGE GUARANTY AND INSURANCE. Each Mortgage that the Company
represents to be insurable by FHA or by a private mortgage insurer, or
sufficient to be guaranteed by the VA, is or will be so insured or
guaranteed as represented.
(f) MORTGAGES' CHARACTERISTICS. The full principal amount of each
Mortgage has been (or when funded by the Warehouse Purchasers if so
requested, will be) advanced to the mortgagor
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MORTGAGES PURCHASE AGREEMENT PAGE 13
<PAGE> 14
under the Mortgage, either by payment directly to the mortgagor or by
payment made on the mortgagor's request or approval; the unpaid principal
balance is as stated in the Offer all costs, fees and expenses incurred in
making, closing and recording the Mortgage have been paid (or will be paid
at the closing); no part of the property covered by the Mortgage has been
or will be released from its lien; the terms of the Mortgage have in no way
been changed or modified and the Mortgage is current and not in default.
(g) MORTGAGES COMPLY WITH LAW. As to each individual Mortgage offered
to or purchased by the Warehouse Purchasers, and all escrow balances
related to the Mortgages, all applicable federal, state and local laws,
rules and regulations have been complied with, including the Real Estate
Settlement Procedures Act, the Equal Credit Opportunity Act, the Flood
Disaster Protection Act, the Truth-in-Lending Act of 1968, the Depository
Institutions Deregulatory and Monetary Control Act of 1980, all as amended,
and regulations issued pursuant to them; and all usury laws and
limitations, all conditions within the control of the Company as to the
validity of the insurance or guaranty required by the National Housing Act
of 1934, as amended, and the rules and regulations thereunder, and the
Servicemen's Readjustment Act of 1944, as amended, and the rules and
regulations thereunder, and all requirements of the mortgage insurance
companies or other insurers, have been properly satisfied, and such
insurance or guaranty is valid or enforceable. All escrow balances have
been calculated in accordance with the contractual provisions of the
Mortgage, or, if more restrictive, in accordance with any applicable GNMA,
FNMA or FHLMC Guides.
(h) TITLE INSURANCE. There is in force a paid-up title insurance
policy on each Mortgage issued by an accredited title insurer in an amount
at least equal to the outstanding principal balance of such Mortgage. The
title insurance policy has been, or shall be, issued by a title insurance
underwriter duly authorized to issue title insurance in the state where the
real property covered by the Mortgage is located.
(i) HAZARD INSURANCE. Hazard insurance policies meeting the
requirements of each the Mortgage and of the relevant GNMA, FNMA or FHLMC
Guide and the Investor's requirements are in force.
(j) SERVICING NOT OTHERWISE PLEDGED. If applicable, the Company has
not directly or indirectly pledged any servicing rights with respect to any
Mortgages offered to or purchased by the Warehouse Purchasers under this
Agreement to any person or entity other than the Warehouse Purchasers
pursuant to this Agreement, nor will the Company do so without RMST's prior
written approval.
(k) COMMITMENTS. The Company warrants that each Commitment is, and
will remain forever, free of any security interest, lien, claim, or
encumbrance of any kind and may be assigned by the Company to RMST and its
assigns.
(l) APPRAISALS SATISFY APPLICABLE REQUIREMENTS. A written appraisal of
the real property securing each Mortgage has been prepared by a
duly-licensed appraiser and satisfies all requirements for any applicable
VA guaranty, FHA insurance or private mortgage insurance and all
requirements imposed by the Investor which issued the Commitment covering
such Mortgage, as well as the requirements of 12 C.F.R., Part 323, as
amended or replaced (if the Mortgage is two hundred fifty thousand dollars
($250,000) or more).
(m) QUALITY CONTROL REPORTS. The Company agrees at its own cost to
provide periodic reports to RMST as requested by RMST from time to time, of
the Company's Mortgage loan
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MORTGAGES PURCHASE AGREEMENT PAGE 14
<PAGE> 15
origination, acquisition and servicing operations performed by the
quality-control reviewer, which is satisfactory to the applicable
governing agency and RMST.
(n) ELIGIBILITY. The Company will be approved, qualified and in
good standing as:
(i) an FHA-approved mortgage, eligible to originate,
purchase, hold, sell and service FHA loans;
(ii) a VA-approved (not VA automatic) mortgagee, eligible to
originate, purchase, hold, sell and service VA loans;
prior to making an Offer for a FHA or VA loan, as the case may be, and at
the time of making that Offer meets all requirements applicable to its
status as such. The Company agrees not to take or omit to take any act
which would result in its losing its status as an eligible mortgagee,
seller and issuer as described above.
(o) ORGANIZATION; GOOD STANDING. The Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has the requisite legal power and
authority to own its property and to carry on its business as currently
conducted and (iii) is duly qualified as a foreign corporation to do
business and is in good standing in each jurisdiction in which the
transaction of its business makes such qualification necessary, except in
jurisdictions, if any, where a failure to be in good standing has no
material adverse effect on its financial condition.
(p) LICENSED. The Company is licensed and qualified to transact the
mortgage origination business in, and is in good standing under, the laws
of each state in which real estate which secures a Mortgage is located or
is otherwise exempt under applicable law from such licensing and
qualification. There has been no unsatisfied demand made upon the Company
by any state in which real estate which secures a Mortgage is located that
the Company be licensed or qualified to transact the mortgage origination
business under the laws of that state. The Company is in compliance with
the laws of all states necessary to insure the enforceability of each
Mortgage.
(q) AUTHORIZATION; NO CONFLICT. The Company has the power and
authority to execute, deliver and comply with the terms of this Agreement.
The Company's execution, delivery and performance of this Agreement: (i)
have been duly and validly authorized by all necessary corporate action on
the Company's part (none of which action has been modified or rescinded and
all of which is in full force and effect); (ii) do not and will not: (1)
conflict with or violate any laws or court orders of which the Company is,
or in the normal course of its business should be, aware of, or the
Company's articles of incorporation or bylaws; (2) either conflict with,
result in a breach of, constitute a default under, require any consent
under, or result in the creation of any lien or security interest (other
than the security interest created by this Agreement) upon any of the
Company's property under any agreement, indenture or other papers to which
the Company is party or by which the Company or its property may be bound
or affected; and (iii) do not and will not result in, or permit the holder
of any such agreement, indenture or other papers to cause, the acceleration
of any of the Company's: (1) debt; (2) obligations in respect of letters of
credit, acceptances or similar obligations issued or created for the
Company's account; (3) direct or indirect guaranties of debt of others; (4)
liabilities secured by any lien or security interest existing on property
owned by the Company, including secured liabilities which have not been
assumed by the Company or with respect to which the Company is not
personally liable; or (5) liabilities in respect of unfunded and vested
benefits under ERISA plans.
(r) ENFORCEABILITY. This Agreement constitutes the valid and binding
obligation of the Company enforceable in accordance with its terms, except
as limited by (i) bankruptcy,
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MORTGAGES PURCHASE AGREEMENT PAGE 15
<PAGE> 16
insolvency or other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights and (ii) the application of equitable
principles.
(s) APPROVALS. The Company's execution and delivery of this Agreement
and the Company's performance of its obligations do not require any
license, consent, approval or other action of any court or other
governmental authority other than those that the Company is, or in the
normal course of its business should be, aware of, other than those which
have been obtained and remain in full force and effect.
(t) FINANCIAL STATEMENTS. The Company's annual financial statements
for the most recent two fiscal years ending more than ninety (90) days
prior to the date of this Agreement have been furnished to RMST. The annual
financial statements are audited.
(u) PRESENTATION. The financial statements furnished as described in
(t) above and any financial statements provided to RMST pursuant to Section
49 fairly present the Company's financial condition and the results of the
Company's operations as of and for the fiscal period ended on the
respective dates of such financial statements. On the dates of such
financial statements, the Company was, and on the date of any sale of any
Mortgage hereunder is, solvent (i.e., able to pay its debts as they mature
and having assets with value greater than its liabilities). Such financial
statements were prepared in accordance with generally-accepted accounting
principles. Since the date of such financial statements, nothing has
occurred which has had a material adverse effect on the Company's
operations or financial condition nor is the Company aware of any state of
facts which (with or without notice or lapse of time or both) would or
could result in such a material adverse effect, and the Company is solvent
as of the date of this Agreement and will maintain its solvency on a
continuing basis. Notwithstanding any of the aforementioned the Company
further agrees to maintain its tangible net worth at a minimum of Nine
Hundred Thousand Dollars ($900,000).
(v) LITIGATION. There are no actions, claims, suits or proceedings
pending, or to the Company's knowledge, threatened or reasonably
anticipated, against or affecting the Company by any person, entity or
governmental authority, other than those disclosed in (i) its most recent
audited annual financial statements or (ii) as listed on APPENDIX 6 which,
if adversely determined, may reasonably be expected to result in a material
adverse effect on the Company's operations or financial condition.
(w) PAYMENT OF TAXES. The Company has filed or caused to be filed all
of the Company's federal, state and other tax returns required to be filed,
all such returns are true and correct and the Company has paid (or caused
to be paid) all material taxes that are due and payable as shown on such
returns, including all applicable FICA payments and withholding taxes,
except taxes being contested in good faith. The amounts reserved as a
liability for taxes payable in the financial statements described above are
sufficient for payment of all of the Company's unpaid taxes, whether or not
disputed, accrued for or applicable to the period and on the dates of such
financial statements and all years and periods prior to them and for which
the Company may be liable in its own right or as transferee of the assets
of, or as successor to, any other person or entity.
(x) VA AND FHA LOANS. The Company has complied, and will continue to
comply, with all applicable laws in respect of the FHA insurance or VA
guaranty of each Mortgage offered or sold to the Warehouse Purchasers and
designated by the Company as an FHA loan or a VA loan, respectively, and
such insurance or guaranty is and will continue to be in full force and
effect. All such FHA loans or VA loans comply and will continue to comply
in all respects with all applicable requirements for purchase under the
industry standard forms of selling contracts for FHA loans or VA loans,
respectively, and any supplement to them then in effect. All Mortgages
- --------------------------------------------------------------------------------
MORTGAGES PURCHASE AGREEMENT PAGE 16
<PAGE> 17
offered to the Warehouse Purchasers under this Agreement and represented to
be (i) VA loans are currently guaranteed by VA or (ii) FHA loans are
currently insured by FHA. With respect to Mortgages not yet endorsed by FHA
for insurance and Mortgages for which the Company has not yet obtained
evidence of guaranty from VA or insurance from FHA, the Company shall
proceed diligently and promptly to comply with the documentation
requirements and all other applicable requirements in order to procure the
FHA endorsement for insurance or evidence of VA guaranty or FHA insurance,
as the case may be and, in the event that the Company ever has reason to
believe that any such endorsement or evidence will not be forthcoming, the
Company shall promptly so notify RMST and repurchase the related FHA loan
or VA loan.
(y) FIRE AND CASUALTY POLICIES. All fire and casualty policies
covering the premises encumbered by each Mortgage offered to or purchased
by the Warehouse Purchasers under this Agreement: (i) presently name and
will continue to name the Company "and its successors and/or assigns in
interest as they may appear" of each as the insured under a standard
mortgage clause or, for newly funded Mortgages, a notice for an endorsement
changing the named mortgagee has been submitted to the carrier and will be
pursued diligently until issued; (ii) are and will continue to be in full
force and effect; and (iii) afford and will continue to afford insurance
against fire and such other risks as are usually insured against in the
broad form of extended coverage insurance from time-to-time available, as
well as insurance against flood hazards if it is required by FHA, VA or any
applicable law, court or other governmental authority.
(z) FLOOD INSURANCE. Mortgages offered to or purchased by the
Warehouse Purchasers under this Agreement which are secured by premises
located in a special flood hazard are designated as such by the Secretary
of HUD which require flood insurance are and shall continue to be covered
by special flood insurance under the National Flood Insurance Program.
(aa) YEAR 2000. The Company has undertaken a detailed inventory,
review, and assessment of all areas within and affecting the Company's
business and operations that could be adversely affected by the failure of
the Company to be Year 2000 Compliant on a timely basis; has developed a
detailed plan and time line for becoming Year 2000 Compliant on a timely
basis; and, to date, has implemented that plan in accordance with the
specified timetable in all material respects. The Company has made written
inquiry of each of the Company's key suppliers, vendors and customers as to
whether they will be Year 2000 Compliant in all material respects on a
timely basis and on the basis of that inquiry believes that all of them
will be so compliant. As used herein, "YEAR 2000 COMPLIANT" shall mean that
all software, embedded microchips and other processing capabilities
utilized by the Company or the Company's key suppliers, vendors and
customers will correctly process, sequence, and calculate, without
interruption, all date and date related data for all dates to, through and
after January 1, 2000, including leap year calculations, and recognize,
store and transmit date data in a format which clearly indicates the
correct century. As used herein, "key suppliers, vendors and customers"
means those suppliers, vendors, and customers of the Company whose business
failure or material business disruption would, in RMST's judgment, be
reasonably likely to result in a material adverse change in the business,
properties, condition (financial or otherwise), or prospects of the
Company.
Section 49. COVENANTS.
(a) SERVICING. The Company agrees to service (or cause to be serviced) all
Mortgages purchased by the Warehouse Purchasers under this Agreement which
the Company has the right to service, in accordance with the servicing
standards stated above in this Agreement and all applicable GNMA, FNMA,
FHLMC, FHA and VA requirements, including taking all actions necessary to
enforce the obligations of the obligors under such Mortgage.
- --------------------------------------------------------------------------------
MORTGAGES PURCHASE AGREEMENT PAGE 17
<PAGE> 18
(b) COMPLY WITH COMMITMENTS. The Company agrees to timely comply in
all respects with all terms and conditions of all Commitments covering any
Eligible Mortgage (and any renewals, extensions, or modifications of them
or substitutions for them), and cause the Mortgages covered by and
intended to be sold under each Commitment to be so sold before its
expiration date and in the manner and order contemplated by the
Commitment.
(c) MAINTAIN COMMITMENTS. The Company agrees to maintain each
Commitment and all of the Company's rights and obligations under it in
full force and effect, not to pair off or otherwise cause or acquiesce in
the effective partial or complete cancellation of any Commitment without
RMST's specific written consent, not to suffer or permit any default under
any Commitment, and to enforce performance by the issuer of each
Commitment. Without limitation, the Company expressly agrees to timely
deliver any and all margin required by the terms of each Commitment.
(d) CHANGE IN STATUS. The Company agrees to give prompt written
notice to RMST of any change in its status as such or in the relationship
between the Company and any Investor approved by RMST.
(e) NOTIFICATION OF MORTGAGE DEFAULTS. The Company agrees to
immediately notify RMST upon learning of any default under any of the
Mortgages purchased (or agreed to be purchased) by the Warehouse
Purchasers, or of the institution of any proceeding before any court or
other governmental authority in respect of a claimed violation by the
Company or any other person of any statute, rule or regulation relating to
any the Mortgage or a claimed defense or offset to any Mortgage.
(f) LOAN DOCUMENTS. The Company agrees to maintain - at the Company's
principal office or in the office of a computer service bureau engaged by
the Company - the originals (or copies in any case where the original has
been delivered to RMST or the Agent) of all promissory notes and mortgages
or deeds of trust for the Mortgages, and all Commitments related to them,
and all related papers, as well as files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, disks, cards,
accounting records and other information and data relating to such
Mortgages for a period not to exceed one year. Upon RMST's written
request, the Company will promptly make them conveniently available to
RMST.
(g) CURRENT FINANCIAL INFORMATION. The Company agrees to furnish
RMST, within ninety (90) days after the end of the Company's fiscal year,
audited annual financial statements for that year end, reflecting the
corresponding figures for the preceding fiscal year in comparative form,
accompanied by the related report acceptable to RMST prepared by the
Company's independent certified public accountants stating that the
statements were prepared according to generally accepted account
principles applied on a basis consistent with prior periods except for
such changes in generally accepted accounting principles concurred in by
the Company's independent public accountants. Promptly when available and
least within forty five (45) days after the end of each of the first three
fiscal quarters in the Company's fiscal year, the Company shall furnish
RMST its financial statements for that quarter and the year to date, each
reflecting the corresponding figures for the same quarter in the preceding
fiscal year in comparative form. If requested by RMST, the Company will
provide RMST monthly financial statements no later than twenty (20) days
after the close of each month in its fiscal year.
(h) YEAR 2000. The Company shall deliver to RMST promptly after they
become available the Company's Year 2000 plan and time line, all periodic
internally and externally prepared evaluations and progress reports
concerning the Company's Year 2000 plan and Year 2000 readiness, any
management or other letters from the Company's accountants addressing or
mentioning the Company's Year 2000 Compliance, and such other information,
documentation
- -------------------------------------------------------------------------------
MORTGAGES PURCHASE AGREEMENT PAGE 18
<PAGE> 19
and materials as RMST may reasonably request from time to time in order to
confirm that the Company is Year 2000 Compliant and the methods used by
the Company to become Year 2000 Compliant.
(i) OTHER INFORMATION. Promptly upon request, the Company agrees to
furnish such other information as RMST may request concerning the Company,
its business affairs, the Mortgages and its relationship with any
Investor.
Section 50. ADJUSTMENT TO LOAN SET UP FEE. RMST may elect to increase or
decrease the Loan Set Up Fee from time to time by giving the Company written
notice of the change specifying a date when the change will become effective
which is at least thirty (30) days after the notice. Any change in the Loan Set
Up Fee shall be effective only as to Mortgages acquired by the Warehouse
Purchasers on or after the effective date of the change.
MISCELLANEOUS
Section 51. ASSIGNMENT PROHIBITED. This Agreement may not be assigned by
the Company.
Section 52. NOTICES. All notices, demands, consents, requests and other
communications required or permitted to be given or made hereunder shall be in
writing and shall be delivered in person or telecopied (with an additional copy
to be mailed as provided herein) or mailed, first class, return receipt
requested, postage prepaid, addressed to the respective parties hereto at their
respective addresses hereinafter set forth or, as to any such party, at such
other address as may be designated by it in a notice to the other given in the
manner provided in this Section. All notices shall be conclusively deemed to
have been properly given or made when duly delivered, in person, to a Vice
President or more senior officer of the addressee, or if mailed, on the first
Banking Business Day after being deposited in the mails or if telecopied when
transmitted, addressed as follows:
<TABLE>
<S> <C>
IF TO THE COMPANY: Glenn A. LaPointe
President
Austin Funding Corporation
823 Congress Avenue, Suite 707
Austin, TX 78701
Telephone: (512) 481-8000
Telecopy: (512) 481-8001
IF TO RMST: HSA Residential Mortgage Services of Texas, Inc.
4550 Post Oak Place Drive, Suite 335
Houston, Texas 77027
Attention: Lawrence J. Trevino
Telephone: (713) 843-7301
Telecopy: (713) 888-9014
IF TO GUARANTOR Glenn A. LaPointe, Terry Hartnett, Glenn Farley, Bradley Farley
Austin Funding Corporation
823 Congress Avenue, Suite 707
Austin, TX 78701
Telephone: (512) 481-8000
Telecopy: (512) 481-8001
</TABLE>
No notice to or demand on the Company or any other person shall entitle the
Company or any other person to any other or further notice or demand in similar
or other circumstances.
- -------------------------------------------------------------------------------
MORTGAGES PURCHASE AGREEMENT PAGE 19
<PAGE> 20
Section 53. NO FINANCING INTENDED. This Agreement evidences a facility for
the sale of Mortgages to the Warehouse Purchasers, and is not intended by the
Company or RMST to evidence a financing arrangement. The Company will report
the sale of the Mortgages under generally accepted accounting principles and
for federal income tax purposes as a sale of the entire mortgage, subject to a
limited right of RMST to require the repurchase of Defective Mortgages, and
subject to a Make Whole Payment for breach of the warranties, representations
or covenants given by the Company in this Agreement. The consideration received
by the Company upon the sale of each Mortgage will constitute reasonably
equivalent value and fair consideration for the transfer of ownership of the
Mortgages. The Company warrants and covenants that it is solvent at all times
relevant to the sale of any Mortgage, and will not be made insolvent by the
sale of any Mortgage. The Company will not sell any Mortgage to the Warehouse
Purchasers with any intent to hinder, delay or defraud any of the Company's
creditors.
Section 54. CONFIDENTIAL/PROPRIETARY INFORMATION. This Agreement is
considered the confidential and proprietary information of RMST, and the
Company may not reveal this Agreement or its contents to any person other than
employees of the Company who need to have knowledge of its content to perform
their duties, or to the attorneys and auditors of the Company solely in
connection with their representation of the Company. This Agreement is subject
to the copyright of RMST and may not be reproduced without the express
permission of RMST.
Section 55. UNILATERAL AMENDMENT. RMST reserves the right to unilaterally
amend this Agreement in its sole discretion to comply (to the sole satisfaction
of RMST) with any law, rule or regulation affecting RMST in effect now or
hereafter. Any such amendment shall be effective immediately. However, and
notwithstanding any other provision of this Agreement, in the event of a
unilateral amendment, the Company shall have the right to terminate this
Agreement by written notice to RMST within ten (10) days of the Company's
receipt of notice of such amendment. Termination, shall not affect any
obligation of the Company incurred prior to RMST's receipt of notice of
termination.
Section 56. BINDING. This Agreement supersedes and replaces entirely any
and all similar agreements and arrangements heretofore existing between the
Agent and the Company or between RMST and the Company and shall bind and
benefit the Company, RMST and their respective successors, trustees, receivers
and permitted assigns.
Section 57. GOVERNING LAW; VENUE. This Agreement shall be governed by
applicable United States and Texas law with specific venue in Harris County,
Texas.
Section 58. HEADINGS. The headings and captions used in this Agreement are
for convenience only and shall not be deemed to limit, amplify or modify the
terms of this Agreement, nor shall they effect their meaning.
Section 59. NUMBER; GENDER. Whenever the singular number is used herein,
it includes the plural where appropriate, and words of any gender shall include
each other gender where appropriate.
Section 60. COUNTERPARTS. This Agreement may be executed in counterparts
each of which shall constitute an original instrument.
Section 61. SEVERABILITY. if any provision of this is Agreement is held
invalid, illegal or unenforceable, the remaining provisions shall be enforced
and shall not be affected or impaired thereby.
Section 62. INCORPORATED DOCUMENTS. Each reference made in this Agreement
to any Appendix, Exhibit, Schedule or Annex shall be read as a reference to
that Appendix, Exhibit, Schedule or Annex to this Agreement except where
otherwise expressly specified, and each Appendix, Exhibit, Schedule and Annex
to this Agreement is hereby incorporated into this Agreement as if set forth
verbatim at each place in this Agreement where it is referred to. Each
Appendix, Exhibit, Schedule or Annex which is a form to
- -------------------------------------------------------------------------------
MORTGAGES PURCHASE AGREEMENT PAGE 20
<PAGE> 21
be completed, executed and delivered pursuant to this Agreement may be
completed in accordance with this Agreement by either the Company or RMST
before, when or after it is executed and delivered.
Section 63. GUARANTY. The Guarantor unconditionally guarantees the payment
when due of any and all indebtedness and the satisfaction and performance when
required of all covenants, obligations and liabilities (collectively, the
"Obligations and Liabilities") of the Company under this Agreement. If any or
all Obligations and Liabilities of the Company hereunder are not timely
satisfied by the Company, the Guarantor unconditionally promises to perform or
cause to be performed such Obligations and Liabilities to RMST or to pay to
RMST, without deduction of any kind, in lawful money of the United States, the
amount of the Obligation and Liability if the same shall be monetary in nature.
The Guarantor acknowledges that a separate action or actions may be brought and
prosecuted against him/her/them whether or not action is brought against the
Company and whether or not the Company is joined in any such separate action or
actions. The Guarantor authorizes RMST, without notice or demand (except as
shall be required by applicable law providing the same cannot be waived), and
without affecting or impairing the liability of the Guarantor under this
Section, from time to time in accordance with this Agreement or by mutual
agreement with the Company, to renew, compromise, extend, increase, accelerate
or otherwise change the time for payment of, or otherwise change the terms of,
any indebtedness of the Company or to modify the terms and time for
performance of any or all Obligations and Liabilities under this Agreement.
The Guarantor waives notice of dishonor, notice of acceptance, any right to
require RMST to proceed against the Company, or to pursue any other remedy in
RMST's power whatsoever. Until all of the Obligations and Liabilities shall
have been fully performed, and until all periods under applicable law to
contest preferential or fraudulent payments have expired, Guarantor waives all
rights of contribution and subrogation from the Company.
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MORTGAGES PURCHASE AGREEMENT PAGE 21
<PAGE> 22
Section 64. ENTIRE AGREEMENT. This Agreement represent the final agreement
between the parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties.
AUSTIN FUNDING CORPORATION HSA RESIDENTIAL MORTGAGE SERVICES OF
TEXAS, INC.
By: /s/ GLENN A. LAPOINTE By: /s/ LOU ANN HARTMAN
------------------------------ ------------------------------
Name: Glenn A. LaPointe Name: Lou Ann Hartman
Title: President Title: Vice President
Date: 6-17-99 Date: 6-11-99
GUARANTORS
By: /s/ GLENN A. LAPOINTE
------------------------------
Name: Glenn A. LaPointe
Date: 6-17-99
By: /s/ TERRY HARTNETT
------------------------------
Name: Terry Hartnett
Date: 6-16-99
By: /s/ GLENN FARLEY
------------------------------
Name: Glenn Farley
Date: 6-21-99
By: /s/ BRADLEY FARLEY
------------------------------
Name: Bradley Farley
Date:
----------------------------
ATTACHED:
Appendix 1 Offer to Sell Mortgage
Appendix 2 RMST Procedures
Appendix 3 Specific Power of Attorney
Appendix 4 Collateral/Credit Documents
Appendix 5 Special Closing Instructions
Appendix 6 Pending or Threatened Litigation
Appendix 7 Defective Mortgage Criteria
Appendix 8 Eligible Mortgage Criteria
Appendix 9 Minimum Criteria for Investors
Appendix 10 Bailee Letter (from Agent)
Appendix 11 Bailee Letter (from RMST)
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MORTGAGES PURCHASE AGREEMENT PAGE 22
<PAGE> 23
APPENDIX 1
OFFER TO SELL MORTGAGE
HSA Residential Mortgage Services of
Texas, Inc. (RMST) RMST Loan#
4550 Post Oak Place Drive, Suite 335 -----------------
Houston, Texas 77027 Investor #
ATTN: Lawrence J. Trevino ------------------------
Funding Date:
---------------------
Check #
---------------------------
MORTGAGE INFORMATION
COMPANY
BORROWER
INVESTOR
COMMITMENT DATE
COMMITMENT EXPIRATION DATE
BULK MORTGAGE TAKEOUT DATE
SERVICE RELEASE PREMIUM (IF ANY)
COMMITMENT AMOUNT
MORTGAGE FACE AMOUNT
MORTGAGE UNPAID BALANCE
PURCHASE PRICE
CLOSER NAME AND ADDRESS
Pursuant to our Mortgages Purchase Agreement with you ("RMST") dated
June 11, 1999, as it may have been supplemented, amended or restated the Company
has completed this Offer to Sell Mortgage (except for the RMST's certification
and signature blocks) and hereby offers to sell to the Warehouse Purchasers
through Chase Bank of Texas, National Association (as administrative agent and
collateral agent for various purchasers), the Mortgage described above for a
cash price equal to the amount set forth above, which is the least of (i) the
price the Investor has promised to pay for the Mortgage pursuant to the
Commitment; (ii) the face principal amount of the promissory note evidencing the
Mortgage; or (iii) the unpaid principal balance of the promissory note.
Upon acceptance of this Offer, the Company will instruct the Closer
identified for the Mortgage listed above to comply with the requirements and
instructions in Appendix 5 to the Mortgages Purchase Agreement. The Company
hereby promises to deliver, or cause to be delivered, to RMST for transmission
to the Agent all other documents, with all necessary endorsements, required to
satisfy all the requirements of the applicable Commitment for each such
Mortgage.
If the Mortgage, is to be sold as a whole loan pursuant to the
Commitment, the Company hereby agrees to timely provide all remaining documents
and to take all remaining steps necessary or appropriate to enable the Warehouse
Purchasers to sell the Mortgage to the Investor as a whole loan.
The Company hereby agrees to timely complete the sale of the Mortgage
on or before the Expiration Date stated in the Commitment and to require of the
Investor, and to ensure, that the entire
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APPENDIX 1 PAGE i
<PAGE> 24
proceeds of their sale are paid directly to the Agent for the account of the
Warehouse Purchasers by the Investor on the settlement date.
This Offer is made upon and subject to the terms of the Mortgages
Purchase Agreement which is hereby incorporated herein (and all capitalized
terms used in this letter which are defined in the Mortgages Purchase Agreement
and not specifically defined in this letter shall have the same means here as
there), and the Company hereby reaffirms its covenants under the Mortgages
Purchase Agreement and reconfirms all of its representations and warranties
stated in the Mortgages Purchase Agreement as being current, true and correct in
all material respects and hereby republishes all of them.
Austin Funding Corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
Enclosures:
1003 or HUD equivalent Investor Commitment
Pages 1 and 2 of Appraisal Underwriting Approval
Credit Report Disbursement Sheet
MI Certificate or Equivalent, if applicable
[ ] RMST hereby accepts Austin Funding Corporation's Offer dated
____________________, and on _______________ will fund/wire the purchase
price(s) specified in the Offer to the Closer named in the Offer on the closing
dates specified in the Offer.
[ ] RMST hereby respectfully declines your Offer.
HSA RESIDENTIAL MORTGAGE SERVICES OF TEXAS, INC.
By:
--------------------------------------------
Name: Lawrence J. Trevino
Title: President
Date: Time:
--------------- ---------------
Title Co. Closer:
--------------
Title Company:
--------------
Title Co. Address:
--------------
--------------
Title Co. Phone#
------------
Title Co. Fax #
------------
GF#:
--------------
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APPENDIX 1 PAGE ii
<PAGE> 25
APPENDIX 2
RMST PROCEDURES
BANKING BUSINESS DAY
A "BANKING BUSINESS DAY" is any Monday through Friday when national
banks domiciled in Harris County, Texas are open to conduct regular commercial
banking business and wire transfers may be made.
MORTGAGE PURCHASES
RMST will accept or reject an Offer on the Banking Business Day on
which it is delivered to RMST and, if RMST elects to accept an Offer, cause the
Warehouse Purchasers to purchase the related Eligible Mortgage on that Banking
Business Day so long as:
(i) the Company has given RMST written notice by Noon on that
Banking Business Day of the amount which the Company wishes to
have wired to the Closer (no prior notice is required if the
disbursement is to be by check); and
(ii) the Company delivers the Document File to RMST no later
than 1:00 p.m. on that Banking Business Day.
If the Company fails to give notice or deliver the Document File to RMST by the
above times, RMST shall have no obligation to cause the Warehouse Purchasers to
purchase the Mortgage on that Banking Business Day, but RMST agrees to use
reasonable efforts to cause the Warehouse Purchasers to do so.
FUNDING
RMST will cause the Warehouse Purchasers to fund the purchase of an
Eligible Mortgage on the Banking Business Day determined as provided under
"Mortgage Purchases" either:
(i) by a bank wire transmitted on that Banking Business Day if
the Company requested that the purchase be by bank wire, or
(ii) by a check authorized to be drawn on that Banking
Business Day if the Company requested that the purchase be by
check.
The date on which the wire is transferred or on which the check is authorized to
be drawn is the date on which the Warehouse Purchasers are deemed to have funded
the acquisition of the Mortgage for the purpose of determining the Period Held
even if the actual date of purchase of the Eligible Mortgage is a later date.
MORTGAGE NOT PURCHASED
If a bank wire is transmitted or a check is authorized to be drawn and
the Mortgage is not purchased for any reason other than the willful or grossly
negligent act or omission of RMST, the Agent or the Warehouse Purchasers, then
the amount of the bank wire or the check shall be deemed to be an RMST Advance
made on the Banking Business Day the wire was transmitted or the check was
authorized to be drawn.
TIME OF PAYMENT
Any payments made by the Company to RMST shall be deemed received when
made in immediately available funds.
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APPENDIX 2 PAGE i
<PAGE> 26
APPENDIX 3
SPECIFIC POWER OF ATTORNEY
Austin Funding Corporation (the "COMPANY"), A Texas corporation, hereby
irrevocably designates and appoints HSA RESIDENTIAL MORTGAGE SERVICES OF TEXAS,
INC. ("RMST") and its successors and assigns as the Company's true and lawful
agent and attorney-in-fact with full power of substitution and with the power
and authority:
(i) to endorse and deliver, negotiate or otherwise transfer to itself
or any other person any promissory notes; and
(ii) to prepare, complete, execute, deliver and record any assignment,
transfer or release to itself, to any investor in Mortgages (an "INVESTOR")
or any other person of any assignments of mortgages, deeds of trust, deeds
to secure debt and other mortgage instruments of all kinds and descriptions
("MORTGAGES") and any security agreement, collateral assignment or other
security instrument of any kind, securing any Mortgage, any insurance
contract, claim, right or interest relating to it or any indemnity or
suretyship contract relating to it, or any of its documents related to the
Mortgage; and
(iii) to cancel any endorsement or assignment previously made by or on
behalf of the Company to any person or in blank, on or in respect of any
Mortgage, any promissory note evidencing it or any of its other documents
related to the Mortgage; and
(iv) to endorse and deliver to any person any order, check, instrument
or other document or paper received or obtained by RMST that represents
payment in respect of any Mortgage,
(v) to commence, prosecute, settle, discontinue, defend or otherwise
dispose of any claim relating to any Mortgage; and
(vi) to execute and deliver any and all other papers as RMST or its
substitutes shall deem necessary, appropriate or incidental to the
administration and execution of any of the covenants, agreements or
transactions provided for in or contemplated by the agreement dated June 11,
1999 between the Company and RMST, as it may have been or may hereafter be
supplemented, amended or restated (the "MORTGAGES PURCHASE AGREEMENT") to
which reference is hereby made; and
(vii) to sign the Company's name wherever RMST shall deem it necessary,
appropriate or desirable to effect performance of the Mortgages Purchase
Agreement, any related documents or any act authorized hereby;
for all purposes in the Company's name, place and stead and at any time and from
time-to-time, in each instance acting by and through any person who is at the
time an officer of RMST or its substitute and any such act by RMST, its
successors, substitutes or assigns, shall have the same force and effect as if
done by the Company itself pursuant to a duly adopted resolution of its
then-incumbent board of directors. (Notwithstanding the reference in the
preceding sentence to the Mortgages Purchase Agreement, no Investor or other
person or entity dealing with RMST shall be required to look beyond this
Specific Power of Attorney itself or shall be charged with knowledge of the
provisions of the Mortgages Purchase Agreement or any other instrument, but
instead may rely upon, and shall be fully protected by the Company in relying
upon, this Specific Power of Attorney and RMST's authority as set forth herein
or reasonably inferable wherefrom as incidental to the authority expressly
stated herein.) Without limiting its authority to otherwise assign or delegate
its powers to others or to substitute others for it hereunder, RMST is expressly
authorized to delegate its powers under this Specific Power of Attorney to Chase
Bank of Texas, National Association, the Agent identified in the Mortgages
Purchase Agreement. This
- --------------------------------------------------------------------------------
APPENDIX 3 PAGE i
<PAGE> 27
power is coupled with an interest and shall remain in force for so long as the
Company has or may have any unperformed obligation to RMST, its successors or
assigns, under or in respect of the Mortgages Purchase Agreement, and shall be
irrevocable during that time. This Specific Power of Attorney is expressly
limited to the purposes set forth above, shall not be interpreted as a general
power of attorney, and shall have no force or effect except as to matters
pertaining to the Mortgages Purchase Agreement, although it shall be broadly
construed as to those matters.
Austin Funding Corporation
By: /s/ GLENN A. LAPOINTE
---------------------------------
Name: Glenn A. LaPointe
Title: President
Date: 6-17-99
State of Texas )
)ss:
County of Travis )
This instrument was acknowledged before me on this 17th day of June, 1999
by Glenn A. LaPointe as President of Austin Funding Corporation.
/s/ KAREN S. ROTH
------------------------------
(Signature of notarial officer)
(Seal, if any)
------------------------------
Title
My Commission Expires: 08/14/00
------------------------------
[SEAL)
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APPENDIX 3 PAGE ii
<PAGE> 28
APPENDIX 4
COLLATERAL/CREDIT DOCUMENTS
1. Commitment from an RMST-approved Investor
2. Underwriting approval from investor or delegated underwriters from
Company
3. Certified copy of the borrower's credit application (FNMA form
1003) or HUD equivalent
4. Credit Report
5. Proof of mortgage insurance or guaranty, or FHA insurance approval
if applicable
6. Appraisal - Pages 1 and 2 Only
7. Closing Statement or HUD-1
(1) Required at closing and funding
(2) Required as part of Offer to Sell Mortgages
8. Note
9. Certified Copy of the Deed of Trust
10. Truth-In-Lending
11. Hazard Insurance
12. Power of Attorney (if applicable)
13. Flood Insurance (if applicable)
14. Title Commitment
- --------------------------------------------------------------------------------
APPENDIX 4 PAGE i
<PAGE> 29
APPENDIX 5
(INSTRUCTIONS TO MORTGAGE LOAN CLOSER)
SPECIAL CLOSING INSTRUCTIONS
FOR LOAN FUNDS WHICH ARE
PROVIDED TO
--------------------------
BY CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS AGENT
FOR THE ____________________ LOAN
GF # ____________________________
1. The money to fund this loan is expected to be provided to you by Chase
Bank of Texas, National Association, (in its capacity as agent for
various purchasers (the "PURCHASERS") under a Master Purchase Agreement
between them and HSA Residential Mortgage Services of Texas, Inc.)
which will purchase this loan from AUSTIN FUNDING CORPORATION (the
"COMPANY") when it is closed. If for any reason this loan does not
close as scheduled, you agree to notify Larry Trevino or Billye J.
Scott of HSA Residential Mortgage Services of Texas, Inc. immediately
at 713-840-9626 and return the funds by wire transfer to our account
within twenty-four (24) hours.
2. Accordingly, this is notice that you will be the "bailee" of the
Purchasers under Section 8.305 of the Uniform Commercial Code for the
promissory note and all other papers for this loan which come into your
possessions, from the instant the promissory note for this loan is
executed and delivered until you have delivered them to HSA Residential
Mortgages Services of Texas, Inc. for the account of Chase Bank of
Texas, National Association, as agent.
3. FAX to HSA Residential Mortgage Services of Texas, Inc. at (713)
[COORDINATOR FAX], marked to the attention of [Loan Coordinator]
(Phone: (713) [COORDINATOR PHONE]) the following items:
(1) A certified copy of the HUD-1 or Closing Statement prepared by
your company and executed at the closing by the borrower;
(2) A certified copy of this bailee letter with the blanks in the
block below completed and signed by your company.
YOU ARE NOT AUTHORIZED TO FUND THIS LOAN UNTIL YOU HAVE RECEIVED A FUNDING
NUMBER FROM AUSTIN FUNDING CORPORATION AND A CORRESPONDING RMST TRANSACTION
NUMBER FROM [LOAN COORDINATOR]. YOU MUST CALL [LOAN COORDINATOR] TO OBTAIN A
VERBAL AUTHORIZATION NUMBER.
4. SEND by courier within TWENTY-FOUR (24) HOURS after funding, the
original note and the other closing papers listed below to HSA
Residential Mortgage Services of Texas, Inc. at 4550 Post Oak Place
Drive, Suite 335, Houston, Texas 77027, Attention: [Loan Coordinator].
a. ORIGINAL PROMISSORY NOTE executed by the borrower(s) and ONE
CERTIFIED COPY.
b. ONE CERTIFIED COPY OF THE MORTGAGE OR DEED OF TRUST certified
that the original has been sent for recording or registration.
- --------------------------------------------------------------------------------
APPENDIX 5 PAGE i
<PAGE> 30
c. COPY OF ANY APPLICABLE POWER OF ATTORNEY FOR ANY MORTGAGOR OR
NOTE MAKER certified as a true copy of the original and that
the original has been sent for recording or registration.
d. ONE CERTIFIED COPY OF THE HAZARD INSURANCE POLICY.
e. ONE CERTIFIED COPY OF THE TITLE COMMITMENT.
f. ONE CERTIFIED COPY OF THE EXECUTED TRUTH-IN-LENDING.
g. ONE CERTIFIED COPY OF THE FLOOD INSURANCE (IF APPLICABLE).
h. ONE CERTIFIED COPY OF ANY POWER OF ATTORNEY USED BY THE BUYERS
(IF APPLICABLE).
i. After the original deed of trust and, if applicable, power of
attorney have been recorded, they should be sent to AUSTIN
FUNDING CORPORATION or their Investor. The Title Policy, when
issued, should also be sent to AUSTIN FUNDING CORPORATION for
delivery to their Investor.
j. Special provisions:
(i) A FUNDING NUMBER MUST BE OBTAINED FROM AUSTIN FUNDING
CORPORATION and conveyed to HSA Residential Mortgage
Services of Texas, Inc. prior to any release of
funds.
(ii) Please contact Billye J. Scott at (713) 840-9626
regarding any excess monies collected at closing.
_______________________________ hereby acknowledges receipt of the
foregoing notice that it is bailee for the Purchasers in respect of the
promissory note, executed by ___________________________ and payable to the
order of (or endorsed by its payee to be payable to the order of) AUSTIN FUNDING
CORPORATION and which has been endorsed by AUSTIN FUNDING CORPORATION in blank.
We are today mailing the original executed and properly endorsed note to HSA
Residential Mortgage Services of Texas, Inc. with the other papers listed above.
----------------------------------------
(Title Company)
By:
-------------------------------------
Name:
-----------------------------------
Title: Closer
Date:
-----------------------------------
- --------------------------------------------------------------------------------
APPENDIX 5 PAGE ii
<PAGE> 31
APPENDIX 6
PENDING OR THREATENED LITIGATION
- --------------------------------------------------------------------------------
APPENDIX 6 PAGE i
<PAGE> 32
APPENDIX 7
DEFECTIVE MORTGAGE CRITERIA
Defective Mortgage means any Mortgage:
(i) the Enclosures for which are incomplete in any material respect;
(ii) for which any required Enclosures are, in the reasonable opinion
of RMST or (in the ease of a Mortgage covered by a Commitment) the applicable
Investor, defective or inaccurate in any material respect considered in light of
the requirements of the relevant Commitment or (for any Bulk Purchase Mortgage)
secondary market investors' requirements therefor reasonably anticipated by
RMST;
(iii) for which any material Enclosure is, in the reasonable opinion of
RMST or the Investor, not valid and binding;
(iv) that is in default as to payment of principal, interest or both
and past due more than thirty (30) days as of the day the Warehouse Purchasers
(acting through Agent) purchased the Mortgage;
(v) as to which any representation of the Company that is specific to
that Mortgage (whether by itself or together with others) is false or misleading
in any material respect;
(vi) with respect to which the Company shall have breached any warranty
that is specific to that Mortgage (whether by itself or together with others) in
any material respect;
(vii) with respect to which any fraud was committed by any mortgagor,
guarantor, title or closing agent, any other material party to the origination
or funding thereof or any holder or endorser thereof;
(viii) which contains documentary exceptions which RMST has declared to
be defective;
(ix) that does not meet, or for any reason has ceased to meet, the
applicable conditions for eligibility as an Eligible Mortgage;
(x) as to which seven (7) Banking Business Days have elapsed since its
purchase without RMST having received its Enclosures; or
(xi) that the Company fails to service in accordance with this
Agreement and as to which the Company fails to correct all such servicing errors
on or before thirty (30) days after receipt of written notice from RMST setting
forth the nature of the servicing errors in reasonable detail.
- --------------------------------------------------------------------------------
APPENDIX 7 PAGE i
<PAGE> 33
APPENDIX 8
ELIGIBLE MORTGAGE CRITERIA
Eligible Mortgage means a Mortgage that, at the time of its purchase,
meets the following conditions:
1. It is a conventional Mortgage, FHA Mortgage or VA Mortgage or
subprime Mortgage, except that the dollar limitations on the maximum amount of
principal to be eligible for participation in a program offered by GNMA, FNMA,
VA or FHLMC may be exceeded so long as no Mortgage exceeds Seven Hundred Fifty
Thousand Dollars ($750,000) in original principal amount without Agent's prior
approval on a case-by-case basis.
2. The promissory note evidencing it (a) is the standard form approved
by GNMA, VA, FHA, FNMA or FHLMC or a form otherwise acceptable to RMST, (b) has
a maturity within thirty (30) years of its origination, (c) is payable or
endorsed by the Company (without restriction or limitation) in blank, (d) is
fully funded and (e) is valid and enforceable without offset, counterclaim,
defense or right of rescission or avoidance of any kind other than for valid
payments made on it and any exceptions to enforceability under Debtor Laws.
3. No default in the payment of principal or interest or any other
default on it has continued uncured for thirty (30) calendar days, no
foreclosure or other similar proceedings have commenced and no claim for any
credit, allowance or adjustment exists.
4. It is secured by a mortgage, deed of trust or trust deed that (a) is
the standard form approved by VA, GNMA, FHA, FNMA or FHLMC or a form otherwise
acceptable to RMST and (b) grants a first priority lien on residential real
property described therein that either has been perfected by recording or will
be perfected upon recording; provided that the mortgage, deed of trust or trust
deed securing a Second Lien Mortgage may grant a second priority lien on such
real estate.
5. It has been fully and finally funded and is not subject to any
unexpired right of rescission provided for by any applicable federal or other
laws.
6. The underlying residential real property securing it (a) consists of
land and (i) a one- to four-family dwelling, (ii) a condominium unit that is
ready for occupancy or (iii) a manufactured home unit, but is not a mobile home,
a co-op or a multifamily dwelling for more than four (4) families, (b) is, if
required by applicable appraisal laws, covered by an appraisal and (c) is
insured against loss or damage by fire and all other hazards normally included
in standard extended coverage insurance (including flood insurance if the
property is in a federally-designated flood hazard area) in accordance with the
Enclosures for it and the Company (as servicer) or Agent has the right to be
named as the loss payee for that insurance.
7. Unless it is a Bulk Purchase Mortgage, it conforms in all material
respects with all of the requirements of a valid and enforceable Commitment
issued by an Investor and duly assigned to RMST and its assigns and is covered
by the Commitment (including the requirements that such Commitment (i) has not
been "paired off" or otherwise presently or prospectively terminated, (ii) has
not been reduced by takeout purchases of other mortgage loans so that it is
insufficient to cover the subject Mortgage and each other Mortgage that has been
purchased, or is being proposed by the Company for purchase, by Warehouse
Purchasers with an express or implied representation by the Company that it is
covered by the Commitment and (iii) is in full force and effect and enforceable
in accordance with its terms); provided that a Mortgage that was covered by a
Commitment when sold to the Warehouse Purchasers but thereafter loses such
coverage shall not be considered a Lost Commitment Mortgage unless and until ten
(10) days shall have elapsed after such coverage is lost within which the
Company has not caused the Mortgage to be again covered by a Commitment duly
assigned and delivered to RMST and its assigns.
- --------------------------------------------------------------------------------
APPENDIX 8 PAGE i
<PAGE> 34
For this purpose coverage shall not be deemed lost until the expiration of any
grace period to deliver the Mortgage.
8. If it is a Bulk Purchase Mortgage, (i) the Company currently and
reasonably believes in good faith that it satisfies all underwriting policies
and criteria of a specific secondary mortgage market investor in subprime
mortgage loans and, if requested to do so, that investor would in fact purchase
it, and (ii) its loan-to-collateral-value ratio does not exceed one hundred
percent (100%) and foreclosure proceedings have not been initiated in respect of
any property securing it.
9. The Enclosures for it are (a) delivered to RMST as required by the
provisions of this Agreement, (b) in compliance with all laws, (c) otherwise in
compliance with the requirements of this Agreement and otherwise in form and
substance acceptable to RMST and (d) subject to no liens.
10. The Enclosures together with the recorded deed of trust and the
policy of title insurance are delivered to RMST as required by the provisions of
any applicable commitment and, in any event, within sixty (60) calendar days
after the date of the related promissory note.
11. It has been owned by Warehouse Purchasers for no more than sixty
(60) calendar days.
- --------------------------------------------------------------------------------
APPENDIX 8 PAGE ii
<PAGE> 35
APPENDIX 9
MINIMUM CRITERIA FOR INVESTORS
- --------------------------------------------------------------------------------
APPENDIX 9 PAGE i
<PAGE> 36
APPENDIX 10
BAILEE LETTER (FROM AGENT)
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
801 WEST GREENS ROAD
HOUSTON, TEXAS 77067
TELEPHONE (281) 775-5400
TELECOPY (281) 775-5449
- ----------------------
- ----------------------
- ----------------------
Re: [Mortgagor(s) name(s) and loan no.] originated by [name of originator]
(the "ORIGINATOR")
Beneficial ownership of the mortgage loans (the "LOANS") listed on the
attached list and the enclosed mortgage notes and other documents (the "MORTGAGE
DOCUMENTS") for them has been purchased by Chase Bank of Texas, National
Association ("AGENT") for itself and the other Buyers under the Master Purchase
Agreement dated as of September 18, 1998 (as renewed, extended, amended, or
restated, the "MASTER PURCHASE AGREEMENT") between (i) HSA Residential Mortgages
Services of Texas, Inc. ("RMST") and American General Finance, Inc. and (ii)
Agent and the Buyers named therein.
Agent herewith delivers the Mortgage Documents to you for purchase
[INCLUDE THIS TEXT ONLY FOR MORTGAGE LOANS COVERED BY TAKEOUT COMMITMENTS:
under the forward purchase agreement or takeout commitment (the "TAKEOUT
COMMITMENT") that you issued to the Originator.] If you purchase the Loans, (i)
your purchase will be without recourse against either Agent or any of the other
Buyers under the Master Purchase Agreement, and without express or implied
warranty or representation from any of them, except that Agent, on behalf of
the Buyers, will warrant that Agent has the power and authority to deliver the
Loans to you and that the Buyers and Agent have neither conveyed the Loans them
to anyone other than you nor encumbered them, and (ii) any claim you may have
in respect of the purchase other than for violation of such express special
warranty will accordingly be required to be made against the Originator to whom
you issued your Takeout commitment. Within twenty-one (21) days after the date
of this letter, Agent must receive either (i) payment in full for the Mortgage
Documents or (ii) the returned Mortgaged Documents themselves. "Payment in
full" means payment of the purchase price for the Loans [USE THIS TEXT FOR
MORTGAGE LOANS COVERED BY TAKEOUT COMMITMENTS: DETERMINED IN ACCORDANCE WITH
THE TERMS OF YOUR TAKEOUT COMMITMENT] [USE THIS TEXT FOR MORTGAGE LOANS THAT
ARE NOT COVERED BY TAKEOUT COMMITMENTS: AS YOU HAVE AGREED WITH THE ORIGINATOR]
plus accrued interest to the date of purchase, BUT IN NO EVENT LESS THAN THE
"MINIMUM PRICE" STATED FOR EACH MORTGAGE LOAN ON THE ATTACHED LIST. Until Agent
has received either the Mortgage Documents or payment in full for them, you
shall be deemed to be holding the Mortgage Documents IN TRUST for Buyers as
their beneficial owners, and as Buyers' bailee pursuant to -- or as otherwise
provided in accordance with -- applicable provisions of the Uniform Commercial
Code. No property interests in the Mortgage Documents are or will be
transferred to you until payment in full has been received by Agent. If you
receive conflicting instructions regarding the Mortgage Documents from RMST or
Buyers, you agree to act in accordance with Agent's instructions. AGENT
RESERVES THE RIGHT, AT ANY TIME BEFORE IT RECEIVES FULL PAYMENT, TO REQUIRE BY
NOTICE TO YOU THAT YOU RETURN THE MORTGAGE DOCUMENTS, AND IF YOU RECEIVE SUCH A
NOTICE, YOU AGREE TO IMMEDIATELY RETURN THEM TO AGENT AND TO INDEMNIFY AGENT
AND HOLD AGENT AND THE BUYERS HARMLESS AGAINST ANY LOSS, COST,
- -------------------------------------------------------------------------------
APPENDIX 10 PAGE i
<PAGE> 37
DAMAGE, CLAIM OR EXPENSE THAT THEY MAY INCUR IF THE LOAN IS NEITHER PURCHASED
NOR RETURNED To AGENT AS HEREIN PROVIDED.
-----------------------------------------------------------------
IF YOU FAIL TO MAKE FULL PAYMENT TO AGENT WITHIN TWENTY-ONE (21)
DAYS AFTER THE DATE OF THIS LETTER, YOU ARE INSTRUCTED TO RETURN
ALL OF THE MORTGAGE DOCUMENTS TO AGENT.
-----------------------------------------------------------------
Payment for the Mortgage Documents must be made by wire transfer of immediately
available funds to:
Chase Bank of Texas, National Association
ABA Number 1130-0060-9
Attention: Claudia Michel
Telephone: (281) 775-5470
Fax: (281) 775-5449
For Credit to HSA RMST, Inc. Settlement Account no. 00103196573
Ref: [Mortgagors' names and loan nos.]
BY ACCEPTING THE MORTGAGE DOCUMENTS DELIVERED TO YOU WITH THIS LETTER, YOU
CONSENT TO BE BUYERS' TRUSTEE AND BAILEE ON THE TERMS DESCRIBED IN THIS
LETTER. AGENT REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE
DOCUMENTS AND THIS LETTER AND CONFIRM YOUR AGREEMENTS AS SET FORTH IN THIS
LETTER BY SIGNING AND RETURNING TO AGENT THE ENCLOSED COPY OF THIS LETTER,
ALTHOUGH YOUR FAILURE TO DO SO SHALL NOT DIMINISH, AFFECT OR IMPAIR ANY TERM OR
CONDITION OF THIS LETTER, YOUR AGREEMENTS STATED HEREIN (WHICH ARISE
AUTOMATICALLY ON YOUR ACCEPTANCE OF THIS LETTER AND THE ENCLOSED MORTGAGE
DOCUMENTS) OR THEIR BINDING EFFECTS ON YOU. The preceding provision shall in no
way affect or impair any claim or cause of action against you in respect of
your [use this text for Mortgage Loans covered by Takeout Commitments: TAKEOUT
COMMITMENT] [use (this text for Mortgage Loans that are not covered by Takeout
Commitments: AGREEMENTS WITH THE ORIGINATOR].
This letter shall bind you and your successors, assigns, trustees, conservators
and receivers and shall benefit Buyers and their respective successors and
assigns.
Very truly yours,
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Agent
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Accepted and agreed to:
- ----------------------------------
By:
-------------------------------
- -------------------------------------------------------------------------------
APPENDIX 10 PAGE ii
<PAGE> 38
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
- -------------------------------------------------------------------------------
APPENDIX 10 PAGE iii
<PAGE> 39
APPENDIX 11
BAILEE LETTER (FROM RMST)
HSA RESIDENTIAL MORTGAGE SERVICES OF TEXAS, INC.
4550 POST OAK PLACE DRIVE
SUITE 335
HOUSTON, TEXAS 77027
TELEPHONE (800) 935-9626
TELECOPY (713) 888-9014
- ----------------------
- ----------------------
- ----------------------
Re: [Mortgagor(s) name(s) and loan no.] originated by [name of originator]
(the "ORIGINATOR")
Beneficial ownership of the mortgage loans (the "LOANS") listed on the
attached list and the enclosed mortgage notes and other documents (the
"MORTGAGE DOCUMENTS") for them has been purchased by HSA Residential Mortgages
Services of Texas, Inc. ("RMST").
RMST herewith delivers the Mortgage Documents to you for purchase
[INCLUDE THIS TEXT ONLY FOR MORTGAGE LOANS COVERED BY COMMITMENTS: under the
forward purchase agreement or takeout commitment (the "COMMITMENT") that you
issued to the Originator.] If you purchase the Loans, (i) your purchase will be
without recourse against RMST, and without express or implied warranty or
representation from it, except that RMST will warrant that RMST has the power
and authority to deliver the Loans to you and that the RMST has neither conveyed
the Loans to anyone other than you nor encumbered them, and (ii) any claim you
may have in respect of the purchase other than for violation of such express
special warranty will accordingly be required to be made against the Originator
to whom you issued your Commitment. Within twenty-one (21) days after the date
of this letter, RMST must receive either (i) payment in full for the Mortgage
Documents or (ii) the returned Mortgaged Documents themselves. "Payment in full"
means payment of the purchase price for the Loans [USE THIS TEXT FOR MORTGAGE
LOANS COVERED BY COMMITMENTS: DETERMINED IN ACCORDANCE WITH THE TERMS OF YOUR
COMMITMENT] [USE THIS TEXT FOR MORTGAGE LOANS THAT ARE NOT COVERED BY
COMMITMENTS: AS YOU HAVE AGREED WITH THE ORIGINATOR] plus accrued interest to
the date of purchase, BUT IN NO EVENT LESS THAN THE "MINIMUM PRICE" STATED FOR
EACH MORTGAGE LOAN ON THE ATTACHED LIST. Until RMST has received either the
Mortgage Documents or payment in full for them, you shall be deemed to be
holding the Mortgage Documents IN TRUST for RMST as their beneficial owner, and
as RMST's bailee pursuant to -- or as otherwise provided in accordance with --
applicable provisions of the Uniform Commercial Code. No property interests in
the Mortgage Documents are or will be transferred to you until payment in full
has been received by RMST. RMST RESERVES THIS RIGHT, AT ANY TIME BEFORE IT
RECEIVES FULL PAYMENT, TO REQUIRE BY NOTICE TO YOU THAT YOU RETURN THE MORTGAGE
DOCUMENTS, AND IF YOU RECEIVE SUCH A NOTICE, YOU AGREE TO IMMEDIATELY RETURN
THEM TO RMST AND TO INDEMNIFY RMST AND HOLD RMST HARMLESS AGAINST ANY LOSS,
COST, DAMAGE, CLAIM OR EXPENSE THAT IT MAY INCUR IF THE LOAN IS NEITHER
PURCHASED NOR RETURNED TO RMST AS HEREIN PROVIDED.
- -------------------------------------------------------------------------------
APPENDIX 11 PAGE i
<PAGE> 40
---------------------------------------------------------------------
IF YOU FAIL TO MAKE FULL PAYMENT TO RMST WITHIN TWENTY-ONE (21) DAYS
AFTER THE DATE OF THIS LETTER, YOU ARE INSTRUCTED TO RETURN ALL OF THE
MORTGAGE DOCUMENTS TO RMST.
---------------------------------------------------------------------
Payment for the Mortgage Documents must be made by wire transfer of immediately
available funds to:
- ---------------------------------------------
ABA Number
----------------------------
Attention:
----------------------------
Telephone: (713)
--------------------------
Fax: (713)
-----------------------
For Credit to - Account no.
----------------- -----------------
Ref: [Mortgagors' names and loan nos.]
BY ACCEPTING THE MORTGAGE DOCUMENTS DELIVERED TO YOU WITH THIS LETTER, YOU
CONSENT TO BE RMST'S TRUSTEE AND BAILEE ON THE TERMS DESCRIBED IN THIS LETTER.
RMST REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE DOCUMENTS
AND THIS LETTER AND CONFIRM YOUR AGREEMENTS AS SET FORTH IN THIS LETTER BY
SIGNING AND RETURNING TO RMST THE ENCLOSED COPY OF THIS LETTER, ALTHOUGH YOUR
FAILURE TO DO SO SHALL NOT DIMINISH, AFFECT OR IMPAIR ANY TERM OR CONDITION OF
THIS LETTER, YOUR AGREEMENTS STATED HEREIN (WHICH ARISE AUTOMATICALLY ON YOUR
ACCEPTANCE OF THIS LETTER AND THE ENCLOSED MORTGAGE DOCUMENTS) OR THEIR BINDING
EFFECTS ON YOU. The preceding provision shall in no way affect or impair any
claim or cause of action against you in respect of your [use this text for
Mortgage Loans covered by Commitments: COMMITMENT] [use this text for Mortgage
Loans that are not covered by Takeout Commitments: AGREEMENTS WITH THE
ORIGINATOR].
This letter shall bind you and your successors, assigns, trustees, conservators
and receivers and shall benefit RMST and its successors and assigns.
Very truly yours,
HSA RESIDENTIAL MORTGAGE SERVICES OF TEXAS,
INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Accepted and agreed to:
- ------------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
- -------------------------------------------------------------------------------
APPENDIX 11 PAGE ii
<PAGE> 1
EXHIBIT 6(o)
Public Securities Association [PSA LOGO]
40 Broad Street, New York, NY 10004-2373
Telephone (212) 809-7000
MASTER REPURCHASE AGREEMENT
Dated as of: JUNE 22, 1999
---------------
Between:
IMPAC WAREHOUSE LENDING GROUP
and
AUSTIN FUNDING CORPORATION.
1. Applicability
From time to time the parties hereto may enter into transactions in which
one party ("Seller") agrees to transfer to the other ("Buyer") securities or
financial instruments ("Securities") against the transfer of funds by Buyer,
with a simultaneous agreement by Buyer to transfer to Seller such Securities at
a date certain or on demand, against the transfer of funds by Seller. Each such
transaction shall be referred to herein as a "Transaction" and shall be governed
by this Agreement, including any supplemental terms or conditions contained in
Annex 1 hereto, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to any party, (i) the commencement by
such party as debtor of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar official for such
party or any substantial part of its property, or (ii) the commencement of any
such case or proceeding against such party, or another seeking such an
appointment, or the filing against a party of an application for a protective
decree under the provisions of the Securities Investor Protection Act of 1970,
which (A) is consented to or not timely contested by such party, (B) results in
the entry of an order for relief, such an appointment, the issuance of such a
protective decree or the entry of an order having a similar effect, or (C) is
not dismissed within 15 days, (iii) the making by a party of a general
assignment for the benefit of creditors, or (iv) the admission in writing by a
party of such party's inability to pay such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by Seller to
Buyer pursuant to Paragraph 4(a) hereof;
(c) "Buyer's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage (which may be equal to
the percentage that is agreed to as the Seller's Margin Amount under
subparagraph (q) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date;
(d) "Confirmation", the meaning specified in Paragraph 3(b) hereof;
(e) "Income", with respect to any Security at any time, and principal
thereof then payable and all interest, dividends or other distributions thereon;
(f) "Margin Deficit", the meaning specified in Paragraph 4(a) hereof;
(g) "Margin Excess", the meaning specified in Paragraph 4(b) hereof;
(h) "Market Value", with respect to any Securities as of any date, the
price for such Securities on such date obtained from a generally recognized
source agreed to by the parties or the most recent closing bid quotation from
such a source, plus accrued Income to the extent not included therein (other
than any Income credited or transferred to, or applied to the obligations of,
Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to
market practice for such Securities);
(i) "Price Differential", with respect to any transaction hereunder as of
any date, the aggregate amount obtained by daily application of the Pricing Rate
for such Transaction to the Purchase Price for such Transaction on a 360 day per
year basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but excluding)
the date of determination (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction);
<PAGE> 2
(j) "Pricing Rate", the per annum percentage rate for determination of the
Price Differential;
(k) "Prime Rate", the prime rate of U.S. money center commercial banks as
published in The Wall Street Journal;
(1) "Purchase Date", the date on which Purchased Securities are transferred
by Seller to Buyer;
(m) "Purchase Price", (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter,
such price increased by the amount of any cash transferred by Buyer to Seller
pursuant to Paragraph 4(b) hereof and decreased by the amount of any cash
transferred by Seller to Buyer pursuant to Paragraph 4(a) hereof or applied to
reduce Seller's obligations under clause (ii) of Paragraph 5 hereof;
(n) "Purchased Securities", the Securities transferred by Seller to Buyer
in a Transaction hereunder, and any Securities substituted therefor in
accordance with Paragraph 9 hereof. The term "Purchased Securities" to Paragraph
4(a) and shall exclude Securities returned pursuant to Paragraph 4(b);
(o) "Repurchase Date", the date on which Seller is to repurchase the
Purchased Securities from Buyer, including any date determined by application of
the provisions of Paragraphs 3(c) or 11 hereof;
(p) "Repurchase Price", the price at which Purchased Securities are to be
transferred from Buyer to Seller upon termination of a Transaction, which will
be determined in each case (including Transactions terminable upon demand) as
the sum of the Purchase Price and the Price Differential as of the date of such
determination, increased by any amount determined by the application of the
provisions of Paragraph 11 hereof;
(q) "Seller's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage (which may be equal to
the percentage that is agreed to as the Buyer's Margin Amount under
subparagraph (c) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date.
3. Initiation; Confirmation; Termination
(a) An agreement to enter into a Transaction may be made orally or in
writing at the initiation of either Buyer or Seller. On the Purchase Date for
the Transaction, the Purchased Securities shall be transferred to Buyer or its
agent against the transfer of the Purchase price to an account of Seller.
(b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller
(or both), as shall be agreed, shall promptly deliver to the other party a
written confirmation of each Transaction (a "Confirmation"). The Confirmation
shall describe the Purchased Securities (including CUSIP number, if any),
identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase
Price, (iii) the Repurchase Date, unless the Transaction is to be terminable on
demand, (iv) the Pricing Rate or Repurchase Price applicable to the Transaction,
and (v) any additional terms or conditions of the Transaction not inconsistent
with this Agreement. The Confirmation, together with this Agreement, shall
constitute conclusive evidence of the terms agreed between Buyer and Seller with
respect to the Transaction to which the Confirmation relates, unless with
respect to the Confirmation specific objection is made promptly after receipt
thereof. In the event of any conflict between the terms of such Confirmation and
this Agreement, this Agreement shall prevail.
(c) In the case of transactions terminable upon demand, such demand shall
be made by Buyer or Seller, no later than such time as is customary in
accordance with market practice, by telephone or otherwise on or prior to the
business day on which such termination will be effective. On the date specified
in such demand, or on the date fixed for termination in the case of Transactions
having a fixed term, termination of the Transaction will be effected by transfer
to Seller or its agent of the purchased Securities and any Income in respect
thereof received by Buyer (and not previously credited or transferred to, or
applied to the obligations of, Seller pursuant to Paragraph 5 hereof) against
the transfer of the Repurchase Price to an account of Buyer.
4. Margin Maintenance
(a) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Buyer is less than the aggregate Buyer's Margin Amount for all such Transactions
(a "Margin Deficit"), the Buyer may by notice to Seller require Seller in such
Transactions, at Seller's option, to transfer to Buyer cash or additional
Securities reasonably acceptable to Buyer ("Additional Purchased Securities"),
so that the cash and aggregate Market Value of the Purchased Securities,
including any such Additional Purchased Securities, will thereupon equal or
exceed such aggregate Buyer's Margin Amount (decreased by the amount of any
Margin Deficit as of such date arising from any Transactions in which such Buyer
is acting as Seller).
(b) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Seller exceeds the aggregate Seller's Margin Amount for all such Transactions
at such time (a "Margin Excess"), then Seller may by notice to Buyer require
Buyer in such Transactions, at Buyer's option to transfer cash or Purchased
Securities to Seller, so that the aggregate Market Value of the Purchased
Securities, after deduction of any such cash or any Purchased Securities so
transferred, will thereupon not exceed such aggregate Seller's Margin Amount
(increased by the amount of any Margin Excess as of such date arising from any
Transactions in which such Seller is acting as Buyer).
(c) Any cash transferred pursuant to this Paragraph shall be attributed to
such Transactions as shall be agreed upon by Buyer and Seller.
<PAGE> 3
(d) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer or Seller (or both) under
subparagraphs (a) and (b) of this Paragraph may be exercised only where a Margin
Deficit or Margin Excess exceeds a specified dollar amount or a specified
percentage of the Repurchase Prices for such Transactions (which amount or
percentage shall be agreed to by Buyer and Seller prior to entering into any
such Transactions).
(e) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer and Seller under subparagraphs
(a) and (b) of this Paragraph to require the elimination of a Margin Deficit or
a Margin Excess, as the case may be, may be exercised whenever such a Margin
Deficit or Margin Excess exists with respect to any single Transaction hereunder
(calculated without regard to any other Transaction outstanding under this
Agreement).
5. Income Payments
Where a particular Transaction's term extends over an Income payment date
on the Securities subject to that Transaction, Buyer shall, as the parties may
agree with respect to such Transaction (or, in the absence of any agreement, as
Buyer shall reasonably determine in its discretion), on the date such Income is
payable either (i) transfer to or credit to the account of Seller an amount
equal to such Income payment or payments with respect to any Purchased
Securities subject to such Transaction or (ii) apply the Income payment or
payments to reduce the amount to be transferred to Buyer by Seller upon
termination of the Transaction. Buyer shall not be obligated to take any action
pursuant to the preceding sentence to the extent that such action would result
in the creation of a Margin Deficit, unless prior thereto or simultaneously
therewith Seller transfers to Buyer cash or Additional Purchased Securities
sufficient to eliminate such Margin Deficit.
6. Security Interest
Although the parties intend that all transactions hereunder be sales and
purchases and not loans, in the event any such Transactions are deemed to be
loans, Seller shall be deemed to have pledged to Buyer as security for the
performance by Seller of its obligations under each such Transaction, and shall
be deemed to have granted to Buyer a security interest in, all of the Purchased
Securities with respect to all Transactions hereunder and all proceeds thereof.
7. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds hereunder shall be
in immediately available funds. All Securities transferred by one party hereto
to the other party (i) shall be in suitable form for transfer or shall be
accompanied by duly executed instruments of transfer or assignment in blank and
such other documentation as the party receiving possession may reasonably
request, (ii) shall be transferred on the book-entry system of a Federal Reserve
Bank, or (iii) shall be transferred by any other method mutually acceptable to
Seller and Buyer. As used herein with respect to Securities, "transfer" is
intended to have the same meaning as when used in Section 8-313 of the New York
Uniform Commercial Code or, where applicable, in any federal regulation
governing transfers of the Securities.
8. Segregation of Purchased Securities
To the extent required by applicable law, all Purchased Securities in the
possession of Seller shall be segregated from other securities in its possession
and shall be identified as subject to this Agreement. Segregation may be
accomplished by appropriate identification on the books and records of the
holder, including a financial intermediary or a clearing corporation. Title to
all Purchased Securities shall pass to Buyer an, unless otherwise agreed by
Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging
in repurchase transactions with the Purchased Securities or otherwise pledging
or hypothecating the Purchased Securities, but no such transaction shall relieve
Buyer of its obligations to transfer Purchased Securities to Seller pursuant to
Paragraphs 3, 4, or 11 hereof, or of Buyer's obligation to credit or pay Income
to, or apply Income to the obligations of, Seller pursuant to Paragraph 5
hereof.
Required Disclosure for Transactions in Which the Seller Retains Custody
of the Purchased Securities
Seller is not permitted to substitute other securities for those subject to
this Agreement and therefore must keep Buyer's securities segregated at all
times, unless in this Agreement Buyer grants Seller the right to substitute
other securities. If Buyer grants the right to substitute, this means that
Buyer's securities will likely be commingled with Seller's own securities
during the trading day. Buyer is advised that, during any trading day that
Buyers securities are commingled with Seller's securities, the [will]* [may]**
be subject to liens granted by Seller to [its clearing bank]* [third parties]**
and may be used by Seller for deliveries on other securities transactions.
Whenever the securities are commingled, Seller's ability to resegregate
substitute securities for Buyer will be subject to Seller's ability to satisfy
[the clearing]* [any]** lien or to obtain substitute securities.
- --------------
* Language to be used under 17 C.F.R. Section 403.4(e) if Seller is a
government securities broker or dealer other than a financial institution.
** Language to be used under 17 C.F.R. Section 403.4(d) if Seller is a
financial institution.
<PAGE> 4
9. Substitution
(a) Seller may, subject to agreement with and acceptance by Buyer,
substitute other Securities for any Purchased Securities. Such substitution
shall be made by transfer to Buyer of such other Securities and transfer to
Seller of such Purchased Securities. After substitution, the substituted
Securities shall be deemed to be Purchased Securities.
(b) In Transactions in which the Seller retains custody of Purchased
Securities, the parties expressly agree that Buyer shall be deemed, for purposes
of subparagraph (a) of this Paragraph, to have agreed to and accepted in this
Agreement substitution by Seller of other Securities for Purchased Securities;
provided, however, that such other Securities shall have a Market Value at least
equal to the Market Value of the Purchased Securities for which they are
substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the other that (i) it
is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance, (ii) it will engage in such Transactions as principal (or, if
agreed in writing in advance of any Transaction by the other party hereto, as
agent for a disclosed principal), (iii) the person signing this Agreement on its
behalf is duly authorized to do so on its behalf (or on behalf of any such
disclosed principal), (iv) it has obtained all authorizations of any
governmental body required in connection with this Agreement and the
Transactions hereunder and such authorizations are in full force and effect and
(v) the execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance, charter, by-law or
rule applicable to it or any agreement by which it is bound or by which any of
its assets are affected. On the Purchase Date for any Transaction Buyer and
Seller shall each be deemed to repeat all the foregoing representations made by
it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer fails to transfer
Purchased Securities upon the applicable Repurchase Date, (ii) Seller or Buyer
fails, after one business day's notice, to comply with Paragraph 4 hereof, (iii)
Buyer fails to comply with Paragraph 5 hereof, (iv) an Act of Insolvency occurs
with respect to Seller or Buyer, (v) any representation made by Seller or Buyer
shall have been incorrect or untrue in any material respect when made or
repeated or deemed to have been made or repeated, or (vi) Seller or Buyer shall
admit to the other its inability to, or its intention not to, perform any of its
obligations hereunder (each an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by written notice
to the defaulting party (which option shall be deemed to have been exercised,
even if no notice is given, immediately upon the occurrence of an Act of
Insolvency), the Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur.
(b) In all Transactions in which the defaulting party is acting as Seller,
if the nondefaulting party exercises or is deemed to have exercised the option
referred to in subparagraph (a) of the Paragraph, (i) the defaulting party's
obligations hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable, (ii) to the
extent permitted by applicable law, the Repurchase Price with respect to each
such Transaction shall be increased by the aggregate amount obtained by daily
application of (x) the greater of the Pricing Rate for such Transaction or the
Prime Rate to (y) the Repurchase Price for such Transaction as of the Repurchase
Date as determined pursuant to subparagraph (a) of this Paragraph (decreased as
of any day by (A) any amounts retained by the nondefaulting party with respect
to such Repurchase Price pursuant to clause (iii) of the subparagraph, (B) any
proceeds from the sale of Purchased Securities pursuant to subparagraph (d)(l)
of this Paragraph, and (C) any amounts credited to the account of the defaulting
party pursuant to subparagraph (e) of the Paragraph) on a 360 day per year basis
for the actual number of days during the period from and including the date of
the Event of Default giving rise to such option to but excluding the date of
payment of the Repurchase Price as so increased, (iii) all Income paid after
such exercise or deemed exercise shall be retained by the nondefaulting party
and applied to the aggregate unpaid Repurchase Prices owed by the defaulting
party, and (iv) the defaulting party shall immediately deliver to the
nondefaulting party any Purchased Securities subject to such Transactions then
in the defaulting party's possession.
(c) In all Transactions in which the defaulting party is acting as Buyer,
upon tender by the nondefaulting party of payment of the aggregate Repurchase
Prices for all such Transactions, the defaulting party's right, title and
interest in all Purchased Securities subject to such Transactions shall be
deemed transferred to the nondefaulting party, and the defaulting party shall
deliver all such Purchased Securities to the non-defaulting party.
(d) After one business day's notice to the defaulting party (which notice
need not be given if an Act of Insolvency shall have occurred, and which may be
the notice given under subparagraph (a) of this Paragraph or the notice referred
to in clause (ii) of the first sentence of this Paragraph), the nondefaulting
party may:
(i) as to Transactions in which the defaulting party is acting as
Seller, (A) immediately sell, in a recognized market at such price or
prices as the nondefaulting party may reasonably deem satisfactory, any or
all Purchased Securities subject to such Transactions and apply the
proceeds thereof to the aggregate
<PAGE> 5
unpaid Repurchase Prices and any other amounts owing by the defaulting
party hereunder or (B) in its sole discretion elect, in lieu of selling all
or a portion of such Purchased Securities, to give the defaulting party
credit for such Purchased Securities in an amount equal to the price
therefor on such date, obtained from a generally recognized source or the
most recent closing bid quotation from such a source, against the aggregate
unpaid Repurchase Prices and any other amounts owing by the defaulting
party hereunder; and
(ii) as to the Transactions in which the defaulting party is acting as
Buyer, (A) purchase securities ("Replacement Securities") of the same class
and amount as any Purchased Securities that are not delivered by the
defaulting party to the nondefaulting party as required hereunder or (B) in
its sole discretion elect, in lieu of purchasing Replacement Securities, to
be deemed to have purchased Replacement Securities at the price therefor on
such date, obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
(e) As to Transactions in which the defaulting party is acting as Buyer,
the defaulting party shall be liable to the nondefaulting party (i) with respect
to Purchased Securities (other than Additional Purchased Securities), for any
excess of the price paid (or deemed paid) by the nondefaulting party for
Replacement Securities therefor over the Repurchase Price for such Purchased
Securities and (ii) with respect to Additional Purchased Securities, for the
price paid (or deemed paid) by the nondefaulting party for the Replacement
Securities therefor. In addition, the defaulting party shall be liable to the
nondefaulting party for interest on such remaining liability with respect to
each such purchase (or deemed purchase) of Replacement Securities from the date
of such purchase (or deemed purchase until paid in full by Buyer. Such interest
shall be at a rate equal to the greater of the Pricing Rate for such Transaction
or the Prime Rate.
(f) For purposes of this Paragraph 11, the Repurchase Price for each
Transaction hereunder in respect of which the defaulting party is acting as
Buyer shall not increase above the amount of such Repurchase Price for such
Transaction determined as of the date of the exercise or deemed exercise by the
nondefaulting party of its option under subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting party for the
amount of all reasonable legal or other expenses incurred by the nondefaulting
party in connection with or as a consequence of an Event Of Default, together
with interest thereon at a rate equal to the greater of the Pricing Rate for the
relevant Transaction or the Prime Rate.
(h) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under an other agreement or
applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereunto and will enter
into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the
performance of any such obligations shall constitute a default by it in respect
of all Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions hereunder and
(iii) that payments, deliveries and other transfers made by either of them in
respect of any Transaction shall be deemed to have been made in consideration of
payments, deliveries and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments, deliveries and other
transfers may be applied against each other and netted.
13. Notices and Other Communications
Unless another address is specified in writing by the respective party to
whom any notice or other communication is to be given hereunder, all such
notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in Annex II attached hereto.
14. Entire Agreement; Severability
This Agreement shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.
15. Non-assignability; Termination
The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns. This Agreement may be cancelled by
either party upon giving written notice to the other, except that this Agreement
shall, notwithstanding such notice, remain applicable to any Transactions then
outstanding.
<PAGE> 6
16. Governing Law
This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.
17. No Waivers, Etc.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder. No modification or waiver of any provision of this agreement and no
consent by any party to a departure herefrom shall be effective unless and until
such shall be in writing and duly executed by both of the parties hereto.
Without limitation on any of the foregoing, the failure to give a notice
pursuant to subparagraphs 4(a) or 4(b) hereof will not constitute a waiver of
any right to do so at a later date.
18. Use of Employee Plan Assets
(a) If assets of an employee benefit plan subject to any provision of the
Employee Retirement Income Security Act of 1974 ("ERISA") are intended to be
used by either party hereto (the "Plan Party") in a Transaction, the Plan Party
shall so notify the other party prior to the Transaction. The Plan Party shall
represent in writing to the other party that the Transaction does not constitute
a prohibited transaction under ERISA or is otherwise exempt therefrom, and the
other party may proceed in reliance thereon but shall not be required so to
proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph, any
such Transaction shall proceed only if Seller furnishes or has furnished to
Buyer its most recent available audited statement of its financial condition
and its most recent subsequent unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller shall
be deemed (i) to represent to Buyer that since the date of Seller's latest such
financial statements, there has been no material adverse change in Seller's
financial condition which Seller has not disclosed to Buyer, and (ii) to agree
to provide Buyer with future audited and unaudited statements of its financial
condition as they are issued, so long as it is a Seller in any outstanding
transaction involving a Plan Party.
19. Intent
(a) The parties recognize that each Transaction is a "repurchase agreement"
as that term is defined in Section 101 of Title 11 of the United States Code, as
amended (except insofar as the type of Securities subject to such Transaction or
the term of such Transaction would render such definition inapplicable), and a
"securities contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended.
(b) It is understood that either party's right to liquidate Securities
delivered to it in connection with Transactions hereunder or to exercise
any other remedies pursuant to Paragraph 11 hereof, is a contractual right to
liquidate such Transaction as described in Sections 555 and 559 of Title 11 of
the United States Code, as amended.
20. Disclosure Relating to Certain Federal Protections
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is a broker or
dealer registered with the Securities and Exchange Commission ("SEC") under
Section 15 of the Securities Exchange Act of 1934 ("1934 Act"), the Securities
Investor Protection Corporation has taken the position that the provisions of
the Securities Investor Protection Act of 1970 ("SIPA") do not protect the other
party with respect to any Transaction hereunder;
(b) in the case of Transactions in which one of the parties is a government
securities broker or a government securities dealer registered with the SEC
under Section 15C of the 1934 Act, SIPA will not provide protection to the other
party with respect to any Transaction hereunder; and
(c) in the case of Transactions in which one of the parties is a financial
institution, funds held by the financial institution pursuant to a Transaction
hereunder are not a deposit and therefore are not insured by the Federal Deposit
Insurance Corporation, the Federal Savings and Loan Insurance Corporation or the
National Credit Union Share Insurance Fund, as applicable.
IMPAC WAREHOUSE LENDING GROUP, INC. AUSTIN FUNDING CORPORATION.
By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
-------------------------------- ----------------------------------
Title Vice President Title President
----------------------------- -------------------------------
Date 6-29-99 Date 6-24-99
------------------------------ --------------------------------
<PAGE> 7
ANNEX I
SUPPLEMENTAL TERMS AND CONDITIONS
<PAGE> 8
ANNEX II
NAMES AND ADDRESSES FOR COMMUNICATIONS BETWEEN PARTIES
<PAGE> 9
ANNEX I
SUPPLEMENTAL TERMS AND CONDITIONS
The Master Repurchase Agreement between Impac Warehouse Lending Group
("Buyer") and AUSTIN FUNDING CORPORATION ("Seller"), dated as of JUNE 22, 1999
is amended and supplemented as set forth below. All capitalized terms used
herein that are defined in the Master Repurchase Agreement are used herein as
defined therein except to the extent such terms are amended or supplemented
herein.
1. Paragraph 1 of the Master Repurchase Agreement is amended by adding the
following after the word "instruments" and before the parenthetical
"("Securities")" in the second line thereof:
"or whole mortgage loans or any interests in any whole mortgage loans,
including, without limitation, mortgage participation certificates and
mortgage passthrough certificates".
2. Subparagraph 2(a) of the Master Repurchase Agreement is amended by
adding the following after the word "any" and before the word "bankruptcy" in
the second line thereof:
"conservatorship or receivership (within the meaning of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989),".
3. Subparagraph 2(a) of the Master Repurchase Agreement is further amended
by adding the following after the word "a" and before the word "receiver" in
the third line thereof:
"conservator,".
4. Subparagraph 2(h) of the Master Repurchase Agreement is amended by
deleting the defined term "Market Value" and replacing it with the defined term
"Assumed Repurchase Value", and the term Market Value throughout the Master
Repurchase Agreement shall be deemed to denote the Assumed Repurchase Value.
5. Subparagraph 2(h) of the Master Repurchase Agreement is amended by
adding at the end thereof:
"except that the Assumed Repurchase Value of any Securities that are
loans secured by mortgages or deeds of trust on residential dwellings (such
loans, "Mortgage Loans") as of any date shall be the dollar amount ascribed
to such Mortgage Loans on that date by Buyer in its reasonable and sole
discretion, and shall not include any Income on such Mortgage Loans paid to
and held by Seller pursuant to Paragraph 5 hereof, and the Assumed
Repurchase Value of any Additional Purchased Securities shall be the fair
market value thereof as determined by Buyer
<PAGE> 10
in its reasonable and sole discretion"
6. Subparagraph 3(b) of the Master Repurchase Agreement is amended by
adding at the end of the first sentence of Paragraph 3(b):
"In the case of Transactions involving Securities that are Mortgage
Loans, (a) the Purchased Securities shall be identified on a detailed
listing to be provided by Seller to Buyer (a "Mortgage Loan Schedule")
attached to a Certificate of Seller in the form attached hereto, (b) the
Confirmation shall be sent by Seller to Buyer, (c) the documents contained
in the Mortgage File (as defined in Paragraph 7) shall be delivered at the
option of the Buyer to the Buyer, or the Custodian, and held by the
Custodian pursuant to the terms of a Custody Agreement, dated of even date
herewith (the "Custody Agreement"), among Seller, Buyer and Custodian
pursuant to which Custodian shall, among other things, issue Trust
Receipts, as defined therein (the "Trust Receipts"), and (d) the Mortgage
Loans shall be serviced for Buyer by Seller pursuant to the Servicing
Agreement, dated of even date herewith (the "Servicing Agreement"), between
Seller and Buyer."
7. Paragraph 3(b) of the Master Repurchase Agreement is further amended by
deleting the last sentence and replacing it with the following:
"In the event of any conflict between the terms of such Confirmation
and this Agreement, the terms of such Confirmation shall prevail."
8. Subparagraph 3(c) of the Master Repurchase Agreement is amended by
adding at the end of the first sentence of Paragraph 3(c);
"In the case of Transactions involving Securities that are Mortgage
Loans, (i) which meet the requirements of the Seller's Warranties
Agreement, such demand by Buyer may not be made prior to 60 days following
the date of the Transaction in which the Securities were originally
conveyed to Buyer provided no event of default has occurred; (ii) which do
not meet the requirements of the Seller's Warranties Agreement in all
material respects, such demand by Buyer may be made at any time; or (iii)
Seller may repurchase at any time, irrespective of whether the particular
Mortgage Loans(s) meets the requirements of the Seller's Warranties
Agreement. In any case, such demand either by Buyer or by Seller shall be
for a repurchase of all Purchased Securities subject to the related
Transaction and such demand shall be made no later than 5:00 p.m. New York
City time on the business day preceding the day on which such termination
will be effective, which termination shall also be on a business day. Upon
receipt of the Repurchase Price in immediately available funds, Buyer shall
deliver the Trust Receipt for such Transaction to Custodian for further
disposition in accordance with the terms of the Custody Agreement."
9. Paragraph 4 of the Master Repurchase Agreement is amended by adding a
<PAGE> 11
new subparagraph (f) as follows:
"(f) In the case of Transactions involving Securities that are
Mortgage Loans, (i) the percentage used in calculating Buyer's Margin
Amount for such Transaction shall be the percentage specified in the
Confirmation and (ii) Additional Purchased Securities shall be limited to
obligations issued by the United States government or mortgaged-backed
securities issued by the Federal National Mortgage Association ("FNMA") or
guaranteed by the Government National Mortgage Association ("GNMA") and
otherwise acceptable to Buyer in its sole discretion, and (iii) the
provisions of subparagraphs (b), (d) and (e) of this Paragraph shall not
apply."
10. Paragraph 5 of the Master Repurchase Agreement is amended by adding the
following at the end of the last sentence of Paragraph 5:
"Notwithstanding the foregoing and except as provided in Paragraph 11
of this Agreement, in the case of Transactions involving Securities that
are Mortgage Loans, Seller shall be deemed to hold for the benefit of, and
in trust for, Buyer all Income, including without limitation all scheduled
and unscheduled principal and interest payments, received by Seller with
respect to such Mortgage Loans. Seller shall service the Mortgage Loans, or
supervise the servicing of the Mortgage Loans, for the benefit of Buyer in
accordance with the terms of the Servicing Agreement. On the 10th day of
each month, Seller will provide Buyer with reports substantially identical
in form to ENMA's form 2010 remittance report with respect to all Mortgage
Loans then involved in any Transaction hereunder. Within three business
days of its receipt of each such report, Buyer either (i) shall determine
that a Margin Deficit has occurred and direct Seller to pay to Buyer all
Income received in the period covered by such report to the extent of such
Margin Deficit, in which case Buyer shall be deemed to have released any
excess Income to Seller, or (ii) shall determine that a Margin Deficit has
not occurred, in which case Buyer shall be deemed to have released all such
Income to Seller."
11. Paragraph 6 of the Master Repurchase Agreement is amended by adding the
following after the word "the" and before the words "Purchased Securities" in
the fourth line thereof
"Seller's right (including the power to convey title thereto), title
and interest in and to the".
12. Paragraph 6 of the Master Repurchase Agreement is amended by adding the
following after the words "Purchased Securities" and before the word "with" in
the fourth line thereof.
", the contractual right to receive payments, including the right to
payments
<PAGE> 12
of principal and interest and the right to enforce such payments, arising
from or under any of the Purchased Securities, the contractual right to
service each Mortgage Loan, any sub-servicing agreements with respect to
each Mortgage Loan, and all documents in each Mortgage File,".
13. Paragraph 6 of the Master Repurchase Agreement is amended by adding the
following after the word "all" and before the word "proceeds" in the fifth line
thereof:
"income, payments, products and".
14. Paragraph 6 of the Master Repurchase Agreement is amended by adding the
following after the word "thereof" and before the period in the fifth line
thereof:
"(the "Collateral")".
15. Paragraph 6 of the Master Repurchase Agreement is amended by adding the
following at the end of the last sentence of Paragraph 6:
"In such event, the parties hereto intend to create for the benefit of
Buyer, as secured party, a legally valid and enforceable first priority
perfected security interest in the Collateral. On or prior to each Purchase
Date, Seller shall cause to be filed in the appropriate filing offices of
the jurisdiction in which Seller maintains its place of business, or its
chief executive office if Seller has more than one place of business, in
accordance with applicable law, Uniform Commercial Code financing
statements naming Seller as debtor, Buyer as secured party, and the
Collateral as collateral."
16. Paragraph 7 of the Master Repurchase Agreement is amended by adding the
following at the end of the last sentence of Paragraph 7:
"In the case of Transactions involving Securities that are Mortgage
Loans, the transfer of such Mortgage Loans for the purposes of this
Paragraph 7 shall include the delivery to the Buyer or Custodian, as
directed by the Buyer, the following documents (the "Mortgage File") with
respect to each Mortgage Loan, as set forth in the Custody Agreement:
subject, however, to the paragraph immediately following clause (xii)
below;"
(i) the original note or other evidence of indebtedness (the "Mortgage
Note") of the obligor thereon (each such obligor, a "Mortgagor"), endorsed
to the order of or assigned to Seller by the holder/payee thereof, without
recourse, and endorsed by Seller, without recourse, in blank;
(ii) the original mortgage, deed of trust or other instrument (the
"Mortgage") creating a first lien on the underlying property securing the
Mortgage Loan (the "Mortgaged Property"), naming Seller as the "mortgagee"
or "beneficiary"
<PAGE> 13
thereof, and bearing on the face thereof the address of Seller as provided
in Paragraph 13 of this Agreement, or, if the Mortgage does not name Seller
as the mortgagee/beneficiary, the Mortgage, together with an instrument of
assignment assigning the Mortgage, individually or together with other
Mortgages, to Seller and bearing on the face thereof the address of Seller
as provided in Paragraph 13 of this Agreement, and, in either case, bearing
evidence that such instruments have been recorded in the appropriate
jurisdiction where the Mortgaged Property is located (or, in lieu of the
original of the Mortgage or the assignment thereof, a duplicate or
conformed copy of the Mortgage or the instrument of assignment, if any,
together with a certificate of either the closing attorney or an officer of
the title insurer that issued the related title insurance policy, or a
certificate of receipt from the recording office, certifying that such copy
or copies represent true and correct copy(ies) of the original(s) and that
such original(s) have been or are currently submitted to be recorded in the
appropriate governmental recording office of the jurisdiction where the
Mortgaged Property is located);
(iii) an original assignment of Mortgage, in blank, which assignment
shall be in form and substance acceptable for recording and, in the event
that the Seller acquired the Mortgage Loan in a merger, the assignment must
be by "[Seller], successor by merger to [name of predecessor]";
(iv) any intervening assignment of the Mortgage not included in (ii)
above, including any warehousing assignment;
(v) any assumption, modification, extension or guaranty agreement;
(vi) the Lender's title insurance policy, or, if such policy has not
been issued, a written commitment or interim binder issued by the title
insurance company evidencing that the required title insurance coverage is
in effect and unconditionally guaranteeing the holder of the Mortgage Loan
that the lender's title insurance policy will be issued;
(vii) if applicable, any policy or certificate of primary mortgage
guaranty insurance;
(viii) if the Mortgage Note or Mortgage or any other material document
or instrument relating to the Mortgage Loan has been signed by a person on
behalf of the Mortgagor, the power of attorney or other instrument that
authorized and empowered such person to sign with recording information
thereon;
(ix) with respect to FHA insured Mortgage Loans, the original FHA
Insurance Contract, together with a completed HUD Form 92080 "Mortgagee
Record Change" with the Purchasing Mortgagees name left blank;
<PAGE> 14
(x) with respect to VA guaranteed Mortgage Loans, the original VA Loan
Guaranty Certificate;
(xi) with respect to each Mortgage Loan which is subject to the
provisions of the Homeownership and Equity Protection Act of 1994, a copy
of a notice to each entity which was a purchaser or assignee of the
Mortgage Loan, satisfying the provisions of such Act and the regulations
issued thereunder, to the effect that the Mortgage Loan is subject to
special truth in lending rules; and
(xii) any other document as may be requested by Buyer.
"Notwithstanding the above, Seller shall, at least one Business Day
prior to the related Purchase Date, deliver to or cause to be delivered to
Buyer or Custodian, as directed by Buyer, originals or true copies of such
documents contained in the Mortgage File; and within forty-eight (48) hours
after such purchase date Seller shall deliver or cause to be delivered to
Buyer or Custodian, as directed by Buyer, the originals (to the extent not
previously delivered) of all such documents in the Mortgage File. Failure
by Seller to deliver or cause to be delivered such documents within such
time periods specified in the immediately preceding sentence shall
constitute an Event of Default under the Master Repurchase Agreement.
Seller shall cause each closing agent to hold any originals of such
documents in the Mortgage File held by such closing agent prior to delivery
thereof to Buyer or Custodian, as directed by Buyer, in trust and as bailee
for Buyer.
In addition to the documents contained in the Mortgage File, Seller
shall deliver to buyer on or prior to the Purchase Date for such
Transaction a security release certification acceptable to Buyer,
certifying the release of any security interest of a third party which may
have existed with respect to any of the Mortgage Loans subject to such
Transaction during the 45-day period prior to the related Purchase Date.
Seller shall include on each Mortgage Loan Schedule a code indicating
whether the Mortgage Loan is subject to the Homeownership and Equity
Protection Act of 1994."
Seller shall cause to be maintained a servicing file ("Servicing
File") with respect to each Mortgage Loan that shall contain the following
documents:
(a) copies of all the documents contained in the Mortgage File;
(b) any instrument necessary to complete identification of any
exception set forth in the exception schedule in the title
insurance policy (e.g., map or plat, restrictions, easements,
sewer agreements,
<PAGE> 15
home association declarations, etc.);
(c) a survey of the Mortgaged Property;
(d) any hazard insurance policy or flood insurance policy, with
extended coverage of the hazard insurance policy;
(e) the Mortgage Loan closing statement (Form HUD-1) and any other
truth-in-lending, real estate settlement procedure forms or other
disclosure statements required by law;
(f) the residential loan application, if applicable;
(g) any verification of employment and income;
(h) if applicable, any verification of acceptable evidence of source
and amount of downpayment;
(i) any credit report on the borrower under the Mortgage Loan;
(j) each residential appraisal report;
(k) a photograph of the Mortgaged Property;
(l) any tax receipts, insurance premiums, ledger sheets, payment
records, insurance claim files and correspondence, current and
historical computerized data files, underwriting standards used
for origination and all other papers and records developed or
originated by the Seller, any servicer or others, required to
document the Mortgage Loan or to service the Mortgage Loan; and
(m) any other document as may be requested by Buyer.
Seller shall cause to be delivered to Buyer each Servicing File upon Event of
Default by Seller under the Master Repurchase Agreement.
17. Paragraph 8 of the Master Repurchase Agreement is amended by deleting
the last sentence of Paragraph 8 and substituting the following:
"Title to all Purchased Securities (except for Securities that are
Mortgage Loans) shall pass to Buyer. In the case of Purchased Securities
that are Mortgage
<PAGE> 16
Loans, upon transfer of the Mortgage Loans to Buyer as set forth in
Paragraph 3(a) of this Agreement and until termination of any Transactions
as set forth in Paragraphs 3(c) or 11 of this Agreement, ownership of each
Mortgage Loan, including each document in the related Mortgage File, is
vested in Buyer. Upon transfer of the Mortgage Loans to Buyer as set forth
in Paragraph 3(a) of this Agreement and until termination of any
Transactions as set forth in Paragraphs 3(c) or 11 of this Agreement,
record title in the name of Seller to each Mortgage shall be retained by
Seller in trust, for the benefit of Buyer, for the sole purpose of
facilitating the servicing and the supervision of the servicing of the
Mortgage Loans pursuant to the Servicing Agreement. Unless otherwise agreed
by Buyer and Seller, nothing in this Agreement shall preclude Buyer from
engaging in repurchase transactions with the Purchased Securities or
otherwise pledging or hypothecating the Purchased Securities, but no such
transaction shall relieve Buyer of its obligations to transfer Purchased
Securities (and, with respect to the Mortgage Loans, not substitutes
therefor) to Seller pursuant to Paragraphs 3, 4 or 11 hereof. Upon
termination of any Transactions as set forth in Paragraph 3(c) of this
Agreement, Buyer agrees to execute promptly endorsements of the Mortgage
Notes, assignments of the Mortgages and UCC-3 assignments, to the extent
that such documents are prepared by Seller for Buyer's execution, are
delivered to Buyer by Seller and are necessary to reconvey, without
recourse, to Seller and perfect title of like tenor to that conveyed to
Buyer to the related Mortgage Loans. Buyer agrees to cooperate with Seller
to identify documents that may be required to effect such reconveyance and
perfection of title to Seller."
18. Subparagraph 9(b) of the Master Repurchase Agreement is amended by
adding the following after the word "substituted" and before the period in the
fifth line thereof:
"; provided, further, that, in the case of Transactions involving
Securities that are Mortgage Loans, the retention by Seller of custody of
any document in any Mortgage File or otherwise shall be held by Seller in
trust Buyer for purposes of servicing or supervising the servicing of the
related Mortgage Loan and shall not be deemed to constitute Seller's
retention of custody of the Purchased Securities for purposes of this
subparagraph".
19. Paragraph 10 of the Master Repurchase Agreement is amended by adding
the following clauses at the end of the first sentence of Paragraph 10 after the
word "affected" and before the period:
", (vi) Seller and Buyer have entered into the Transaction described
in each Confirmation contemporaneously with the sale of the Purchased
Securities by Seller to Buyer and the transfer of the Purchase Price by
Buyer to Seller, or, in the event that the Transaction is deemed to
constitute a loan, contemporaneously with the grant of the security
interest in the Collateral by Seller to Buyer pursuant to Paragraph 6
hereof and the transfer of the consideration therefor, consisting of the
<PAGE> 17
extension of the Purchase Price, which represents the loan proceeds, by
Buyer to Seller, (vii) the board of directors of Seller has approved the
form of Confirmation and the Master Repurchase Agreement, and such approval
is reflected in the minutes of said board, and (viii) each Confirmation,
the Master Repurchase Agreement, the Custody Agreement and the Servicing
Agreement have been and shall be, continuously, from the time of their
execution, a corporate record of Seller."
20. Paragraph 11 is amended by inserting the words ", other than any
representation made by Seller as to a particular Mortgage Loan," after the words
"made by Seller or Buyer" on the fourth line thereof.
21. Paragraph 11 is further amended by deleting the word "or" immediately
preceding clause (vi) and by adding at the end of such clause, immediately
preceding the parenthesis, the following:
(vii) Buyer shall have reasonably determined that Seller is or will be
unable to meet its commitments under this Agreement, the Custody
Agreement, the Guaranty, the Sellers Warranties Agreement, the
Servicing Agreement and any other related agreement (such
agreements, the "Transaction Documents") and shall have notified
Seller of such determination and such other party shall not have
responded with appropriate information to the contrary to the
satisfaction of the notifying party within 24 hours;
(viii) The Master Repurchase Agreement shall for any reason cease to
create a valid, first priority security interest in any of the
Purchased Securities purported to be covered thereby;
(ix) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least $100,000
is rendered against Seller, and the same remains undischarged for
a period of 30 days during which execution of such judgment is not
effectively stayed;
(x) Seller shall fail to observe or perform any of the covenants or
agreements under any Transaction Document, which failure
materially and adversely affects the rights of the Buyer;
(xi) Any event of default or any event which with notice, the passage
of time or both shall constitute an event of default shall occur
and be continuing under any repurchase or other financing
agreement for borrowed funds or indenture for borrowed funds by
which Seller is bound or affected shall occur and be continuing;
(xii) In the good faith judgment of Buyer, a material adverse change
shall have
<PAGE> 18
occurred in the business, operations, properties, prospects or
condition (financial or otherwise) of Seller;
(xiii) Seller shall request written assurances as to the financial
well-being of Buyer and such assurances shall not have been
provided within 24 hours of such request;
(xiv) Seller shall be in default with respect to any normal and
customary covenants under any debt contract or agreement, any
servicing agreement or any lease to which it is a party, which
default could materially and adversely affect the financial
condition of Seller (which covenants include, but are not limited
to, an Act of Insolvency of Seller or the failure of Seller to
make required payments under such contract or agreement as they
become due);
(xv) Any representation or warranty made by Seller in any Transaction
Document shall have been incorrect or untrue in any material
respect (to the extent that such representation or warranty does
not incorporate a materiality limitation in its terms) when made
or repeated or when deemed to have been made or repeated;
(xvi) Seller shall fail to promptly notify Buyer of (i) the acceleration
of any debt obligation or the termination of any credit facility
of Seller, respectively; (ii) the amount and maturity of any such
debt assumed after the date hereof; (iii) any adverse developments
with respect to pending or future litigation involving Seller,
respectively; and (iv) any other developments which might
materially and adversely affect the financial condition of Seller;
(xvii) Seller's audited annual financial statements or the notes thereto
or other opinions or conclusions stated therein shall be qualified
or limited by reference to Seller's status as a "going concern";
(xviii) Seller shall fail to maintain a tangible net worth of no less than
$935,435. The term "tangible net worth" shall mean the excess of
all of the Seller's assets (excluding any value for goodwill,
trademarks, patents, copyrights, organization expense and other
similar intangible items) over all its liabilities as completed
and determined in accordance with generally accepted accounting
principles consistently applied.
(xx) Seller shall fail to deliver to Buyer or Custodian as directed by
Buyer the documents in the Mortgage File within the time period
specified in 1 Paragraph 7 of the Master Repurchase Agreement.
<PAGE> 19
22. Subparagraph 11(d) of the Master Repurchase Agreement is amended by
deleting the words that precede Subparagraph 11(d)(i) and replacing them with
the words "The nondefaulting party may with concurrent notice to the defaulting
party:".
23. Subparagraph 11(d)(i) of the Master Repurchase Agreement is amended by
inserting the words "or in any other commercially reasonable manner" after the
word "market" and before the word "at", on the second line thereof.
24. Subparagraph 11(d)(i) of the Master Repurchase Agreement is amended by
adding the following after the word "hereunder" and before the semi-colon:
"and in either case upon the determination and receipt by Buyer, in a
manner deemed final and complete by Buyer in its sole discretion, of the
aggregate unpaid Repurchase Prices and any other amounts owing by the
defaulting party, including, without limitation, any unpaid fees, expenses
or other amounts owing to the Custodian under the Custody Agreement, or to
which Buyer is otherwise entitled hereunder, Buyer shall transfer the
portion of the Purchased Securities and proceeds thereof, including without
limitation, any proceeds of a sale of the servicing rights to the Mortgage
Loans, held by Buyer following such receipt to either (i) Seller, if in
Buyer's sole discretion Seller is legally entitled thereto, (ii) such other
party or person as is in Buyer's reasonable judgment is legally entitled
thereto, or (iii) if Buyer cannot determine in its reasonable judgment the
person or party entitled thereto, a court of competent jurisdiction."
25. Paragraph 11 of the Master Repurchase Agreement is amended by adding a
new Subparagraph (j) as follows:
"(j) Seller acknowledges that any delay in the ability of Buyer to
exercise its remedies pursuant to Paragraph 11 hereof shall result in
irreparable injury to Buyer."
26. Paragraph 13 of the Master Repurchase Agreement is amended by deleting
the text thereof and replacing it with the following:
<PAGE> 20
"Any notice or communication in respect of this Agreement will be
sufficiently given to a party if in writing and delivered in person, sent
by certified or registered mail, return receipt requested, or by overnight
courier or given by facsimile transfer at the following address or
facsimile number:
If to [BUYER]:
Impac Warehouse Lending Group
1401 Dove Street
Newport Beach, CA 92660
Attention: Zoila Velasco
Facsimile No.: (949) 475-3950
If to [SELLER]:
AUSTIN FUNDING CORPORATION
823 CONGRESS AVE., SUITE #515
AUSTIN, TX 78701
Attention: Glenn LaPointe
Facsimile Number: (512) 481-8001
A notice or communication will be effective:
(i) if delivered by hand or sent by overnight courier, on the day and
time it is delivered;
(ii) If sent by facsimile transfer, on the day it is sent; or
(iii) if sent by certified or registered mail, return receipt requested,
three days after dispatch.
Either party may by notice to the other change the address or facsimile
number at which notices or communications are to be given to it."
27. Paragraph 14 of the Master Repurchase Agreement is amended by inserting
the words "with respect to Securities that consist of mortgage loans" after the
word "transactions" and before the period on the second line thereof.
<PAGE> 21
28. Intentionally Omitted
29. Intentionally Omitted
30. Subparagraph 20(c) is amended by deleting the words "the Federal
Savings and Loan Insurance Corporation" in the third line thereof and
substituting therefor the following:
"through either the Bank Insurance Fund or the Savings Association
Insurance Fund,".
31. This Annex I is executed and shall be construed as an agreement
supplemental to the Master Repurchase Agreement and, as provided in the Master
Repurchase Agreement, this Annex I forms a part thereof.
32. All of the covenants, stipulations, promises and agreements in this
Annex I shall bind the successors and assigns of the parties hereto, whether
expressed or not.
33. This Annex I may be executed in any number of counterparts, each of
which shall be an original but such counterparts shall together constitute but
one and the same instrument.
34. Seller shall promptly provide such further assurances or agreements as
Buyer may request in order to effect the purposes of this Master Repurchase
Agreement, including without limitation, the delivery of any further documents
to ensure that Buyer maintains a first priority perfected security interest in
the Collateral pursuant to Paragraph 6 hereof and to carry into effect the
purpose, of the Transaction Documents.
35. Buyer is hereby appointed the attorney-in-fact of Seller for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing or endorsing any instruments that Buyer may deem necessary or
advisable to accomplish the purposes hereof, including, without limitation,
completing or correcting any endorsement of a Mortgage Note or assignment of a
Mortgage, which appointment as attorney-in-fact is irrevocable and coupled with
an interest. Without limiting the generality of the foregoing, Buyer shall have
the right and power during the occurrence and continuation of any Event of
Default to receive, endorse and collect all checks made payable to the order of
Seller representing any payment on account of the principal of or interest on
any of the Collateral and to give full discharge for the same.
36. Seller shall promptly pay as and when payment is due all, and Buyer
shall not be liable for any, expenses, fees and charges incurred by Buyer or
Seller (other than the salaries and overhead of Buyer and its affiliates)
arising out of or related in any way, to the administration and enforcement of
this Agreement or the Custody Agreement ("Costs"), including, without
limitation, legal expenses, the fees and expenses of the Custodian, recording
and filing fees and any costs associated with reconveyance of the Purchased
Securities and, in the event that any Costs are incurred by Buyer, Seller shall
reimburse Buyer on demand of Buyer accompanied by a statement describing the
circumstances and the nature of the Cost, by wire transfer of immediately
available federal funds.
<PAGE> 22
37. Seller and Buyer contemplate that all Mortgage Loans purchased by Buyer
and subject to repurchase pursuant to this Master Repurchase Agreement shall
have an average daily balance (in principal amount) of $1,500,000 (the "Minimum
Usage Amount"). If, within forty-five (45) days of the date hereof, Seller shall
not have sold any Mortgage Loans to Buyer pursuant to this Master Repurchase
Agreement, Seller shall promptly pay Buyer $1,500. If at any time after
forty-five (45) days after the Seller shall have commenced selling Mortgage
Loans to Buyer, pursuant to this Master Repurchase Agreement but the average
daily balance (in principal amount) of all Mortgage Loans held by Buyer is less
than the Minimum Usage Amount, Seller shall pay Buyer a fee to be determined by
Buyer in its sole discretion, provided, however such fee shall not exceed $1,500
during any thirty (30) day period.
38. This Annex I shall supersede any existing annex to or modification of
the Master Repurchase Agreement.
[BUYER] [SELLER]
IMPAC WAREHOUSE LENDING GROUP AUSTIN FUNDING CORPORATION
By: /s/ ZOILA VELASCO By: /s/ GLENN LAPOINTE
------------------------------ ------------------------------
Name: Zoila Velasco Name: Glenn LaPointe
---------------------------- ----------------------------
Title: Vice President Title: President
--------------------------- ---------------------------
Date: 6-29-99 Date: 6-24-99
---------------------------- ----------------------------
<PAGE> 23
CERTIFICATE OF SELLER
I, ________________, hereby certify that I am the duly appointed
________________ of _________________, a ____________________ (the "Seller").
The undersigned hereby represents, warrants and covenants on behalf of the
Seller as follows:
1. Pursuant to the sale of the mortgage loans set forth on Annex I hereto
(the "Mortgage Loans") by the Seller to Impac Warehouse Lending Group ("Impac")
pursuant to a Master Repurchase Agreement, dated as of JUNE 22, 1999 between the
Company and Impac, the Company hereby sells, transfers, assigns, sets over and
otherwise conveys to Impac all of its right (including the power to convey title
thereto), title and interest in and to each document, including, without
limitation, those documents set forth on Exhibit A hereto, held by or on behalf
of the Company with respect to each Mortgage Loan.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: 6-24-99
-----------------
------------------------
By: /s/ GLENN LAPOINTE
--------------------------
Name: Glenn LaPointe
------------------------
Title: President
-----------------------
<PAGE> 24
================================================================================
IMPAC WAREHOUSE LENDING GROUP
Initial Purchaser
and
AUSTIN FUNDING CORPORATION
Seller
SELLER'S WARRANTIES AGREEMENT
Dated as of JUNE 22,1999
Mortgage Loans
-----------------------
================================================================================
<PAGE> 25
This is a Seller's Warranties Agreement, dated and effective as of JUNE
22, 1999 and is executed between IMPAC WAREHOUSE LENDING GROUP, a California
corporation, as the initial purchaser ("Initial Purchaser"), and AUSTIN FUNDING
CORPORATION as the seller ("Seller").
PRELIMINARY STATEMENTS
From time to time, the Initial Purchaser will be purchasing from the
Seller pursuant to a Master Repurchase Agreement dated as of the Closing Date
between the Seller and the Initial Purchaser (the "Master Repurchase Agreement")
the mortgage loans which are subject to this Agreement, and the Seller has
agreed to make certain representations and warranties with respect thereto.
In consideration of the premises and the mutual agreements hereinafter
set forth, the Initial Purchaser and the Seller agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms.
Capitalized terms not defined herein shall have the meanings given to
them in the Master Repurchase Agreement. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings specified in this Article:
"Agreement": This Seller's Warranties Agreement including all exhibits
hereto, amendments hereof and supplements hereto.
"Appraised Value": With respect to any Mortgage Loan, the value of the
related Mortgaged Property based upon the appraisal made for the originator at
the time of origination of the Mortgage Loan or the sales price of the Mortgaged
Property at such time of origination, whichever is less, provided, however, that
in the case of a Refinanced Mortgage Loan, such value is based solely upon the
appraisal made at the time of origination of such Refinanced Mortgage Loan.
"Assignment": An individual assignment of the Mortgage, notice of
transfer or equivalent instrument, sufficient under the laws of the jurisdiction
wherein the related Mortgaged Property is located to reflect of record the sale
or transfer of the Mortgage Loan.
"Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a
legal holiday in the State of New York, or (iii) a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to be closed.
"Closing Date": The date on which the Initial Purchaser funds any
purchase pursuant to the Master Repurchase Agreement.
"Cut-off Date": The first day of the month in which the related
Purchase Date occurs.
<PAGE> 26
-2-
"Due Date": The date of each month on which each Monthly Payment is due
on a Mortgage Loan, exclusive of any days of grace.
"Escrow Account": An account maintained by the Seller for the deposit
of Escrow Payments received in respect of one or more Mortgage Loans.
"Escrow Payments": The amounts constituting ground rents, taxes,
assessments, water rates, common charges in condominiums and planned unit
developments, mortgage insurance premiums, fire and hazard insurance premiums
and other payments which have been escrowed by the Mortgagor with the mortgagee
pursuant to any Mortgage Loan.
"FHA": The Federal Housing Administration or any successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation or any successor
organization.
"FNMA": The Federal National Mortgage Association or any successor
organization. "Initial Purchaser": Impac Warehouse Lending Group
"Interim Period": The period of time from the Closing Date to the
Servicing Transfer Date, during which period the Seller shall service the
Mortgage Loans on behalf of the Purchaser.
"Loan-to-Value Ratio" or "LTV": With respect to any Mortgage Loan, the
original principal balance of such Mortgage Loan divided by the Appraised Value
of the related Mortgaged Property.
"Master Repurchase Agreement": As defined in the Preliminary Statement
hereto.
"Monthly Payment": The scheduled monthly payment of principal and
interest on a Mortgage Loan which is payable by a Mortgagor under the related
Mortgage Note.
Mortgage": The mortgage, deed of trust or other instrument creating a
lien on real property securing the Mortgage Note.
"Mortgage File": The mortgage documents pertaining to a particular
Mortgage Loan which are specified in Exhibit A hereto.
"Mortgage Interest Rate": The annual rate at which interest accrues on
any Mortgage Loan.
"Mortgage Loan": An individual Mortgage Loan, including but not limited
to, all documents included in the Mortgage File, the Monthly Payments, principal
prepayments, cash liquidations, primary insurance proceeds, other insurance
proceeds, condemnation proceeds, liquidation proceeds, and any and all rights,
benefits, proceeds and obligations arising therefrom or in connection therewith,
which is sold by the Seller to the Initial Purchaser and which is the subject of
this Agreement. The Mortgage Loans originally subject to this Agreement are
identified on the
<PAGE> 27
-3-
Mortgage Loan Schedule.
"Mortgage Loan Schedule": The list of Mortgage Loans subject to this
Agreement and identified on the schedule attached to the related Certificate of
Seller, which list shall set forth the following information with respect to
each Mortgage Loan:
(i) the loan number;
(ii) the Mortgagor's name;
(iii) the street address of the Mortgaged Property, including
city, state and zip code;
(iv) the Mortgage Interest Rate as of the Cut-off Date;
(v) the original term;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the remaining term to amortized maturity and the stated
maturity date;
(ix) the Monthly Payment as of the Cut-off Date;
(x) the outstanding principal balance as of the Cut-off Date,
after giving effect to all payments of principal received on
or before such date;
(xi) the Loan-to-Value Ratio at origination;
(xii) a code indicating whether the Mortgaged Property is occupied
by owner;
(xiii) a code indicating the lien priority of the related Mortgage;
(xiv) a code indicating the type of residential dwelling;
(xv) a code indicating the credit grade of the related Mortgagor;
(xvi) with respect to each adjustable rate Mortgage Loan, the
index;
(xvii) with respect to each adjustable rate Mortgage Loan, the
margin;
(xviii) with respect to each adjustable rate Mortgage Loan, the
Mortgage Interest Rate at origination; and
<PAGE> 28
-4-
(xix) with respect to each adjustable rate Mortgage Loan, the
Monthly Payment at origination.
Such schedule shall also set forth the weighted average of the amounts set forth
in (iv) and (viii) above and the total of the amounts described under (x) above
for all of the Mortgage Loans. Such list may be in the form of more than one
list, collectively setting forth all of the information required.
"Mortgage Note": The note of a Mortgagor secured by a Mortgage.
"Mortgaged Property": The underlying real property securing repayment
of a Mortgage Note.
"Mortgagor": The obligor on a Mortgage Note.
"Purchaser": Impac Warehouse Lending Group as Initial Purchaser and
holder of the Mortgage Loans and any subsequent holder or holders of the
Mortgage Loans.
"Refinanced Mortgage Loan": A Mortgage Loan which was made to a
Mortgagor who owned the Mortgaged Property prior to the origination of such
Mortgage Loan and the proceeds of which were used in whole or part to satisfy an
existing mortgage.
"Related Documents": The documents, other than this Agreement, entered
into between the Seller and the Initial Purchaser with respect to the Mortgage
Loans, which documents consist of (a) each Confirmation, (b) the Master
Repurchase Agreement, (c) the Servicing Agreement, and (d) the Custody
Agreement.
"Seller": AUSTIN FUNDING CORPORATION or its successor in interest or
any successor under this Agreement appointed as herein provided.
"Servicing Agreement": The Servicing Agreement dated JUNE 22, 1999
between the Purchaser and the Seller.
"Underwriting Guidelines": The underwriting guidelines used by the
Seller in connection with the origination of the Mortgage Loans and, if
applicable, which have been submitted to and approved by the Initial Purchaser.
"VA": The United States Department of Veterans Affairs or any successor
thereto.
<PAGE> 29
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER;
REPURCHASE AND SUBSTITUTION;
REVIEW OF MORTGAGE LOANS
Section 2.01 Representations and Warranties of the Seller.
The Seller represents and warrants to the Purchaser that as of the
Closing Date and as of each date thereafter on which the Master Repurchase
Agreement is in effect:
(i) The Seller is duly organized, validly existing and in good
standing under the laws of KANSAS and is qualified to transact business in and
is in good standing under the laws of each state where a Mortgaged Property is
located or is otherwise exempt under applicable law from such qualification or
is otherwise not required under applicable law to effect such qualification; no
demand for such qualification has been made upon the Seller by any state having
jurisdiction; and in any event the Seller is or will be in compliance with the
laws of any such state to the extent necessary to insure the enforceability of
each Mortgage Loan and the servicing of the Mortgage Loans in accordance with
the terms of the Servicing Agreement;
(ii) The Seller has the full power and authority to hold each
Mortgage Loan, to sell each Mortgage Loan and to execute, deliver and perform,
and to enter into and consummate, all transactions contemplated by this
Agreement and each Related Document. The Seller has duly authorized the
execution, delivery and performance of this Agreement and the Related Documents,
has duly executed and delivered this Agreement, and this Agreement and the
Related Documents, assuming due authorization, execution and delivery by the
Initial Purchaser each constitutes a legal, valid and binding obligation of the
Seller, enforceable against it in accordance with its terms;
(iii) Neither the execution and delivery of this Agreement and
the Related Documents, the acquisition or origination of the Mortgage Loans by
the Seller, the sale of the Mortgage Loans to the Initial Purchaser, the
consummation of the transactions contemplated hereby, nor the fulfillment of or
compliance with the terms and conditions of this Agreement and the Related
Documents, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Seller's charter or by-laws or any legal
restriction or any agreement or instrument to which the Seller is now a party or
by which it is bound, or constitute a default or result in an acceleration under
any of the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which the Seller or its property is subject;
(iv) There is no litigation pending or, to the Seller's
knowledge, threatened, which if determined adversely to the Seller would
adversely affect the sale of the Mortgage Loans to the Initial Purchaser, the
execution, delivery or enforceability of this Agreement or any Related Document,
or the ability of the Seller to service the Mortgage Loans or which would have a
material adverse effect on the financial condition of the Seller;
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(v) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Seller of or compliance by the Seller with this Agreement
and the Related Documents, the delivery of the Mortgage Files to the Purchaser
for the benefit of the Purchaser, the sale of the Mortgage Loans to the Initial
Purchaser or the consummation of the transactions contemplated by this Agreement
and the Related Documents;
(vi) The consummation of the transactions contemplated by this
Agreement and the Related Documents are in the ordinary course of business of
the Seller, and the transfer, assignment and conveyance of the Mortgage Notes
and the Mortgages by the Seller as contemplated by this Agreement and the
Related Documents are not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction;
(vii) The Seller used no adverse selection procedures in
selecting the Mortgage Loans from among the outstanding home mortgage loans in
the Seller's portfolio at the Closing Date as to which the representations and
warranties set forth in Section 2.02 could be made and had outstanding principal
balances on the Cut-off Date of at least $10,000;
(viii) The Seller has good and marketable title to, and is the
sole owner of, the Mortgage Loan, free and clear of any lien, charge or
encumbrance or any ownership or participation interest in favor of any other
person, and the mortgage note has not been assigned, pledged, hypothecated or
otherwise transferred to any person; and
(ix) Neither this Agreement nor any statement, report or other
document prepared and furnished by or on behalf of the Seller pursuant to this
Agreement or any Related Document or in connection with the transactions
contemplated hereby contains any untrue statement of fact or omits to state a
fact necessary to make the statements contained therein not misleading.
Section 2.02 Representations and Warranties as to Individual Mortgage
Loans.
The Seller hereby represents and warrants to the Purchaser that, as to
each Mortgage Loan, as of the related Purchase Date and each date thereafter up
to the related Repurchase Date:
(i) The information set forth in the Mortgage Loan Schedule is
complete, true and correct as of the Closing Date;
(ii) All payments required to be made for such Mortgage Loan
under the terms of the Mortgage have been made; the Seller has not advanced
funds, or induced, solicited or knowingly received any advance of funds from a
party other than the owner of the Mortgaged Property subject to the Mortgage,
directly or indirectly, for the payment of any amount required by the Mortgage
Loan, except for interest accruing from the date of the mortgage note or date of
disbursement of the Mortgage Loan proceeds, whichever is greater, to the day
that precedes by one month the due date of the first installment of principal
and interest; and there has been no delinquency of more than thirty days in any
payment by the Mortgagor thereunder at any time since
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the origination of the Mortgage Loan;
(iii) There are no delinquent taxes, ground rents, water
charges, sewer rents or assessments, including assessments payable in future
installments, or other outstanding charges affecting the related Mortgaged
Property;
(iv) The terms of the Mortgage Note and the Mortgage have not
been impaired, waived, altered or modified in any respect, except by written
instruments, the substance of which waiver, alteration or modification has been
approved by the primary mortgage guaranty insurer, if any, and is reflected on
the Mortgage Loan Schedule. No instrument of waiver, alteration or modification
has been executed, and no Mortgagor has been released, in whole or in part,
except in connection with an assumption agreement approved by the primary
mortgage insurer, if any, and which assumption agreement is part of the Mortgage
File and the terms of which are reflected in the Mortgage Loan Schedule;
(v) The Mortgage Note and the Mortgage are not subject to any
right of rescission, set-off, counterclaim or defense, including the defense of
usury, nor will the operation of any of the terms of the Mortgage Note and the
Mortgage, or the exercise of any right thereunder, render the Mortgage
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(vi) All buildings upon the Mortgaged Property are insured by a
generally acceptable insurer against loss by fire, hazards of extended coverage
and such other hazards as are customary in the area where the Mortgaged Property
is located, pursuant to insurance policies conforming to the requirements
imposed by FNMA for similar mortgage loans which are serviced under its MBS
program in an amount at least equal to the outstanding principal balance of the
applicable Mortgage Loan (without coinsurance). If the Mortgaged Property is in
an area identified on a Flood Hazard Map or Flood Insurance Rate Map issued by
the Federal Emergency Management Agency as having special flood hazards (and
such flood insurance has been made available) a flood insurance policy meeting
the requirements of the current guidelines of the Federal Insurance
Administration is in effect which policy conforms to the requirements of FNMA
and FHLMC. All such insurance policies (collectively, the "hazard insurance
policy") contain a standard mortgagee clause naming the Seller, its successors
and assigns as mortgagee and all premiums thereon have been paid. The Mortgage
obligates the Mortgagor thereunder to maintain all such insurance at Mortgagor's
cost and expense, and on the Mortgagor's failure to do so, authorizes the holder
of the Mortgage to maintain such insurance at Mortgagor's cost and expense and
to seek reimbursement therefor from the Mortgagor;
(vii) Any and all requirements of any federal, state or local
law including, without limitation, usury, truth in lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loan have been complied with in all
material respects;
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(viii) The Mortgage has not been satisfied, canceled or
subordinated, in whole, or rescinded, and the Mortgaged Property has not been
released from the lien of the Mortgage, in whole or in part, nor has any
instrument been executed that would effect any such release, cancellation,
subordination or rescission;
(ix) The Mortgage is a valid, subsisting and enforceable lien on
the Mortgaged Property, including all improvements on the Mortgaged Property
subject only to (a) the lien of any prior mortgage, (b) the lien of current real
property taxes and assessments not yet due and payable, (c) covenants,
conditions and restrictions, rights of way, easements and other matters of the
public record as of the date of recording being acceptable to mortgage lending
institutions generally and specifically referred to in the lender's title
insurance policy delivered to the originator of the Mortgage Loan and which do
not adversely affect the Appraised Value of the Mortgaged Property, and (d)
other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be provided
by the Mortgage or the use, enjoyment, value or marketability of the related
Mortgaged Property. Any security agreement, chattel mortgage or equivalent
document related to and delivered in connection with the Mortgage Loan
establishes and creates a valid, subsisting and enforceable first or second lien
and first or second priority security interest on the property described
therein;
(x) The Mortgage Note and the Mortgage are genuine, and each is
the legal, valid and binding obligation of the maker thereof enforceable in
accordance with its terms. The mortgage note is on a form acceptable to FNMA and
FHLMC. The Assignment of Mortgage is in recordable form and is acceptable for
recording under the laws of the jurisdiction in which the mortgaged property is
located;
(xi) All parties to the Mortgage Note and the Mortgage had legal
capacity to enter into the Mortgage Loan and to execute and deliver the Mortgage
Note and the Mortgage, and the Mortgage Note and the Mortgage have been duly and
properly executed by such parties. The Mortgagor under the Mortgage Note is a
natural person. The debt of the Mortgage Loan is evidenced by one mortgage note
only;
(xii) The proceeds of the Mortgage Loan have been fully
disbursed and there is no requirement for future advances thereunder, and any
and all requirements as to completion of any on-site or off-site improvements
and as to disbursements of any escrow funds therefor have been complied with.
All costs, fees and expenses incurred in making or closing the Mortgage Loan and
the recording of the mortgage were paid, and the mortgagor is not entitled to
any refund of any amounts paid or due under the mortgage note or mortgage. Any
future advance made prior to the date such Mortgage Loan was delivered to
Custodian have been consolidated with the outstanding principal amount secured
by the Mortgage, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment term. The consolidated principal
amount does not exceed the original principal amount of the Mortgage Loan.
(xiii) The Mortgage Note and the Mortgage have not been assigned
or pledged, and the Seller has good and marketable title thereto, and the Seller
is the sole owner thereof and has full
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right to transfer and sell the Mortgage Loan to the Initial Purchaser free and
clear of any encumbrance, equity, lien, pledge, charge, claim or security
interest;
(xiv) All parties which have had any interest in the Mortgage,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) in compliance with any
and all applicable licensing and "doing business" requirements of the laws of
the state wherein the Mortgaged Property is located;
(xv) The Mortgage Loan is covered by an ALTA lender's title
insurance policy acceptable to FNMA or FHLMC, issued by a title insurer
acceptable to FNMA and FHLMC and qualified to do business in the jurisdiction
where the Mortgaged Property is located, insuring (subject to the exceptions
contained in (ix)(a) through (d) above) the Seller, its successors and assigns
as to the first priority lien of the Mortgage in the original principal amount
of the Mortgage Loan. Additionally, such lender's title insurance policy
affirmatively insures ingress and egress, and against encroachments by or upon
the Mortgaged Property or any interest therein. The Seller is the sole insured
of such lender's title insurance policy, and such lender's title insurance
policy is in full force and effect and will be in full force and effect upon the
consummation of the transactions contemplated by this Agreement. No claims have
been made under such lender's title insurance policy, and no prior holder of the
related Mortgage, including the Seller, has done, by act or omission, anything
which would impair the coverage of such lender's title insurance policy;
(xvi) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no event
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach, violation or event of
acceleration, and the Seller has not waived any default, breach, violation or
event of acceleration;
(xvii) There are no mechanics' or similar liens or claims which
have been filed for work, labor or material (and no rights are outstanding that
under law could give rise to such lien) affecting the related Mortgaged Property
which are or may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage;
(xviii) All improvements which were considered in determining
the Appraised Value of the related Mortgaged Property lay wholly within the
boundaries and building restriction lines of the Mortgaged Property, and no
improvements on adjoining properties encroach upon the Mortgaged Property. No
improvement located on or being part of the mortgaged property is in violation
of any applicable zoning law or regulation. The Mortgaged Property is lawfully
occupied under applicable law, and all inspections, licenses and certificates
required to be made or issued with respect to all occupied portions of such
mortgaged property and, with respect to the use and occupancy of the same,
including but not limited to, certificates of occupancy, have been made or
obtained from the appropriate authorities;
(xix) The Mortgage Loan was originated by the Seller or a
savings association, a savings bank, a commercial bank or similar banking
institution which is supervised and examined by a federal or state authority or
by a mortgagee approved by the Secretary of Housing and Urban
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Development pursuant to Section 203 of the National Housing Act. With respect to
adjustable rate Mortgage Loans, the Mortgage Interest Rate is adjusted on each
interest rate adjustment date to equal the index plus the gross margin, rounded
up or down to the nearest 1/8%, subject to the mortgage interest rate cap. With
respect to fixed rate Mortgage Loans, the mortgage note is payable in equal
monthly installments of principal and interest which are sufficient to amortize
the principal balance of the Mortgage Loan over its term and pay interest at
the Mortgage Interest Rate. With respect to adjustable rate Mortgage Loans,
installments of interest are subject to change due to the adjustments to the
Mortgage Interest Rate on each interest rate adjustment date, with interest
calculated and payable in arrears, sufficient to amortize the Mortgage Loan
fully by the stated maturity date, over an original term of not more than thirty
years from commencement of amortization. No Mortgage Loan is an interest only
mortgage loan. No Mortgage Note provides for negative amortization. No
adjustable rate Mortgage Loan is convertible to a fixed interest rate mortgage
loan. Interest on each Mortgage Loan is calculated on the basis of a 360-day
year consisting of twelve 30-day months;
(xx) The Mortgage contains the usual and customary "due-on-sale"
clause or other similar provision for the acceleration of the payment of the
unpaid principal balance of the Mortgage Loan in the event the related Mortgaged
Property is sold without the prior consent of the mortgagee thereunder;
(xxi) The Mortgaged Property is free of damage and waste and
there is no proceeding pending for the total or partial condemnation thereof.
The mortgaged property is in good repair and undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or other casualty so as
to affect adversely the value of the mortgaged property as security for the
Mortgage Loan or the use for which the premises were intended;
(xxii) The Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits of
the security provided thereby, including, (a) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (b) otherwise by judicial
foreclosure. There is no other exemption available to the Mortgagor which would
interfere with the right to sell the Mortgaged Property at a trustee's sale or
the right to foreclose the Mortgage. The Mortgaged Property or is not currently
subject to any bankruptcy proceeding or foreclosure proceeding and the Mortgagor
or is not currently seeking protection under applicable bankruptcy laws. There
is no homestead or other exemption available to the Mortgagor which would
interfere with the right to sell the Mortgaged Property at a trustee's sale or
the right to foreclose the mortgage. No Mortgagor has requested relief under the
Soldiers and Sailors Civil Relief Act of 1940
(xxiii) The Mortgage Loan was originated in accordance with the
Underwriting Guidelines. The documents, instruments and agreements submitted for
loan underwriting were not falsified and contain no untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the information and statements therein not misleading;
(xxiv) The Mortgage Note is not and has not been secured by any
collateral except
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the lien of the corresponding Mortgage and the security interest of any
applicable security agreement or chattel mortgage referred to in (ix) above;
(xxv) The Mortgage File contains an appraisal of the related
Mortgaged Property, on a form acceptable to FNMA or FHLMC signed prior to the
approval of the Mortgage Loan application by a qualified appraiser, duly
appointed by the Seller, who had no interest, direct or indirect, in the
Mortgaged Property or in any loan made on the security thereof, and whose
compensation is not affected by the approval or disapproval of the Mortgage
Loan, and such appraisal met the requirements of applicable laws and regulations
governing the originator thereof at the time of origination of the Mortgage
Loan, and the appraisal satisfies the requirements of Title XI of the Federal
Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations
promulgated thereunder, all as in effect on the date the Mortgage Loan was
originated. The determination of the Appraised Value of the Mortgaged Property
was based on sales of comparable properties;
(xxvi) In the event the Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the Mortgage, and no fees or
expenses are or will become payable by the Purchaser to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Mortgagor;
(xxvii) No Mortgage Loan contains provisions pursuant to which
Monthly Payments are (a) paid or partially paid with funds deposited in any
separate account established by the Seller, the Mortgagor, or anyone on behalf
of the Mortgagor, (b) paid by any source other than the Mortgagor or (c)
contains any other similar provisions which may constitute a "buydown"
provision. No Mortgage Loan is a graduated payment mortgage loan or growing
equity mortgage loan;
(xxviii) The Mortgagor has executed a statement to the effect
that the Mortgagor has received all disclosure materials required by applicable
law with respect thereto. Such statement is included in the Mortgage File;
(xxix) [Intentionally Omitted]
(xxx) No Mortgage Loan was made in connection with (a) the
construction or rehabilitation of a Mortgaged Property or (b) facilitating the
sale or exchange of a Mortgaged Property by the lender;
(xxxi) No error, omission, misrepresentation, negligence, fraud
or similar occurrence with respect to a Mortgage Loan has taken place on the
part of any person, including without limitation the Mortgagor, any appraiser,
any builder or developer, or any other party involved in the origination of
the Mortgage Loan or in the application of any insurance in relation to such
Mortgage Loan;
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(xxxii) The Seller has no knowledge of any circumstances or
condition with respect to the Mortgage, the Mortgaged Property, the Mortgagor or
the Mortgagor's credit standing that can reasonably be expected to cause private
institutional investors to regard the Mortgage Loan as an unacceptable
investment, cause the Mortgage Loan to become delinquent, or adversely affect
the value or marketability of the Mortgage Loan;
(xxxiii) The Mortgaged Property is located in the state
indicated on the Mortgage Loan Schedule, and consists of a single parcel of real
property with a detached single family residence erected thereon, or a two to
four family dwelling, or an individual condominium unit in a low-rise
condominium, or an individual unit in a planned unit development as defined by
FNMA, none of which is a mobile home;
(xxxiv) The original LTV Of the Mortgage Loan was not more than
100%;
(xxxv) With respect to each Mortgage Loan which is subject to
the provisions of the Homeownership and Equity Protection Act of 1994; the
Mortgage Loan is identified as such on the Mortgage Loan Schedule, the related
Mortgage File contains a notice from the originator, and a copy of a notice to
each entity which was a purchaser or assignee of the Mortgage Loan, satisfying
the provisions of such Act and the regulations issued thereunder, to the effect
that the Mortgage Loan is subject to special truth in lending rules.
(xxxvi) All Escrow Accounts are maintained with Seller and have
been maintained in accordance with applicable law and the terms of the Mortgage
Loans. The Escrow Payments required by the Mortgages which have been paid to the
Seller for the account of the Borrower are on deposit in the appropriate Escrow
Account. No escrow deposits or Escrow Payments or other charges or payments due
the Seller have been capitalized under any Mortgage or the related Mortgage
Note;
(xxxvii) Except for such documents that are held by the
Custodian or a servicer of the related Mortgage Loan, the Seller is in
possession of a complete mortgage file (including a copy of the survey of the
mortgaged property, if any; an original hazard insurance policy and, if required
by law, flood insurance policy, with extended coverage of the hazard insurance
policy; a Mortgage Loan closing statement; a Mortgage Loan application;
verification of employment and income, if any, evidence of source and amount of
downpayment; credit report on the mortgagor; an appraisal report; a photograph
of the mortgaged property; an executed Truth-in-Lending disclosure statement and
rescission rights waiver and a copy of all other materials required by law to be
delivered to the mortgagor; a contract of sale, if any, and any other documents
customarily collected or created, and retained, in connection with the
origination of mortgage loans). Seller has delivered, or caused to be delivered,
to the Buyer or Custodian as directed by Buyer, each document required to be so
delivered under the Custody Agreement;
(xxxviii) All funds received by the Seller in connection with
the Mortgage Loans, including, without limitation, foreclosure proceeds, fire
insurance proceeds from fire losses, condemnation proceeds and principal
reductions, have been applied to reduce the principal balance
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of the Mortgage Loans in question or deposited in the Escrow Account, or for
reimbursement of repairs to the Mortgaged Property or as otherwise required by
applicable law;
(xxxix) The Seller and any current or prior mortgagee or
servicer of the Mortgage Loans have complied in all respects material to the
value of the Servicing Rights with every applicable federal, state, or local
law, statute, and ordinance, and any rule, regulation, or order issued
thereunder including, without limitation, the fair housing, anti-redlining,
equal credit opportunity, truth-in-lending, real estate settlement procedures,
fair credit reporting, and every other prohibition against unlawful
discrimination in residential lending or governing consumer credit, and also
including, without limitation, the Consumer Credit Reporting Act, Equal Credit
Opportunity Act of 1975 and Regulation B, Fair Credit Reporting Act,
Truth-in-Lending Law, in particular, Regulation Z as amended, the Flood Disaster
Protection Act of 1973, the Real Estate Settlement Procedures Act of 1974 as
amended, and state and local consumer credit codes and laws, and the
origination, collection and all other practices of the originator, the Seller
and all prior servicers in connection with the origination or servicing of each
Mortgage and Mortgage Note are and have been in all respects legal, proper,
prudent and customary in the mortgage origination and servicing business. All
mortgage interest rate adjustments have been made in strict compliance with
state and federal law and the terms of the related mortgage note. Any interest
required to be paid pursuant to state and local law has been properly paid and
credited; and
(xl) Neither the Seller nor any of its agents or affiliates has
contacted or shall contact any Mortgagor for the purpose of inducing or
encouraging the early prepayment or refinancing of the related Mortgage Loan,
nor has the Seller or any of its agents or affiliates utilized, nor shall they
utilize, any information held or acquired by the Seller or such agency or
affiliates in their capacity as mortgagees or servicers of the Mortgage Loans to
derive any other incidental income or benefit from the servicing thereof, nor
has the Seller or such agents or affiliates given, nor will they give, a list of
Mortgagors to any person for such purpose or to derive any other incidental
income or benefit from the servicing thereof; provided, however that the
foregoing shall not be construed to limit or impair other activities of the
Seller in its capacities other than as servicer of the Mortgage Loans,
including, without limitation, the provision of banking and related services to
customers (which may include the Mortgagors under the Mortgage Loans other than
in their capacity as such) in the ordinary course and any general solicitation
or encouragement of such customers to prepay or refinance existing mortgages or
to purchase or renew insurance in connection therewith so long as the provisions
of such services and any such solicitation or encouragement does not result in
the refinancing of a Mortgage Loan by the Seller or any affiliate of the Seller.
Section 2.03 Breach of Representation or Warranty.
It is understood and agreed that the representations and warranties set
forth in Sections 2.01 and 2.02 shall survive the sale of the Mortgage Loans to
the Purchaser and shall inure to the benefit of the Purchaser and its successors
and assigns, notwithstanding any restrictive or qualified endorsement on any
Mortgage Note or Assignment or the examination of any Mortgage File and without
regard to any applicable statute of limitations. Upon discovery by Seller of a
breach of any
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of the foregoing representations and warranties which materially and adversely
affects the value of the Mortgage Loans or the interest of the Purchaser in any
Mortgage Loan, the Seller shall give prompt written notice to the Purchaser.
The Seller shall indemnify the Purchaser and hold it or them harmless
against any loss, damages, penalties, fines, forfeitures, legal fees and related
costs, judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from a breach of
the Seller's representations and warranties contained in this Agreement. It is
understood and agreed that the obligations of the Seller set forth in this
Section 2.03 to indemnify the Purchaser as provided in this Section 2.03 are in
addition to any other remedies of the Purchaser respecting a breach of the
foregoing representations and warranties.
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ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01 Amendment.
This Agreement may be amended from time to time by the Purchaser and
the Seller only by written agreement signed by the Purchaser and the Seller.
Section 3.02 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York except to the extent preempted by Federal law.
Section 3.03 Notices.
Any notices or other communications permitted or required hereunder
shall be in writing and shall be deemed conclusively to have been given if
personally delivered at or mailed by registered mail, postage prepaid, and
return receipt requested or transmitted by telex, telegraph or telecopier and
confirmed by a similar mailed writing, if (i) in the case of the Seller and
AUSTIN FUNDING CORPORATION Attention: GLENN LAPOINTE or such other address as
may hereafter be furnished to the Purchaser in writing by the Seller and (ii) in
the case of the Purchaser, Impac Warehouse Lending Group 1401 Dove Street,
Newport Beach, CA 92660, Attention: Zoila Velasco, or such other address as may
be furnished to the Seller in writing by the Purchaser.
Section 3.04 Severability Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, the invalidity
of any such covenant, agreement, provision or term of this Agreement shall in no
way affect the validity or enforceability of the other provisions of this
Agreement, provided, however, that if the invalidity of any covenant, agreement
or provision shall deprive any party of the economic benefit intended to be
conferred by this Agreement, the parties shall negotiate in good faith to
develop a structure the economic effect of which is as nearly as possible the
same as the economic effect of this Agreement.
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Section 3.05 Exhibits.
The exhibits to this Agreement are hereby incorporated and made a part
hereof and are an integral part of this Agreement.
Section 3.06 General Interpretive Principles.
For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(i) the terms defined in this Agreement have the meanings
assigned to them in this Agreement and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
gender;
(ii) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles;
(iii) references herein to "Articles", "Sections",
"Subsections", "Paragraphs", and other subdivisions without reference to a
document are to designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Agreement;
(iv) a reference to a Subsection without further reference to
a Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(v) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision; and
(vi) the term "include" or "including" shall mean without
limitation by reason of enumeration.
Section 3.07 Reproduction of Documents.
This Agreement and all documents relating thereto, including, without
limitation, (i) consents, waivers and modifications which may hereafter be
executed, (ii) documents received by any party at the closing, and (iii)
financial statements, certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
<PAGE> 41
-17-
Section 3.08 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one instrument. It shall not be necessary in making proof of this
Agreement or any counterpart thereof to produce or account for any other
counterpart.
Section 3.09 Entire Agreement, Successors and Assigns.
Except as otherwise provided herein, this Agreement together with the
Related Documents constitutes the entire agreement between the parties hereto
and supersedes all rights and prior agreements and understandings, oral and
written, between the parties hereto with respect to the subject matter hereof.
This Agreement shall not be assignable in whole or in part by the Seller. The
Purchaser may assign this Agreement, in whole or in part. The Purchaser shall
give the Seller prompt written notice of any such assignment, provided, however,
that any failure to give such notice shall not be deemed to condition, qualify
or affect any obligation of the Seller hereunder. This Agreement and any rights,
remedies, obligations or liabilities under or by reason of the Agreement shall
inure to the benefit of and be binding on the parties hereto or their respective
successors and permitted assigns.
IN WITNESS WHEREOF, the Seller and the Initial Purchaser have caused
their names to be signed hereto by their respective officers thereunto duly
authorized as of the day and year first above written.
IMPAC WAREHOUSE LENDING GROUP
By: /s/ ZOILA VELASCO
------------------------------------
Name: Zoila Velasco
----------------------------------
Title: Vice President
---------------------------------
AUSTIN FUNDING CORPORATION
By: /s/ GLENN LAPOINTE
------------------------------------
Name: Glenn LaPointe
----------------------------------
Title: President
---------------------------------
<PAGE> 42
STATE OF CALIFORNIA )
)SS.
COUNTY OF )
On the 24 day of June, 1999 before me, a Notary Public in and for said State,
personally appeared Glenn LaPointe, known to me to be a President of and AUSTIN
FUNDING CORPORATION a corporation that executed the within instrument, and also
known to me to be the person who executed it on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand affixed my official
seal the day and year in this certificate first above written.
/s/ KAREN S. ROTH
-----------------------------
KAREN S. ROTH Notary Public
[SEAL] NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES My Commission expires:
AUG. 14,2000
<PAGE> 43
STATE OF CALIFORNIA )
)SS.
COUNTY OF )
On the 29th day of June, 1999 before me, a Notary Public in and for
said State, personally appeared Zoila Velasco known to me to be Vice President
of Impac Warehouse Lending Group, the corporation that executed the within
instrument and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand affixed my official
seal the day and year in this certificate first above written.
/s/ JASON HA
-----------------------------
Notary Public
My Commission expires: Jan. 8, 2002
JASON HA
COMMISSION # 1168008
[SEAL] NOTARY PUBLIC - CALIFORNIA
ORANGE COUNTY
MY COMM. EXPIRES Jan 8, 2002
<PAGE> 44
EXHIBIT A
CONTENTS OF MORTGAGE FILE
With respect to each Mortgage Loan, the Mortgage File shall include
each of the following items, which shall be available for inspection by the
Purchaser.
1 The original note or other evidence of indebtedness (the
"Mortgage Note") of the obligor thereon (each such obligor,
a "Mortgagor"), endorsed to the order of or assigned to
Seller by the holder/payee thereof, without recourse, and
endorsed by Seller, without recourse, in blank.
2 The original mortgage, deed of trust or other instrument
(the "Mortgage") creating a first lien on the underlying
property securing the Mortgage Loan (the "Mortgaged
Property"), naming Seller as the "mortgagee" or
"beneficiary" thereof, and bearing on the face thereof the
address of Seller, or, if the Mortgage does not name Seller
as the mortgagee/beneficiary, the Mortgage, together with an
instrument of assignment assigning the Mortgage,
individually or together with other Mortgages, to Seller and
bearing on the face thereof the address of Seller, and, in
either case, bearing evidence that such instruments have
been recorded in the appropriate jurisdiction where the
Mortgaged Property is located (or, in lieu of the original
of the Mortgage or the assignment thereof, a duplicate or
conformed copy of the Mortgage or the instrument of
assignment, if any, together with a certificate of either
the closing attorney or an officer of the title insurer that
issued the related title insurance policy, or a certificate
of receipt from the recording office, certifying that such
copy or copies represent true and correct copy(ies) of the
original(s) and that such original(s) have been or are
currently submitted to be recorded in the appropriate
governmental recording office of the jurisdiction where the
Mortgaged Property is located).
3 An original assignment of Mortgage, in blank, which
assignment shall be in form and substance acceptable for
recording and, in the event that the Seller acquired the
Mortgage Loan in a merger, the assignment must be by
"[Seller], successor by merger to [name of predecessor]".
4 Any intervening assignment of the Mortgage not included in
(ii) above, including any warehousing assignment.
5 Any assumption, modification, extension or guaranty
agreement.
6 The Lender's title insurance policy, or, if such policy has
not been issued, a written commitment or interim binder
issued by the title insurance company evidencing that the
required title insurance coverage is in effect and
unconditionally guaranteeing the holder of the Mortgage Loan
that the lender's title insurance policy will be issued.
<PAGE> 45
-2-
7 Any instrument necessary to complete identification of any
exception set forth in the exception schedule in the title
insurance policy (e.g., map or plat, restrictions,
easements, sewer agreements, home association declarations,
etc.).
8 A survey of the Mortgaged Property.
9 Any hazard insurance policy or flood insurance policy, with
extended coverage of the hazard insurance policy.
10 The Mortgage Loan closing statement (Form HUD-1) and any
other truth-in-lending, real estate settlement procedure
forms or other disclosure statements required by law.
11 The residential loan application, if applicable.
12 Any verification of employment and income.
13 Any verification of acceptable evidence of source and amount
of downpayment.
14 Any credit report on the borrower under the Mortgage Loan.
15 Each residential appraisal report.
16 A photograph of the Mortgaged Property.
17 If the Mortgage Note or Mortgage or any other material
document or instrument relating to the Mortgage Loan has
been signed by a person on behalf of the Mortgagor, the
power of attorney or other instrument that authorized and
empowered such person to sign with recording information
thereon.
18 Any policy or certificate of primary mortgage guaranty
insurance.
19 Any tax receipts, insurance premiums, ledger sheets, payment
records, insurance claim files and correspondence, current
and historical computerized data files, underwriting
standards used for origination and all other papers and
records developed or originated by the Seller, any servicer
or others, required to document the Mortgage Loan or to
service the Mortgage Loan.
<PAGE> 46
-3-
20 With respect to FHA insured Mortgage Loans, the original FHA
Insurance Contract, together with a completed HUD Form 92080
"Mortgagee Record Change" with the Purchaser's name left
blank.
21 With respect to VA guaranteed Mortgage Loans, the original
VA Guaranty Certificate.
<PAGE> 47
===============================================================================
IMPAC WAREHOUSE LENDING GROUP
Initial Holder
and
AUSTIN FUNDING CORPORATION
Servicer
SERVICING AGREEMENT
Dated as of JUNE 22,1999
Mortgage Loans
---------------------
===============================================================================
<PAGE> 48
TABLE OF CONTENTS
PRELIMINARY STATEMENT
ARTICLE I
Section Title
1.01 Defined Terms.
ARTICLE II
2.01 Record Title and Possession of Mortgage Files.
2.02 Books and Records.
2.03 Transfer of Mortgage Loans.
ARTICLE III
3.01 Representations and Warranties as to the Company.
ARTICLE IV
4.01 Company to Act as Servicer.
4.02 Establishment of Custodial Account; Deposits in Custodial Account.
4.03 Permitted Withdrawals from the Custodial Account.
4.04 Establishment of the Escrow Account; Deposits in Escrow Account.
4.05 Permitted Withdrawals from the Escrow Account.
4.06 Title, Management and Disposition of REO Property.
ARTICLE V
5.01 Distribution.
ARTICLE VI
6.01 Company Shall Provide Information as Reasonably Required.
ARTICLE VII
7.01 Indemnification; Third Party Claims.
7.02 Merger or Consolidation of the Company.
7.03 Limitation on Liability of the Company and Others.
7.04 Company Not to Resign.
-1-
<PAGE> 49
Section Title
ARTICLE VIII
8.01 Events of Default.
8.02 Waiver of Defaults.
ARTICLE IX
9.01 Termination.
9.02 Termination Without Cause.
ARTICLE X
10.01 Successor to the Company.
10.02 Amendment.
10.03 Recordation of Agreement.
10.04 Governing Law.
10.05 Notices.
10.06 Severability of Provisions.
10.07 Exhibits.
10.08 General Interpretive Principles.
10.09 Reproduction of Documents.
10.10 Entire Agreement.
EXHIBITS
A Custodial Account Letter Agreement
B Escrow Account Letter Agreement
C REO Account Letter Agreement
D Form of Assignment and Certification
E Mortgage Loan Schedule
F Monthly Trial Balance Format
-2-
<PAGE> 50
This is a Servicing Agreement, dated and effective as of JUNE 22, 1999
is executed between IMPAC WAREHOUSE LENDING GROUP, a California corporation, as
the initial holder ("Initial Holder"), and AUSTIN FUNDING CORPORATION as
servicer ("Company").
PRELIMINARY STATEMENTS
From time to time, the Initial Purchaser will be purchasing from the
Seller pursuant to a Master Repurchase Agreement dated as of the Closing Date
between the Seller and the Initial Purchaser (the "Master Repurchase
Agreement") the mortgage loans which are subject to this Agreement, and the
Seller has agreed to make certain representations and warranties with respect
thereto.
In consideration of the premises and the mutual agreements hereinafter
set forth, the Initial Holder and the Company agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms.
Capitalized terms not defined herein shall have the meanings given to
them in the Warranties Agreement. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meaning specified in this Article:
"Agreement": This Servicing Agreement including all exhibits hereto,
amendments hereof and supplements hereto.
"Assignment": An assignment of the Mortgage, notice of transfer or
equivalent instrument, sufficient under the laws of the jurisdiction wherein
the related Mortgaged Property is located to reflect of record the sale or
transfer of the Mortgage Loan, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Actual Principal Balance": With respect to any Mortgage Loan as of
any date of determination, (i) the outstanding principal balance as of the
Cut-off Date after application of principal payments due on or before such date
whether or not received, minus (ii) the aggregate of all amounts previously
distributed to the Holder with respect to the Mortgage Loan representing
payments or recoveries of principal or Monthly Advances in lieu thereof.
"Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a
legal holiday in the State of California, or (iii) a day on which banking
institutions in the state where the initial Holder or any subsequent Holder has
its principal place of business are authorized or obligated by law or
<PAGE> 51
executive order to be closed.
"Cash Liquidation": Recovery of all cash proceeds by the Company with
respect to the termination of any defaulted Mortgage Loan other than a Mortgage
Loan which became an REO Property, including all Insurance Proceeds,
Liquidation Proceeds, Condemnation Proceeds and other payments or recoveries
whether made at one time or over a period of time which the Company deems to be
finally recoverable, in connection with the sale or assignment of such Mortgage
Loan, trustee's sale, foreclosure sale or otherwise.
"Closing Date": JUNE 22,1999
"Company": AUSTIN FUNDING CORPORATION or its successor in interest or
any successor under this Agreement appointed as herein provided.
"Condemnation Proceeds": All awards or settlements in respect of a
taking of a Mortgaged Property by exercise of the power of eminent domain or
condemnation.
"Custodial Account": The separate account or accounts created and
maintained pursuant to Section 4.02.
"Determination Date": The 20th day of the month of the related
Remittance Date or if such 20th day is not a Business Day, the Business Day
immediately following such 20th day.
"Due Date": The day of the month of the related Remittance Date on
which each Monthly Payment is due on a Mortgage Loan, exclusive of any days of
grace.
"Due Period": With respect to any Remittance Date, the period
commencing on the first day of the month preceding the month of such Remittance
Date and ending on the last day of the month preceding the month of such
Remittance Date.
"Eligible Account": An account maintained with the depository
institution approved as such by FNMA and which is insured by the FDIC to the
limits established by such corporation.
"Escrow Account": The separate trust account or accounts created and
maintained pursuant to Section 4.03.
"Escrow Payments": The amounts constituting ground rents, taxes,
assessments, water rates, mortgage insurance premiums, fire and hazard
insurance premiums and other payments required to be escrowed by the Mortgagor
with the mortgagee pursuant to any Mortgage Loan.
"Event of Default": Any one of the conditions or circumstances
enumerated in Section 8.01.
"FDIC": The Federal Deposit Insurance Corporation or any successor
organization.
<PAGE> 52
"FHLMC": The Federal Home Loan Mortgage Corporation or any successor
organization.
Fidelity Bond": A fidelity bond to be maintained by the Company
pursuant to Section 4.12.
"First Remittance Date": The 25th day of the month following the date
hereof, or if such day is not a Business Day, the first Business Day immediately
preceding such day, provided that, if such 25th day is not a Business Day by
reason of clause (iii) of the definition of Business Day and the Company has not
received written notice of such fact from the Holder, the First Remittance Date
shall be the immediately following Business Day.
"FNMA": The Federal National Mortgage Association or any successor
organization.
"Holder": The Initial Holder of the Mortgage Loans and any subsequent
holder or holders of the Mortgage Loans.
"Guide": All terms and provisions of Part I, Part II, Part IV, Part V
and Part VI of the FNMA Servicing Guide, June 30, 1990 Version, as amended from
time to time, which relate to MBS pool mortgages serviced under the special
servicing option.
"Initial Holder": Impac Warehouse Lending Group
"Insurance Proceeds": Proceeds of any title policy, hazard policy or
other insurance policy covering a Mortgage Loan, to the extent such proceeds are
not to be applied to the restoration of the related Mortgaged Property or
released to the Mortgagor in accordance with the procedures that the Company
would follow in servicing mortgage loans held for its own account.
"Late Collections": With respect to any Mortgage Loan, all amounts
received during any Due Period, whether as late payments of Monthly Payments or
as Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds, proceeds of
any REO Disposition or otherwise, which represent late payments or collections
of Monthly Payments due but delinquent for a previous Due Period and not
previously recovered.
"Liquidation Proceeds": Amounts, other than Condemnation Proceeds and
Insurance Proceeds, received by the Company in connection with the liquidation
of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or
otherwise, other than amounts received following the acquisition of an REO
Property pursuant to the Guide.
"Loan-to-Value Ratio" or "LTV": As of any date of determination with
respect to any Mortgage Loan, the principal balance of such Mortgage Loan
divided by the appraised value of the related Mortgaged Property, as such
appraised value is derived from the LTV at origination shown on the Mortgage
Loan Schedule.
"Monthly Advance": The aggregate of the Delinquency Advances (as
defined in the Guide) made by the Company on any Remittance Date.
<PAGE> 53
"Monthly Payment": The scheduled monthly payment of principal and
interest on a Mortgage Loan which is payable by a Mortgagor under the related
Mortgage Note.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first lien on real property securing the Mortgage Note.
"Mortgage File": The mortgage documents pertaining to a particular
Mortgage Loan which were delivered to the Company by the prior servicer and any
additional documents developed or received by the Company in servicing such
Mortgage Loan which are reasonably necessary to document or service the
Mortgage Loan.
"Mortgage Impairment Insurance Policy": A mortgage impairment or
blanket hazard insurance policy as described by the Guide.
"Mortgage Interest Rate": The annual rate at which interest accrues on
any Mortgage Loan.
"Mortgage Loan": An individual Mortgage Loan, including but not limited
to, all documents included in the Mortgage File, the Monthly Payments, Principal
Prepayments, Cash Liquidations, Insurance Proceeds, Condemnation Proceeds,
Liquidation Proceeds, proceeds from REO Dispositions and any and all rights,
benefits, proceeds and obligations arising therefrom or in connection therewith,
the Mortgage Loan which is sold by the Company to the Initial Holder and which
is the subject of this Agreement. The Mortgage Loans originally subject to this
Agreement are identified on the Mortgage Loan Schedule.
"Mortgage Loan Remittance Rate": With respect to each Mortgage Loan,
the annual rate of interest payable to the Holder which shall equal the Mortgage
Interest Rate less the Servicing Fee Rate.
"Mortgage Loan Schedule": The list of Mortgage Loans subject to this
Agreement and identified on the schedules delivered to the Holder from time to
time pursuant to the Master Repurchase Agreement.
"Mortgage Note": The note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property": The underlying real property securing repayment
of a Mortgage Note.
"Mortgagor": The obligor on a Mortgage Note.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a Vice President and by
the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of the Company, and delivered to the Holder as required by this
Agreement.
<PAGE> 54
"Opinion of Counsel": A written opinion of counsel, who may be an
employee of the Company, acceptable to Holder.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal Prepayment": Any payment or other recovery of principal on
a Mortgage Loan which is received in advance of its scheduled Due Date,
including any prepayment penalty or premium thereon, which is not accompanied
by an amount of interest representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment.
"Principal Prepayment Period": As to any Remittance Date, the calendar
month preceding the month of distribution.
"Record Date": The close of business of the last Business Day of the
month preceding the month of the related Remittance Date.
"Remittance Date": The 25th day of any month, beginning with the First
Remittance Date, or if such 25th day is not a Business Day, the first Business
Day immediately preceding such day, provided that, if such 25th day is not a
Business Day by reason of clause (iii) of the definition of Business Day and
the Company has not received written notice of such fact from the Holder, the
Remittance Date shall be the immediately following Business Day.
"REO Account": The separate trust account or accounts created and
maintained pursuant to Section 4.06.
"REO Disposition": The final sale by the Company of any REO Property.
"REO Property": A Mortgaged Property acquired by the Company on behalf
of the Holder as described in the Guide.
"Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred by the Company in the performance of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures and (iii) the
management and liquidation of the REO Property pursuant to Section 4.06, all in
accordance with this Agreement, the Guide and any related fee schedules
published by FNMA.
"Servicing Fee": With respect to each Mortgage Loan, the amount of the
annual contractual fee payable to the Company, in its capacity as servicer
which shall be equal to the product of (i) the Servicing Fee Rate, and (ii) the
outstanding principal amount of each Mortgage Loan. The Servicing Fee shall be
payable monthly and shall be computed on the basis of the same principal amount
and for the period respecting which any related interest payment on a Mortgage
Loan is computed. The Servicing Fee shall be payable only at the time of and
with respect to those
<PAGE> 55
Mortgage Loans for which payment is in fact made of the entire amount of the
Monthly Payments. The obligation of the Holder to pay the Servicing Fee is
limited to, and payable solely from, the interest portion of such Monthly
Payments collected by the Company, or as otherwise provided under Section 4.03.
"Servicing Fee Rate": (servicing for "A-" thru "C" product @ .375%)
(All Libor Adjustables @ .375%)
(Fixed rate "A" product @ .25%)
"Servicing Officer": Any officer of the Company involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name appears on a list of servicing officers furnished by the Company to the
Holder upon request, as such list may from time to time be amended.
"Sub-Servicer": A servicer appointed by the Company pursuant to the
Guide.
"Sub-Servicing Agreement": Any agreement entered into by the Company
with a Sub-Servicer pursuant to the Guide.
"Warranties Agreement": The Seller's Warranties Agreement dated as of
the date hereof between the Company and the Initial Holder.
<PAGE> 56
ARTICLE II
RECORD TITLE AND POSSESSION OF MORTGAGE FILES;
BOOKS AND RECORDS;
DELIVERY OF MORTGAGE LOAN DOCUMENTS
Section 2.01 Record Title and Possession of Mortgage Files.
During such period as the Mortgage Loans are owned by Holder pursuant
to the Repurchase Agreement (the "Purchase Period") record title to the
Mortgage Loans shall be retained by the Holder, and possession of the Mortgage
Files not delivered to the Holder shall be retained by the Company as provided
in this Agreement, in trust and as bailee and agent for the Holder as the owner
thereof, for the sole purpose of servicing the Mortgage Loans; unless otherwise
directed by Buyer. During the Purchase Period, the ownership of each Mortgage
Loan, including the Mortgage Note, the Mortgage, the contents of the related
Mortgage File and all rights, benefits, proceeds and obligations arising
therefrom or in connection therewith, is vested in the Holder. During the
Purchase Period all rights arising out of the Mortgage Loans including, but not
limited to, all funds received on or in connection with the Mortgage Loans and
all records or documents with respect to the Mortgage Loans prepared by or
which come into the possession of the Company shall be received and held by the
Company in trust for the benefit of the Holder as the owners of the Mortgage
Loans. Any portion of the Mortgage Files retained by the Company shall be
segregated from the other books and records of the Company and shall be
appropriately marked to clearly reflect the ownership of the Mortgage Loans by
the Holder. The Company shall release its custody of the contents of the
Mortgage Files only in accordance with written instructions of the Holder,
except when such release is required as incidental to the Company's servicing
of a foreclosure or collection action or a satisfaction of a Mortgage.
Section 2.02 Books and Records.
The Company shall be responsible for maintaining, and shall maintain,
a complete set of books and records for the Mortgage Loans which shall be
clearly marked to reflect the ownership of the Mortgage Loan by the Holder.
Section 2.03 Transfer of Mortgage Loans.
Holder shall have the right, without the consent of Company, to assign
its interest under this Agreement with respect to some or all of the Mortgage
Loans, and designate any person to exercise any rights of Holder hereunder, and
the assignee or designee shall accede to the rights and obligations hereunder
of Holder with respect to such Mortgage Loans. All references to Holder shall
be deemed to include its assignee or designee.
The Company shall keep at its servicing office books and records in
which, subject to such reasonable regulations as it may prescribe, the Company
shall note transfers of Mortgage Loans. No transfer of a Mortgage Loan may be
made unless such transfer is in compliance with the terms hereof. For the
purposes of this Agreement, the Company shall be under no obligation to deal
with
<PAGE> 57
any person with respect to this Agreement or the Mortgage Loans unless the
books and records show such person as the owner of the Mortgage Loan. The
Holder may, subject to the terms of this Agreement, sell and transfer, in whole
or in part, the Mortgage Loans, provided that no such sale and transfer shall
be binding upon the Company unless such transferee shall agree in writing in
the form of Assignment attached hereto as Exhibit D, to be bound by the terms
of this Agreement and an executed copy of such Assignment shall have been
delivered to the Company. Upon receipt thereof, the Company shall mark its
books and records to reflect the ownership of the Mortgage Loan by such
assignee, and the previous Holder shall be released from its obligations
hereunder to the extent such obligations relate to Mortgage Loans sold by the
Holder. This Agreement shall be binding upon and inure to the benefit of the
Holder and Company and their permitted successors, assignees and designees.
<PAGE> 58
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01 Representations and Warranties of the Company.
The Seller represents and warrants to the Purchaser that as of the
Closing Date and as of each date thereafter on which the Master Repurchase
Agreement is in effect:
(i) The Company is duly organized, validly existing and in
good standing under the laws of KANSAS and is qualified to transact business in
and is in good standing under the laws of each state where a Mortgaged Property
is located or is otherwise exempt under applicable law from such qualification
or is otherwise not required under applicable law to effect such qualification
and no demand for such qualification has been made upon the Company by any
state having jurisdiction and in any event the Company is or will be in
compliance with the laws of any such state to the extent necessary to insure
the enforceability of each Mortgage Loan and the servicing of the Mortgage
Loans in accordance with the terms of this Agreement;
(ii) The Company has the full power and authority to
service each Mortgage Loan, and to execute, deliver and perform, and to enter
into and consummate, all transactions contemplated by this Agreement. The
Company has duly authorized the execution, delivery and performance of this
Agreement, has duly executed and delivered this Agreement, and this Agreement,
assuming due authorization, execution and delivery by the Initial Holder
constitutes a legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms;
(iii) Neither the execution and delivery of this Agreement,
the consummation of the transactions contemplated hereby, nor the fulfillment
of or compliance with the terms and conditions of this Agreement, will conflict
with or result in a breach of any of the terms, conditions or provisions of the
Company's certificate of limited partnership and partnership agreement or any
legal restriction or any agreement or instrument to which the Company is now a
party or by which it is bound, or constitute a default or result in an
acceleration under any of the foregoing, or result in the violation of any law,
rule, regulation, order, judgment or decree to which the Company or its
property is subject;
(iv) [Intentionally Omitted]
(v) The Company does not believe, nor does it have any reason
or cause to believe, that it cannot perform each and every covenant contained
in this Agreement;
(vi) There is no litigation pending or, to the Company's
knowledge, threatened, which if determined adversely to the Company would
adversely affect the execution, delivery or enforceability of this Agreement,
or the ability of the Company to service the Mortgage Loans hereunder in
accordance with the terms hereof or which would have a material adverse effect
on the financial condition of the Company; and
<PAGE> 59
(vii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the execution, delivery
and performance by the Company of or compliance by the Company with this
Agreement or the consummation of the transactions contemplated by this
Agreement.
<PAGE> 60
ARTICLE IV
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 4.01 Company to Act as Servicer.
The Company, as independent contract servicer, shall service and
administer the Mortgage Loans in accordance with the Guide and all applicable
federal, state and local laws relating to the performance of its duties as
Mortgage Loan servicer hereunder. Notwithstanding any provision to the
contrary in this Agreement, the Company shall not be required to (i) establish
a Custodial Account, an Escrow Account or an REO Account or otherwise segregate
or hold in trust, or provide remittance statements with respect to, any funds
collected in respect of the Mortgage Loans, nor shall the Company be entitled to
receive a Servicing Fee or any other payment hereunder from the Holder, or (ii)
remit any funds to the Holder, until the Company shall have received written
notice from the Holder requesting such services, whereupon the Company shall
promptly, and in any event within five (5) Business Days, commence and maintain
such services, provided, however, that the Company shall provide to the Initial
Holder monthly commencing in the month following the Closing Date, on or about
the ____ day of each month, a Trial Balance in the format of Exhibit F. For
this purpose, the Guide is incorporated by reference in this Agreement, subject
to the following deletions and modifications:
(a) Deletions: the following provisions of the Guide are not
incorporated for purposes of this Agreement:
Part I, Section 206.01;
Part IV, Sections 509 and 513; and
Part VI, Chapter III.
(b) Modifications: The following provisions of the Guide are
incorporated in this Agreement subject to the following modifications:
(i) Part I, Section 202 is modified to provide that
all references to consents, guidelines and policies of FNMA
refer to consent of the Holder.
(ii) Part II, Section 101 is amended to provide that
recoveries on the Mortgage Loans shall be applied by the
Company in accordance with the provisions of the Mortgage
Note and Mortgage or, absent such provisions, as provided in
such Section 101.
(iii) The last paragraph of Part II, Section 101.03
and any other provision of the Guide of like tenor are
amended to provide that the Company shall not be obligated to
make a Monthly Advance to the extent that it reasonably
determines that it would not be recoverable from proceeds of
the related Mortgage Loan, any such determination to be
evidenced by an Officer's Certificate delivered to the
Holder.
<PAGE> 61
(iv) Part III, Section 103 is modified to provide for
the Holder's acknowledgement that not all Mortgage Loans
provide for Escrow Payments.
(V) Part IV, Section 507 is amended to incorporate
only the first paragraph, and such Section 507 and other
provisions of the Guide inconsistent with Section 4.03 of
this Agreement are modified to provide that the Company shall
be reimbursed for Delinquency Advances, Servicing Advances
and unpaid Servicing Fees from collections and recoveries on
the related Mortgage Loan or REO Property, or, if such
collections and recoveries are insufficient, from the P&I
custodial account generally, with the Company's right to such
reimbursement to be prior to the rights of the Holder, all as
further described in Section 4.03 of this Agreement.
(vi) Provisions of Part V which are inconsistent
with Section 4.06 of this Agreement are superseded by such
Section 4.06.
(vii) Part VI, Section 101 is modified. The term P&I
Custodial Account shall mean the Custodial Account under this
Agreement, and the T&I Custodial Account shall mean the
Escrow Account under this Agreement.
(viii) Provisions of Chapter 2 of Part VI which are
inconsistent with Section 5.01 of this Agreement are
superseded by such Section 5.01.
(c) Whenever the following terms are referred to in the
Guide, they shall have the meaning given to them below.
(i) "servicer" shall mean the Company.
(ii) "Pass Through Rate" shall mean the current
weighted average Mortgage Loan Remittance Rate.
(iii) "we" or "us" shall mean the Holder.
(d) The reference to "Servicing Fee" in Section 205.03 shall
have the meaning given to it in this Agreement.
Section 4.02 Establishment of Custodial Accounts; Deposits in
Custodial Accounts.
The Company shall segregate and hold all funds collected and received
pursuant to each Mortgage Loan separate and apart from any of its own funds and
general assets and shall establish and maintain one or more Custodial Accounts,
in the form of time deposit or demand Eligible Accounts. The creation of any
Custodial Account shall be evidenced by a letter agreement in the form shown in
Exhibit A hereto. A copy of such letter agreement shall be furnished to the
Holder.
The Company shall deposit in the Custodial Account on a daily basis,
and retain therein the following payments and collections received or made by
it on or subsequent to the Cut-off Date, or
<PAGE> 62
received by it prior to the Cut-off Date but allocable to a period subsequent
thereto, other than in respect of principal due on or before the Cut-off Date,
and interest accrued prior to the Cut-off Date, on the Mortgage Loans:
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage
Loans adjusted to the Mortgage Loan Remittance Rate;
(iii) all proceeds from a Cash Liquidation;
(iv) all Insurance Proceeds, other than proceeds to be held
in the Escrow Account and applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with the Company's normal
servicing procedures, the loan documents or applicable law;
(v) all Condemnation Proceeds affecting any Mortgaged
Property which are not released to the Mortgagor in accordance with the
Company's normal servicing procedures, the loan documents or applicable law;
(vi) any Monthly Advances;
(vii) any amounts required to be deposited by the Company
pursuant to the Guide in connection with the deductible clause in any blanket
hazard insurance policy, such deposit being made from the Company's own funds,
without reimbursement therefor;
(viii) [intentionally omitted]
(ix) any amounts required to be deposited by the Company in
connection with any REO Property pursuant to the Guide; and
(x) any other amounts required to be deposited in the
Custodial Account pursuant to the Guide.
The foregoing requirements for deposit in the Custodial Account shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of late payment charges and assumption
fees need not be deposited by the Company in the Custodial Account. Any
interest paid on funds deposited in the Custodial Account by the depository
institution shall accrue to the benefit of the Company and the Company shall be
entitled to retain and withdraw such interest from the Custodial Account
pursuant to Section 4.03(iv).
<PAGE> 63
Section 4.03 Permitted Withdrawals From the Custodial Account.
The Company may, from time to time, withdraw from the Custodial
Account for the following purposes:
(i) to make payments to the Holder in the amounts and in the
manner provided for in Section 5.01;
(ii) to reimburse itself for Monthly Advances, the Company's
right to reimburse itself pursuant to this subclause (ii) being limited to
amounts received on the related Mortgage Loan which represent late collections
(net of the related Servicing Fees) respecting which any such advance was made
it being understood that, in the case of such reimbursement, the Company's
right thereto shall be prior to the rights of Holder except that, where the
Company has made a monthly advance when it was required to repurchase a
Mortgage Loan;
(iii) to reimburse itself for unreimbursed Servicing
Advances, Monthly Advances and any unpaid Servicing Fee, the Company's right to
reimburse itself pursuant to this subclause (iii) with respect to any Mortgage
Loan being limited to related proceeds from Cash Liquidation, Liquidation
Proceeds, Condemnation Proceeds and other Insurance Proceeds;
(iv) to pay to itself as servicing compensation (a) any
interest earned on funds in the Custodial Account (all such interest to be
withdrawn monthly not later than each Remittance Date), and (b) the Servicing
Fee from that portion of any payment or recovery as to interest to a particular
Mortgage Loan;
(v) to reimburse itself for unreimbursed Servicing Advances
and Monthly Advances to the extent that the Company has determined that such
advances will not be recoverable from proceeds or payments on the related
Mortgage Loan, any such reimbursement to be evidenced by an Officer's
Certificate delivered to each Holder detailing the basis of such determination;
(vi) to reimburse itself to the extent provided in Section
7.01; and
(vii) to clear and terminate the Custodial Account upon the
termination of this Agreement.
Section 4.04 Establishment of Escrow Accounts; Deposits in Escrow
Accounts.
The Company shall segregate and hold all funds collected and received
pursuant to each Mortgage Loan which constitute Escrow Payments separate and
apart from any of its own funds and general assets and shall establish and
maintain one or more Escrow Accounts, in the form of time deposit or demand
Eligible Accounts. The creation of any Escrow Account shall be evidenced by a
letter agreement in the form of Exhibit B hereto. A copy of such letter
agreement shall be furnished to the Holder.
<PAGE> 64
The Company shall deposit in the Escrow Account or Accounts on a daily
basis, and retain therein, (i) all Escrow Payments collected on account of the
Mortgage Loans, for the purpose of effecting timely payment of any such items
as required under the terms of this Agreement, and (ii) all Insurance Proceeds
which are to be applied to the restoration or repair of any Mortgaged Property.
The Company shall make withdrawals therefrom only to effect such payments as
are required under this Agreement, and for such other purposes as shall be as
set forth in or, in accordance with, the Guide. The Company shall be entitled
to retain any interest paid on funds deposited in the Escrow Account by the
depository institution other than interest on escrowed funds required by law to
be paid to the Mortgagor and, to the extent required by law, the Company shall
pay interest on escrowed funds to the Mortgagor notwithstanding that the Escrow
Account is non-interest bearing or that interest paid thereon is insufficient
for such purposes.
Section 4.05 Permitted Withdrawals From Escrow Account.
Withdrawals from the Escrow Account may be made by the Company (i) to
effect timely payments of ground rents, taxes, assessments, water rates,
mortgage insurance premiums, and comparable items (ii) to reimburse Company for
any Servicing Advance made by the Company with respect to a related Mortgage
Loan but only from amounts received on the related Mortgage Loan which
represent late payments or collections of Escrow Payments thereunder, (iii) to
refund to the Mortgagor any funds as may be determined to be overages, (iv) for
transfer to the Custodial Account in accordance with the terms of this
Agreement, (v) for application to restoration or repair of the Mortgaged
Property, (vi) to pay to the Company, or to the Mortgagor to the extent
required by law, any interest paid on the funds deposited in the Escrow
Account, or (vii) to clear and terminate the Escrow Account on the termination
of this Agreement. As part of its servicing duties, the Company shall pay to
the Mortgagors interest on funds in Escrow Account, to the extent required by
law, and to the extent that interest earned on funds in the Escrow Account is
insufficient, shall pay such interest from its own funds, without any
reimbursement therefor.
Section 4.06 Title, Management and Disposition of REO Property.
In the event that title to the Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the Company for the benefit of the Holder (the
"Owner").
The Company shall either itself or through an agent selected by the
Company, manage, conserve, protect and operate each foreclosed and REO Property
on behalf of the Holder, in the same manner that it manages, conserves,
protects and operates other foreclosed property for its own account, and in the
same manner that similar property in the same locality as REO Property managed
for FNMA. The Company shall cause each REO Property to be inspected promptly
upon the acquisition of title thereto and shall cause each REO Property to be
inspected at least annually thereafter. The Company shall make or cause the
Company to be made a written report of each such inspection. Such reports shall
be retained in the Mortgage File and copies thereof shall be forwarded by the
Company to the Holder. The Company shall attempt to sell the same (and may
temporarily rent the same) on such terms and conditions as directed by the
Holder.
<PAGE> 65
The Company shall segregate and hold all funds collected and received
in connection with the operation of the REO Properties separate and apart from
its own funds or general assets and shall establish and maintain an REO Account
in the form of a non-interest bearing demand Eligible Account. The creation of
any REO Account shall be evidenced by a letter agreement in the form shown in
Exhibit C hereto, in the case of an account held by a depository. An original
of such letter agreement shall be furnished to the Holder upon request.
The Company shall deposit or cause to be deposited, on a daily basis
in the REO Account all revenues received with respect to the related REO
Property and shall withdraw therefrom funds necessary for the proper operation,
management and maintenance of the REO Property, including the cost of
maintaining any hazard insurance pursuant to the Guide hereof and, with the
consent of the Holder, the fees of any managing agent acting on behalf of the
Company. In the event that the Holder withholds its consent pursuant to the
preceding sentence, the related REO Property shall be managed by the Holder
itself. The Company shall not be entitled to retain interest paid or other
earnings, if any, on funds deposited in such REO Account. On or before each
Determination Date, the Company shall withdraw from each REO Account and
deposit into the Custodial Account the net income from the REO Property on
deposit in the REO Account.
The Company shall furnish to the Holder on each Remittance Date, an
operating statement for each REO Property covering the operation of each REO
Property for the previous month. Such operation statement shall be accompanied
by such other information as the Holder shall reasonably request.
The Company shall dispose of the REO Property as soon as possible and
shall sell such REO Property in any event within one year after taking title to
such REO Property, unless the Company determines, and gives an appropriate
notice to the Holder and the Holder agrees in writing, that a longer period is
necessary for the orderly liquidation of such REO Property. If a period longer
than one year is permitted under this Agreement and is necessary to sell any
REO Property, the Company shall report monthly to the Holder as to the progress
being made in selling such REO Property.
Each REO Disposition shall be carried out by the Company at such price
and upon such terms and conditions as approved by the Holder. If as of the date
title to any REO Property was acquired by the Company there were outstanding
unreimbursed Servicing Advances with respect to the REO Property, the Company,
upon an REO Disposition of such REO Property, shall be entitled to
reimbursement for any related unreimbursed Servicing Advances from proceeds
received in connection with such REO Disposition. The proceeds from the REO
Disposition, net of any payment to the Company as provided above, shall be
deposited in the REO Account and shall be remitted to the Holder within five
(5) business days of property settlement.
<PAGE> 66
ARTICLE V
PAYMENTS TO THE HOLDER
Section 5.01 Distributions.
On each Remittance Date, the Company shall make distributions in
compliance with Paragraph 10 of Annex I to the Master Repurchase Agreement.
All distributions made to the Holder on each Remittance Date will be
made to the Holder of record on the preceding Record Date and shall be made by
wire transfer of immediately available funds to the account of the Holder at a
bank or other entity having appropriate facilities.
With respect to any remittance received by the Holder after the
Remittance Date, the Company shall pay to the Holder interest on any such late
payment at an annual rate equal to the rate of interest as is publicly
announced from time to time at its principal office by Chemical Bank, New York,
New York, as its prime lending rate, adjusted as of the date of each change,
plus three percentage points, but in no event greater than the maximum amount
permitted by applicable law. Such interest shall be paid by the Company to the
Holder on the date such late payment is made and shall cover the period
commencing with the day following such Remittance Date and ending with the
Business Day on which such payment is made, both inclusive. Such interest shall
be remitted along with such late payment. The payment by the Company of any
such interest shall not be deemed an extension of time for payment or a waiver
of any Event of Default by the Holder.
<PAGE> 67
ARTICLE VI
REPORTS TO BE PREPARED BY COMPANY
Section 6.01 Company Shall Provide Information as Reasonably Required.
The Company shall furnish to each Holder during the term of this
Agreement, such periodic, special or other reports, information or
documentation, whether or not provided for herein, as shall be necessary,
reasonable or appropriate in respect to Holder, or otherwise in respect to the
purposes of this Agreement, including any reports, information or documentation
reasonably required to comply with any regulations regarding any supervisory
agents or examiners of the Holder all such reports or information to be as
provided by and in accordance with such applicable instructions and directions
as the Holder may reasonably request and which do not entail material
additional expense to the Company. The Company agrees to execute and deliver
all such instruments and take all such action as the Holder, from time to time,
may reasonably request in order to effectuate the purpose and to carry out the
terms of this Agreement.
Section 6.02 Delinquency Report.
The Company is responsible for providing a monthly delinquency report
to the Holder.
<PAGE> 68
ARTICLE VII
THE COMPANY
Section 7.01 Indemnification; Third Party Claims.
The Company agrees to indemnify the Holder and hold it harmless
against any and all claims, losses, penalties, fines, forfeitures, legal fees
and related costs, judgments, and any other costs, fees and expenses that the
Holder may sustain in any way related to either a breach by the Company of the
representations and warranties contained in Section 3.01 or the failure of the
Company to perform its duties and service the Mortgage Loans in accordance with
the terms of this Agreement. The Company shall immediately notify the Holder if
a claim is made by a third party with respect to this Agreement or the Mortgage
Loans, assume (with the consent of the Holder) the defense of any such claim
and pay all expenses in connection therewith, including counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against it or the Holder in respect of such claim. The Company shall follow any
written instructions received from the Holder in connection with such claim.
The Company shall provide the Holder with prompt written notice of any
material correspondence received or developed by the Company in respect of such
claim, and any other related developments of which the Company becomes aware,
and consult with the Holder regarding the conduct of any defense. The Company
shall provide to the Holder statements detailing each incurral of $1,000 which
the Company believes to be reimbursable to it pursuant to this Section 7.01
promptly following such incurral but in no event more frequently than monthly
(an "Accounting"). Unless the claim in any way relates to a breach of the
Company's representations or warranties in this Agreement or the failure of the
Company to service and administer the Mortgage Loans in compliance with the
terms of this Agreement, the Company shall be entitled to reimbursement from
the Holder of all amounts incurred by it pursuant to this Section 7.01 within
thirty (30) days following receipt by the Holder of the related Accounting.
Section 7.02 Merger or Consolidation of the Company.
The Company will keep in full effect its existence, rights and
franchises as a limited partnership under the laws of the state under which it
is organized, and will preserve its qualification to do business as a foreign
entity in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, or any
of the Mortgage Loans and to perform its duties under this Agreement.
Any Person into which the Company may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Company shall be a party, or any Person succeeding to the business of the
Company, shall be the successor of the Company hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however, that
the successor or surviving Person shall be an institution approved to service
mortgage loans for FNMA.
<PAGE> 69
The Holder shall be notified in writing of any such changes.
Section 7.03 Limitation on Liability of the Company and Others.
Neither the Company nor any of the officers, employees or agents of the
Company shall be under any liability to the Holder for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Company or any such person against any breach of
warranties or representations made herein, or failure to perform its obligations
in compliance with this Agreement, or any liability which would otherwise be
imposed by reason of any breach of the terms and conditions of this Agreement.
The Company and any officer, employee or agent of the Company may rely in good
faith on any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder. The Company shall not be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its duties to service the Mortgage Loans in accordance with
this Agreement; provided, however, that the Company may, with the consent of the
Holder, undertake any such action which it may deem necessary or desirable in
respect to this Agreement and the rights and duties of the parties hereto. In
such event, the legal expenses and costs of such action taken with the written
approval of the Holder and any liability resulting therefrom shall be expenses,
costs and liabilities for which the Holder will be liable, the Company shall be
entitled to be reimbursed therefor from the Holder upon written demand.
Section 7.04 Company Not to Resign.
The Company shall not assign this Agreement or resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Company and the Holder, which consent shall not be unreasonably withheld or
upon the determination that its duties hereunder are no longer permissible
under applicable law and such incapacity cannot be cured by the Company. Any
such determination permitting the resignation of the Company shall be evidenced
by an Opinion of Counsel to such effect delivered to the Holder which Opinion
of Counsel shall be in form and substance acceptable to the Holder. No such
resignation shall become effective until a successor shall have assumed the
Company's responsibilities and obligations hereunder in the manner provided in
Section 12.01.
<PAGE> 70
ARTICLE VIII
DEFAULT
Section 8.01 Events of Default.
In case one or more of the following Events of Default by the Company
shall occur, that is to say:
(i) any failure by the Company to remit to the Holder any
payment required to be made under the terms of this Agreement which continues
unremedied for a period of three days after the date upon which written notice
of such failure, requiring the same to be remedied, shall have been given to the
Company by the Holder; or
(ii) failure on the part of the Company duly to observe or
perform in any material respect any other of the covenants or agreements on the
part of the Company set forth in this Agreement which continues unremedied for
a period of thirty days (except that such number of days shall be fifteen in
the case of a failure to pay any premium for any insurance policy required to
be maintained under this Agreement) after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to the
Company by the Holder; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or receiver
or liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Company and such decree or
order shall have remained in force undischarged or unstayed for a period of
sixty days; or
(iv) the Company shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Company or of or relating to all or substantially all of its property; or
(v) the Company shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its obligations; or
(vi) the Company shall, for any reason, become incapacitated
to perform its duties and obligations under this Agreement by operation of law
or otherwise; or
(vii) an Event of Default under the Master Repurchase
Agreement shall have occurred;
(viii) [intentionally omitted]
<PAGE> 71
then, and in each and every such case, the Holder, by notice in
writing to the Company may, in addition to whatever rights the Holder may have
at law or equity to damages, including injunctive relief and specific
performance, terminate all the rights and obligations of the Company under this
Agreement and in and to the Mortgage Loans and the proceeds thereof. On or
after the receipt by the Company of such written notice, all authority and
power of the Company under this Agreement and any Sub-Servicing Agreement,
whether with respect to the Mortgage Loans or otherwise, shall pass to and be
vested in the successor appointed pursuant to Section 10.01. Upon written
request from the Holder, the Company shall prepare, execute and deliver, any
and all documents and other instruments, place in such successor's possession
all Mortgage Files, and do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise, at the Company's sole expense. The Company
agrees to cooperate with the Holder and such successor in effecting the
termination of the Company's responsibilities and rights hereunder, including,
without limitation, the transfer to such successor for administration by it of
all cash amounts which shall at the time be credited by the Company to the
Custodial Account, REO Account or Escrow Account or thereafter received with
respect to the Mortgage Loans.
Section 8.02 Waiver of Defaults.
The Holder may waive any default by the Company in the performance of
its obligations hereunder and its consequences. Upon any such waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon except to the extent expressly so waived.
<PAGE> 72
ARTICLE IX
TERMINATION
Section 9.01 Termination.
In addition to the termination rights arising from the occurrence of
an Event of Default, the respective obligations and responsibilities of the
Company shall terminate upon: (i) the later of the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan or
the disposition of all REO Property and the remittance of all funds due
hereunder; or (ii) by mutual consent of the Company and the Holder in writing.
Section 9.02 Termination Without Cause.
Except as provided in this Section 9.02, the Holder may, at its or
their sole option, terminate any rights the Company may have hereunder, without
cause, upon at least 60 days' prior written notice, which notice shall be
accompanied by payment to the Company, as liquidated damages, of 1.00% of the
then Assumed Principal Balance of the Mortgage Loans. Any such notice of
termination shall be in writing and delivered to the Company as provided in
Section 10.05 of this Agreement.
<PAGE> 73
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 1O.01 Successor to the Company.
Prior to termination of Company's responsibilities and duties under
this Agreement pursuant to Sections 7.04, 8.01, 9.01 or 9.02, the Holder shall
(i) succeed to and assume all of the Company's responsibilities, rights, duties
and obligations under this Agreement, or (ii) appoint a successor which shall
succeed to all rights and assume all of the responsibilities, duties and
liabilities of the Company under this Agreement prior to the termination of
Company's responsibilities, duties and liabilities under this Agreement. In
connection with such appointment and assumption, the Holder may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall agree. In the event that the Company's
duties, responsibilities and liabilities under this Agreement should be
terminated pursuant to the aforementioned Sections, the Company shall discharge
such duties and responsibilities during the period from the date it acquires
knowledge of such termination until the effective date thereof with the same
degree of diligence and prudence which it is obligated to exercise under this
Agreement, and shall take no action whatsoever that might impair or prejudice
the rights or financial condition of its successor. The resignation or removal
of Company pursuant to the aforementioned Sections shall not become effective
until a successor shall be appointed pursuant to this Section and shall in no
event relieve the Company of the representations and warranties made pursuant
to Section 3.01.
Any successor appointed as provided herein shall execute, acknowledge
and deliver to the Company and to the Holder an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Company, with like effect as if originally named as a party to this Agreement.
Any termination or resignation of the Company or this Agreement pursuant to
Section 7.04, 8.01, 9.01, or 9.02 shall not affect any claims that the Holder
may have against the Company arising prior to any such termination or
resignation.
The Company shall timely deliver to the successor the funds in the
Custodial Account, REO Account and the Escrow Account and the Mortgage Files
and related documents and statements held by it hereunder and the Company
shall account for all funds. The Company shall execute and deliver such
instruments and do such other things all as may reasonably be required to more
fully and definitely vest and confirm in the successor all such rights, powers,
duties, responsibilities, obligations and liabilities of the Company,
including, without limitation, execution and delivery of transfer of servicing
notices in accordance with the Real Estate Settlement Procedures Act and any
other state or federal law. The successor shall make arrangements as it may
deem appropriate to reimburse the Company for amounts the Company actually
expended pursuant to this Agreement which the successor is entitled to retain
hereunder and which would otherwise have been recovered by the Company pursuant
to this Agreement but for the appointment of the successor servicer.
Upon a successor's acceptance of appointment as such, the Holder shall
notify by mail the
<PAGE> 74
Company of such appointment.
Section 10.02 Amendment.
This Agreement may be amended from time to time by the Company and the
Holder by written agreement signed by the Company and the Holder.
Section 10.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement is subject
to recordation in all appropriate public offices for real property records in
all the counties or other comparable jurisdictions in which any of all the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Company at the Company's expense on direction of Holder accompanied by an
opinion of counsel to the effect that such recordation materially and
beneficially affects the interest of the Holder or is necessary for the
administration or servicing of the Mortgage Loans.
Section 10.04 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, except to the extent preempted by Federal
law.
Section 10.05 Notices.
Any notices or other communications permitted or required hereunder
shall be in writing and shall be deemed conclusively to have been given if
personally delivered at or mailed by registered mail, postage prepaid, and
return receipt requested or transmitted by telex, telegraph or telecopier and
confirmed by a similar mailed writing, if (i) in the case of the Company AUSTIN
FUNDING CORPORATION Attention: GLENN LAPOINTE or such other address as may
hereafter be furnished to the Holder in writing by the Company and (ii) in the
case of the Holder, Impac Warehouse Lending Group, 1401 Dove Street, Newport
Beach, CA 92660, Attention: Zoila Velasco, or such other address as may be
furnished to the Company in writing by the Holder.
Section 10.06 Severability Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, the
invalidity of any such covenant, agreement, provision or term of this Agreement
shall in no way affect the validity or enforceability of the other provisions
of this Agreement, provided, however, that if the invalidity of any covenant,
agreement or provision shall deprive any party of the economic benefit intended
to be conferred by this Agreement, the parties shall negotiate in good faith to
develop a structure the economic effect of which is as nearly as possible the
same as the economic effect of this Agreement.
<PAGE> 75
Section 10.07 Exhibits.
The exhibits to this Agreement are hereby incorporated and made a part
hereof and are an integral part of this Agreement.
Section 10.08 General Interpretive Principles.
For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(i) the terms defined in this Agreement have the meanings
assigned to them in this Agreement and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
gender;
(ii) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles;
(iii) references herein to "Articles", "Sections",
"Subsections", "Paragraphs", and other subdivisions without reference to a
document are to designated Articles, Sections, Subsections, Paragraphs and
other subdivisions of this Agreement;
(iv) a reference to a Subsection without further reference to
a Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(v) the words "herein", "hereof", "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision; and
(vi) the term "include" or "including" shall mean without
limitation by reason of enumeration.
Section 10.09 Reproduction of Documents.
This Agreement and all documents relating thereto, including, without
limitation, (i) consents, waivers and modifications which may hereafter be
executed, (ii) documents received by any party at the closing, and (iii)
financial statements, certificates and other information previously or
hereafter furnished, may be reproduced by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar process. The
parties agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not
the original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
<PAGE> 76
Section 10.10 Entire Agreement.
This Agreement is the entire agreement between the parties hereto.
Without limiting the generality of the preceding sentence, each Holder
acknowledges that no affiliate of the Company expressly or impliedly has made
any representation, warranty or promise of performance with respect to the
Company and, if made, such representation, warranty or promise shall not be
relied upon unless made in writing by a duly authorized officer.
IN WITNESS WHEREOF, the Company and the Initial Holder have caused
their names to be signed hereto by their respective officers thereunto duly
authorized as of the day and year first above written.
IMPAC WAREHOUSE LENDING GROUP
By: /s/ ZOILA VELASCO
-----------------------------------
Name: Zoila Velasco
---------------------------------
Title: Vice President
--------------------------------
AUSTIN FUNDING CORPORATION
By: /s/ GLENN LAPOINTE
-----------------------------------
Name: Glenn LaPointe
---------------------------------
Title: President
--------------------------------
<PAGE> 77
STATE OF______________ )
)SS.
COUNTY OF_____________ )
On the 24 day of June, 1999 before me, a Notary Public in and for
said State, personally appeared Glenn LaPointe, known to me to be President of
AUSTIN FUNDING CORPORATION the corporation that executed the within instrument
and also known to me to be the person who executed it on behalf of said
corporation, and acknowledged to me that such corporation executed the within
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand affixed my official
seal the day and year in this certificate first above written.
/s/ KAREN S. ROTH
===================================== -------------------------------
KAREN S. ROTH Notary Public
[SEAL] Notary Public, State of Texas
My Commission Expires
AUG. 14, 2000 My Commission expires:
=====================================
<PAGE> 78
STATE OF CALIFORNIA )
)SS.
COUNTY OF ORANGE )
On the 29th day of June, 1999 before me, a Notary Public in and for
said State, personally appeared Zoila Velasco, known to me to be a Vice
President of Impac Warehouse Lending Group, the corporation that executed the
within instrument and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand affixed my official
seal the day and year in this certificate first above written.
/s/ JASON HA
---------------------------
Notary Public
My Commission expires: Jan. 8, 2002
=========================================
JASON HA
COMMISSION # 1168008
[SEAL] NOTARY PUBLIC - CALIFORNIA
ORANGE COUNTY
MY COMM. EXPIRES JAN 8, 2002
=========================================
<PAGE> 79
EXHIBIT A
CUSTODIAL ACCOUNT LETTER AGREEMENT
(date)
To:
------------------------------------
------------------------------------
------------------------------------
(the "Depository")
As "Company" under the Servicing Agreement, dated as of ______________,
1999, Conventional Mortgage Loans, _______________ (the "Agreement"), we hereby
authorize and request you to establish an account, as a Custodial Account
pursuant to Section 4.02 of the Agreement, to be designated as "[Company], in
trust for the Holder -- Conventional Mortgage Loans -- Servicing Agreement dated
______________, 1997 with Impac Warehouse Lending Group". All deposits in the
account shall be subject to withdrawal therefrom by order signed by the Company.
This letter is submitted to you in duplicate. Please execute and return one
original to us.
-------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
The undersigned, as "Depository", hereby certifies that the above
described account has been established under Account Number __________________,
at the office of the depository indicated above, and agrees to honor withdrawals
on such account as provided above. The amount deposited at any time in the
account will be insured by the Federal Deposit Insurance Corporation to the
limit established by such corporation or the National Credit Union
Administration.
-------------------------------------
(name of Depository)
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 80
EXHIBIT B
FORM OF ESCROW ACCOUNT LETTER AGREEMENT
(date)
To:
------------------------------------
------------------------------------
------------------------------------
(the "Depository")
As "Company" under the Servicing Agreement, dated as of ______________,
1999, Conventional Mortgage Loans, ________________ (the "Agreement") we hereby
authorize and request you to establish an account, as an Escrow Account pursuant
to Section 4.04 of the Agreement, to be designated as "_____________, in trust
for the Holder -- Conventional Mortgage Loans -- _____________ as tenants in
common". All deposits in the account shall be subject to withdrawal therefrom by
order signed by the Company. This letter is submitted to you in duplicate.
Please execute and return one original to us.
-------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
The undersigned, as "Depository", hereby certifies that the above
described account has been established under Account Number ______________, at
the office of the depository indicated above, and agrees to honor withdrawals on
such account as provided above. The amount deposited at any time in the account
will be insured by the Federal Deposit Insurance Corporation to the limit
established by such corporation.
-------------------------------------
(name of Depository)
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 81
EXHIBIT C
FORM OF REO ACCOUNT LETTER AGREEMENT
(date)
To:
------------------------------------
------------------------------------
------------------------------------
(the "Depository")
As "Company" under the Servicing Agreement, dated as of _____________,
1999, Conventional Mortgage Loans, ________________ (the "Agreement") we hereby
authorize and request you to establish an account, as an REO Account pursuant to
Section 4.06 of the Agreement, to be designated as "_______________________, in
trust for the Holder - Conventional Mortgage Loans - ______________________".
All deposits in the account shall be subject to withdrawal therefrom by order
signed by the Company. This letter is submitted to you in duplicate. Please
execute and return one original to us.
[COMPANY]
-------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
The undersigned, as "Depository", hereby certifies that the above
described account has been established under Account Number _______________, at
the office of the depository indicated above, and agrees to honor withdrawals on
such account as provided above. The amount deposited at any time in the account
will be insured by the Federal Deposit Insurance Corporation to the limit
established by such corporation.
-------------------------------------
(name of Depository)
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 82
EXHIBIT D
FORM OF ASSIGNMENT AND ASSUMPTION
ASSIGNMENT AND ASSUMPTION, dated ______________, 1999, between
______________________________________, a ____________ corporation ("Assignor"),
and _____________________________________________________, a ___________________
corporation ("Assignee"):
For and in consideration of the sum of TEN DOLLARS ($10.00) and other
valuable consideration the receipt and sufficiency of which hereby are
acknowledged, and of the mutual covenants herein contained, the parties hereto
hereby agree as follows:
1. The Assignor hereby grants, transfers and assigns to Assignee all of
the right, title and interest of Assignor, as Holder, in, to and under that
certain Servicing Agreement, Conventional Mortgage Loans, ___________________
(the "Servicing Agreement"), dated ________________, 1996, by and between
___________________________________ and
__________________________________________________________ (the "Company").
2. The Assignor warrants and represents to, and covenants with, the
Assignee that:
a. The Assignor is the lawful owner of the Mortgage Loans with the
full right to transfer the Mortgage Loans free from any and all claims and
encumbrances whatsoever;
b. The Assignor has not received notice of, and has no knowledge of,
any offsets, counterclaims or other defenses available to the Company with
respect to the and Servicing Agreement; and
c. The Assignor has not agreed to any amendment or other
modification of the Servicing Agreement unless disclosed to Assignee, including
without limitation the transfer of the servicing obligations under the Servicing
Agreement. The Assignor has no knowledge of, and has not received notice of, any
waivers under or amendments or other modifications of, or assignments of rights
or obligations under, the Servicing Agreement.
3. The Assignee warrants and represents to, and covenants with, the
Assignor that:
a. The Assignee agrees to be bound, as Holder, by all of the terms,
covenants and conditions of the Servicing Agreement;
b. The Assignee has been furnished with all information regarding
the Servicing Agreement that it has requested from Assignor; and
<PAGE> 83
-2-
c. The Assignee's address for purposes of all notices and
correspondence related to the Servicing Agreement is:
--------------------
--------------------
--------------------
The Assignee's wire transfer instructions for purposes of all remittances
and payments related to the Servicing Agreement are:
--------------------
--------------------
--------------------
IN WITNESS WHEREOF, the parties have caused this Assignment and
Assumption to be executed by their duly authorized officers as of the date first
above written.
- ----------------------------------, --------------------------------------,
Assignor Assignee
By: By:
------------------------------- -----------------------------------
Its: Its:
------------------------------ ----------------------------------
Taxpayer Taxpayer
Identification No. Identification No.
---------------- --------------------
<PAGE> 84
EXHIBIT E
MONTHLY TRIAL BALANCE FORMAT
<PAGE> 85
CUSTODY AGREEMENT
This CUSTODY AGREEMENT dated as of JUNE 22, 1999 by and among IMPAC
WAREHOUSE LENDING GROUP (IWLG), a California corporation, having an address at
1401 Dove Street, Newport Beach, CA 92660 ("Buyer"), Bankers Trust Company,
having an address at 3 Park Plaza, 16th Floor, Irvine, California 92714,
("Custodian"), AUSTIN FUNDING CORPORATION having an address at 823 CONGRESS
AVE., SUITE #515, AUSTIN, TX, 78701 ("Seller").
W I T N E S S E T H:
WHEREAS, the Seller and the Buyer may, from time to time, enter into
transactions (each, a "Transaction") in which the Buyer agrees to purchase from
the Seller certain one- to four-family residential mortgage loans (the "Mortgage
Loans"), with a simultaneous agreement by the Seller to repurchase such Mortgage
Loans on demand as provided in a Master Repurchase Agreement, dated as of JUNE
22, 1999 between the Seller and the Buyer (the "Master Repurchase Agreement")
and a Confirmation between the Seller and the Buyer (the "Confirmation"; as to
each Transaction, the related Confirmation and the Master Repurchase Agreement
are referred to collectively as the "Repurchase Agreement");
WHEREAS, pursuant to the terms of a Servicing Agreement, dated as of
JUNE 22, 1999 between the Buyer and the Seller (the "Servicing Agreement"), the
Seller will service the Mortgage Loans for the Buyer; and
WHEREAS, the Buyer has directed the Seller, and the Seller has agreed,
to deliver certain documents with respect to the Mortgage Loans subject to each
Transaction to the Custodian, and the Custodian has agreed to take and maintain
possession of such documents in accordance with the terms and conditions hereof;
NOW, THEREFORE, in consideration of the mutual undertakings herein
expressed, the parties hereto agree as follows:
1. All capitalized terms not otherwise defined herein have the
respective meanings set forth in the Repurchase Agreement.
2. On or before the effective date for each Transaction (the "Purchase
Date"), the Seller shall deliver, or cause to be delivered, to the Custodian a
schedule of Mortgage Loans subject to such Transaction ("Mortgage Loan
Schedule"), and the Seller shall deliver, or shall cause to be delivered, and
shall release to the Custodian the following documents pertaining to each of the
Mortgage Loans identified in the Mortgage Loan Schedule, which documents the
Custodian shall hold for the benefit of the Buyer, its successors or assigns, as
the owner thereof:
(i) the original note or other evidence of indebtedness (the
"Mortgage Note") of the obligor thereon (each such obligor, a
"Mortgagor"), endorsed to the order of or assigned to Seller
by the holder/payee thereof, without recourse, and endorsed by
Seller, without recourse, in blank;
<PAGE> 86
(ii) the original mortgage, deed of trust or other instrument (the
"Mortgage") creating a first lien on the underlying property
securing the Mortgage Loan (the "Mortgaged Property"), naming
Seller as the "mortgagee" or "beneficiary" thereof, and
bearing on the face thereof the address of Seller, or, if the
Mortgage does not name Seller as the mortgagee/beneficiary,
the Mortgage, together with an instrument of assignment
assigning the Mortgage, individually or together with other
Mortgages, to Seller and bearing on the face thereof the
address of Seller, and, in either case, bearing evidence that
such instruments have been recorded in the appropriate
jurisdiction where the Mortgaged Property is located (or, in
lieu of the original of the Mortgage or the assignment
thereof, a duplicate or conformed copy of the Mortgage or the
instrument of assignment, if any, together with a certificate
of either the closing attorney or an officer of the title
insurer that issued the related title insurance policy, or a
certificate of receipt from the recording office, certifying
that such copy or copies represent true and correct copy(ies)
of the original(s) and that such original(s) have been or are
currently submitted to be recorded in the appropriate
governmental recording office of the jurisdiction where the
Mortgaged Property is located);
(iii) an original assignment of Mortgage, in blank, which assignment
shall be in form and substance acceptable for recording and,
in the event that the Seller acquired the Mortgage Loan in a
merger, the assignment must be by "[Seller], successor by
merger to [name of predecessor]";
(iv) any intervening assignment of the Mortgage not included in
(ii) above, including any warehousing assignment;
(v) any assumption, modification, extension or guaranty agreement;
(vi) Lender's title insurance policy, or, if such policy has not
been issued, a written commitment or interim binder issued by
the title insurance company evidencing that the required title
insurance coverage is in effect and unconditionally
guaranteeing the holder of the Mortgage Loan that the lender's
title insurance policy will be issued;
(vii) any instrument necessary to complete identification of any
exception set forth in the exception schedule in the title
insurance policy (e.g., map or plat, restrictions, easements,
sewer agreements, home association declarations, etc.); and
<PAGE> 87
(viii) if the Mortgage Note or Mortgage or any other material
document or instrument relating to the Mortgage Loan has
been signed by a person on behalf of the Mortgagor, the
original power of attorney or other instrument that authorized
and empowered such person to sign bearing evidence that such
instrument has been recorded, if so required, in the
appropriate jurisdiction where the Mortgaged Property is
located (or, in lieu thereof, a duplicate or conformed copy of
such instrument, together with a certificate of receipt from
the recording office, certifying that such copy represents a
true and complete copy of the original and that such original
has been or is currently submitted to be recorded in the
appropriate governmental recording office of the jurisdiction
where the Mortgaged Property is located).
From time to time, the Seller shall forward to the Custodian additional original
documents evidencing an assumption or modification of a Mortgage Loan approved
by the Seller. All documents held by the Custodian as to each Mortgage Loan
pursuant to this Section 2 are referred to herein as the "Custodian's Mortgage
File". On the respective Purchase Date for each Transaction, the Seller shall
deliver to the Buyer a Certificate of the Seller, in the form attached hereto as
Exhibit One, with respect to all of the Mortgage Loans and related documents
described in this Section 2 sold to the Buyer on such Purchase Date in
connection with such Transaction.
3. The Buyer hereby appoints the Custodian, in its independent
corporate capacity, as the custodian of the Buyer and any successor to or
assignee of the Buyer, and the Custodian hereby accepts and agrees to act as
custodian for the Buyer and any successor to or assignee of the Buyer in
accordance with the terms and conditions of this Agreement. With respect to each
Custodian's Mortgage File delivered to the Custodian, the Custodian is solely
and exclusively the custodian for the Buyer or its successor or assignee for all
purposes (including, but not limited to, the perfection of the security interest
of the Buyer in such Mortgage Loans to the extent that the Seller shall be
deemed to have pledged the Mortgage Loans to Buyer pursuant to Section 6 of the
Repurchase Agreement). The Custodian shall hold in its possession at 3 Park
Plaza 16th Floor, Irvine, California 92714, all Custodian's Mortgage Files
received by it from the Seller from time to time for the sole and exclusive use
and benefit of the Buyer and the Buyer's successors and assignees as provided
herein and, except as otherwise expressly provided herein, shall make
disposition thereof only in accordance with the written instructions of the
Buyer. The Custodian shall segregate and maintain continuous custody of all
documents constituting the Custodian's Mortgage Files received by it in secure
and fireproof facilities, all in accordance with customary standards for such
custody.
4. When the Custodian has received from the Seller possession of each
Custodian's Mortgage File for the related Transaction, the Custodian shall
verify that:
(a) all documents required to be delivered to it pursuant to this
Agreement are in the Custodian's possession;
(b) such documents have been reviewed by the Custodian and appear
regular on their face and relate to the Mortgage Loans and neither
the Mortgage Note, the Mortgage nor the Assignment of Mortgage
contains evidence of any claims, liens, security interests,
encumbrances or restrictions on transfer;
<PAGE> 88
(c) based only on the Custodian's examination of the foregoing
documents:
(i) the information set forth on the Mortgage Loan Schedule
with respect to each Mortgage Loan accurately reflects the
information contained in the documents contained in each
Custodian's Mortgage File as to, (A) the name of the
respective Mortgagor, (B) the address of the respective
Mortgaged Property, (C) the original principal amount of
the related Mortgage Note;
(ii) the Mortgage Note and the Mortgage each bears an original
signature or signatures purporting to be the signature or
signatures of the person or persons named as the maker and
mortgagor or grantor or, in the case of copies of the
Mortgage permitted under paragraph 2(a)(ii), that such
copies bear a reproduction of such signature or signatures;
(iii) the principal amount of the indebtedness secured by the
Mortgage is identical to the original principal amount of
the Mortgage Note;
(iv) if the Note does not name "[Seller]" as the holder or
payee, the Mortgage Note bears original endorsements that
complete the chain of ownership from the original holder or
payee to "[Seller]"; and
(v) if the Mortgage does not name "[Seller]" as the mortgagee
or beneficiary, the original of the Assignment of Mortgage
and any intervening assignments of mortgage bear the
original signature purporting to be the signature of the
named mortgagee or beneficiary (and any other necessary
party including subsequent assignors) or in the case of
copies permitted under paragraph 2(a)(ii), that such copies
bear a reproduction of such signature or signatures and
that the Assignment of Mortgage and any intervening
assignments of mortgage complete the chain of title from
the originator to "[Seller]";
(d) each Mortgage Note has been endorsed as noted in paragraph 2(a)(i)
herein and each Assignment of Mortgage has been completed as noted
in paragraph 2(a)(iii) herein; and
(e) the Lender's title insurance policy, or written commitment to
issue or interim binder for such policy, is for not less than the
original principal amount of the Mortgage Note and insures that
the Mortgage constitutes a first lien, senior in priority to all
other mortgages, deeds of trust, security interests and other
contractual liens.
<PAGE> 89
In making such verification, the Custodian may rely conclusively on the Mortgage
Loan Schedule and the documents constituting the Custodian's Mortgage File, and
the Custodian shall have no obligation to independently verify the correctness
of such Mortgage Loan Schedule or any document. Upon completing such
verification, the Custodian shall advise the Buyer of its receipt of all such
Custodian's Mortgage Files and shall forward to the Buyer on the Purchase Date a
trust receipt in the form annexed hereto as Exhibit Two (the "Trust Receipt")
with respect to the Mortgage Loans (other than any Mortgage Loan paid in full or
any Mortgage Loan specifically identified on the Schedule of Exceptions attached
to the Trust Receipt as not covered by such Trust Receipt) listed on the
Mortgage Loan Schedule for such Transaction. If the Custodian determines from
such verification that any discrepancy or deficiency exists with respect to a
Custodian's Mortgage File, the Custodian shall note such discrepancy on the
Schedule of Exceptions attached to the Trust Receipt, and, upon the request of
the Seller, the Custodian shall deliver a copy of the Schedule of Exceptions to
the Seller. During the life of the Mortgage Loans, in the event the Custodian
discovers any defect with respect to the Custodian's Mortgage File, the
Custodian shall give written specification of such defect to the Seller and the
Buyer. Except as specifically provided above, the Custodian shall be under no
duty to review, inspect or examine such documents to determine that any of them
are enforceable or appropriate for their prescribed purpose.
5. Each Trust Receipt, upon initial issuance or reissuance upon
transfer, shall be dated the date of issuance thereof and shall evidence the
receipt and possession of the Custodian's Mortgage File by the Custodian on
behalf of the holder of the Trust Receipt and the holder's right to possess the
Custodian's Mortgage File with respect to which that Trust Receipt is issued.
Prior to due surrender of a Trust Receipt pursuant to Paragraph 6, the Custodian
shall treat the individual person or entity in whose name any Trust Receipt is
registered as the individual person or entity entitled to possession of the
Custodian's Mortgage File evidenced by such Trust Receipt for all purposes
whatsoever, subject to the terms of this Agreement, and the Custodian shall not
be affected by notice of any facts to the contrary. No Trust Receipt shall be
valid for any purpose unless substantially in the form set forth in Exhibit Two
to this Agreement and executed by manual signature of an authorized officer of
the Custodian, and such signature upon any Trust Receipt shall be conclusive
evidence, and the only evidence, that such Trust Receipt has been duly delivered
under this Agreement. Trust Receipts bearing the manual signatures of
individuals who were, at the time when such signatures were affixed, authorized
to sign on behalf of the Custodian shall bind the Custodian, notwithstanding
that such individuals or any of them have ceased to be so authorized prior to
the delivery of those Trust C Receipts. Each Trust Receipt shall have attached
thereto a schedule, in the format of the Mortgage Loan Schedule, identifying
the Mortgage Loans for which the Trust Receipt is issued. The Custodian shall
keep a register in which the Custodian shall provide for the registration of
transfers of Trust Receipts as herein provided and in which it shall record the
name and address of the person to whom each Trust Receipt is issued. In the
event that the Trust Receipt is lost, stolen, mutilated or destroyed, the
Custodian shall issue a new Trust Receipt to the registered holder of such lost,
stolen, mutilated or destroyed Trust Receipt upon receiving a reasonably
satisfactory commitment from such holder to indemnify the Custodian and hold the
Custodian harmless in respect of the issuance of such new Trust Receipt.
<PAGE> 90
6. Upon receipt of written directions from the Buyer at any time, and
upon the prior tender by the Buyer of the applicable Trust Receipt, the
Custodian shall deliver all or any portion of the Custodian's Mortgage Files
held by it to the Buyer, or to such other party as the Buyer may direct, and to
the place indicated in any such written direction from the Buyer and shall
deliver to the Buyer a new Trust Receipt with respect to the Custodian's
Mortgage Files retained by the Custodian. Upon receipt by the Custodian of
written notification from the Buyer that the Buyer has sold all or a portion of
the Mortgage Loans, which notification shall state the name and address of the
purchaser and the date of sale and shall be accompanied by the original Trust
Receipt or Trust Receipts for such Mortgage Loans delivered to the Buyer, the
Custodian shall change its records to reflect that such purchaser is the owner
of such Mortgage Loans and the related Custodian's Mortgage Files and shall
immediately, upon the direction of the Buyer, either deliver the applicable
Custodian's Mortgage Files to such purchaser or issue a Trust Receipt in the
name of such purchaser. The Custodian shall then deliver to the Buyer a new
Trust Receipt reflecting all Mortgage Loans evidenced by the surrendered Trust
Receipts with respect to which the Custodian still holds the related Custodian's
Mortgage Files on behalf of the Buyer. The Buyer shall deliver to the Seller a
copy of any written requests made pursuant to this Paragraph 6. Every Trust
Receipt presented or surrendered for transfer shall be duly endorsed by the
holder thereof, or be accompanied by a written instrument of transfer, duly
executed by the holder thereof and such holder's prospective transferee. No
service charge against the presenter of a Trust Receipt shall be made for any
registration or transfer of any Trust Receipt, but the Custodian may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer of any Trust Receipt, which shall be
paid by the transferee. Each Trust Receipt surrendered for registration of
transfer shall be canceled by the Custodian. Any purchaser of a Mortgage Loan
shall succeed to all the rights and obligations of the Buyer under this
Agreement with respect to such Mortgage Loan and the related Custodian's
Mortgage File.
7. In the event that any specific Mortgage Loan document is required by
the Seller, in its capacity as the servicer pursuant to the Servicing Agreement,
either (a) because such Mortgage Loan has been paid in full and is to be
released by the Seller, in its capacity as the servicer pursuant to the
Servicing Agreement, to the maker of the respective Mortgage Note, or (b) to
facilitate enforcement and collection procedures with respect to any Mortgage
Note, the Seller, in its capacity as the servicer pursuant to the Servicing
Agreement, shall send to the Custodian a certificate in the form of Exhibit
Three. The Custodian shall promptly send a copy of such certificate to the
Buyer, and in the event that Buyer consents to the release of such documents,
the Buyer will return such copy to the Custodian with such consent indicated
thereon. Notwithstanding anything to the contrary herein, the Custodian shall in
no event release to the Buyer any documents contained in a Custodian's Mortgage
File without the written authorization of the Buyer. Any Trust Receipt issued
while any documents are outstanding with the Seller, in its capacity as the
servicer pursuant to the Servicing Agreement, shall reflect that the Custodian
holds such documents as custodian for the Buyer pursuant to this Agreement, but
the Schedule of Exceptions shall specify that the Custodian has released such
documents to the Seller, in its capacity as the servicer pursuant to the
Servicing Agreement, pursuant to this paragraph. All documents so released to
the Seller, in its capacity as the servicer pursuant to the Servicing Agreement,
shall be held by it in trust for the benefit of the Buyer in accordance with
Paragraph 9(b) of the Repurchase Agreement. In the case of documents released
pursuant to clause (b) above, the Seller shall return to the Custodian the
Custodian's Mortgage File, or such other documents that have been released to
the Seller, when the Seller's need therefor in connection with such enforcement
or collection procedures no longer exists, unless the Mortgage Loan shall be
liquidated, in which case, upon receipt
<PAGE> 91
of a certification to this effect from the Seller to the Custodian in the form
annexed hereto as Exhibit Three, the Seller's receipt shall be released by the
Custodian to the Seller, and the Custodian shall thereupon reflect any such
liquidation on the list of Mortgage Loans maintained by it pursuant to Paragraph
13 of this Agreement.
8. It is understood that Custodian will charge such fees for its
services under this Agreement as are set forth in a separate agreement between
the Custodian and the Seller, the payment of which, together with the
Custodian's expenses in connection herewith, shall be solely the obligation of
the Seller.
9. The Buyer, with or without cause, may (i) require the Custodian to
complete the endorsements on the Mortgage Notes, and to complete the Assignments
of Mortgages and/or (ii) upon thirty (30) days written notice, remove and
discharge the Custodian, or any successor Custodian there after appointed, from
the performance of its duties under this Agreement by written notice from the
Buyer to the Custodian or the successor Custodian, with a copy of such notice to
the Seller. Having given notice of such removal, the Buyer shall promptly
appoint by written instrument a successor Custodian to act on behalf of the
Buyer. One original counterpart of such instrument shall be delivered to the
Buyer, one copy shall be delivered to the Seller and one copy shall be delivered
to the successor Custodian. In the event of any such removal, the Custodian
shall promptly transfer to the successor Custodian, as directed by the Buyer,
all of the Custodian's Mortgage Files being administered under this Agreement
and shall complete the Assignments of Mortgage and endorse the Mortgage Notes to
the successor Custodian, if, and in the form, directed by the Buyer. In the
event of any such appointment, the Seller shall not be responsible for any fees
of the successor Custodian in excess of the fees formerly paid to the Custodian.
10. The Custodian may terminate its obligations under this Agreement
upon at least sixty (60) days written notice to the Seller and the Buyer. In the
event of such termination, the Seller shall appoint a successor Custodian,
subject to approval by the Buyer. If the Seller is unable to appoint a successor
Custodian within a reasonable period of time, the Buyer shall appoint a
successor Custodian. The payment of such successor Custodian's fees and expenses
shall be the sole responsibility of the Buyer. Upon such appointment, the
Custodian shall promptly transfer to the successor Custodian, or as directed,
all Custodian's Mortgage Files being administered under this Agreement and shall
complete the Assignments of Mortgage and endorse the Mortgage Notes as, and if,
requested by the Buyer. The Custodian's obligations hereunder shall not in any
event be terminated until the Custodian's Mortgage Files have been delivered to
the successor Custodian or to the Buyer.
11. Upon reasonable prior written notice to the Custodian, the Buyer
and its agents, accountants, attorneys and auditors will be permitted during
normal business hours to examine the Custodian's Mortgage Files.
12. The Custodian shall, at its own expense, maintain at all times
during the existence of this Agreement and keep in full force and effect (a)
fidelity insurance, (b) theft of LID documents insurance, (c) forgery insurance
and (d) insurance covering the risk of errors and omissions. All such insurance
shall be in amounts, with standard coverage and subject to deductibles, as are
customary for insurance typically maintained by banks that act as custodian in
similar transactions. A certificate of the respective insurer as to each such
policy shall be furnished to the Buyer, upon request, containing the insured's
statement or endorsement that such insurance shall not terminate prior to
<PAGE> 92
receipt by the Buyer, by registered mail, of ten (10) days notice thereof.
13. Upon the request of the Buyer at any time, the Custodian shall
provide to the Buyer a list of all the Mortgage Loans for which Custodian holds
a Custodian's Mortgage File pursuant to this Agreement and a list of documents
missing from each Custodian's Mortgage File. Such list may be in the form of a
copy of the Mortgage Loan Schedules with manual deletions to specifically denote
any Mortgage Loans paid off, liquidated or repurchased since the date of this
Agreement.
14. Upon the request of the Buyer and at the cost and expense of the
Buyer, the Custodian shall provide the Buyer with copies of the Mortgage Notes,
Mortgages, Assignments of Mortgage and other documents contained in the
Custodian's Mortgage File relating to one or more of the Mortgage Loans.
15. By execution of this Agreement, the Custodian warrants that it does
not currently hold, and during the existence of this Agreement shall not hold,
any adverse interest, by way of security or otherwise, in any Mortgage Loan, and
hereby waives and releases any such interest that it may have in any Mortgage
Loan as of the date hereof. Notwithstanding any other provisions of this
Agreement and without limiting the generality of the foregoing, the Custodian
shall not at any time exercise or seek to enforce any claim, right or remedy,
including any statutory or common law rights of set-off, if any, that the
Custodian may otherwise have against all or any part of a Custodian's Mortgage
File, Mortgage Loan or proceeds of either.
15A. The Custodian represents and warrants to, and covenants that:
(a) The Custodian is (i) a New York corporation duly organized,
validly existing and in good standing under the laws of New York and (ii)
duly qualified and in good standing and in possession of all requisite
authority, power, licenses, permits and franchises in order to execute,
deliver and comply with its obligations under the terms of this
Agreement;
(b) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action and the execution
and delivery of this Agreement by the Custodian in the manner
contemplated herein and the performance of and compliance with the terms
hereof by it will not (i) violate, contravene or create a default under
any applicable laws, licenses or permits to the best of its knowledge, or
(ii) violate, contravene or create a default under any charter document
or bylaw of the Custodian or, to the best of the Custodian's knowledge,
any contract, agreement or instrument to which the Custodian or by which
any of its property may be bound and will not result in the creation of
any lien, security interest or other charge or encumbrance upon or with
respect to any of its property;
(c) The execution and delivery of this Agreement by the Custodian
and the performance of and compliance with its obligations and covenants
hereunder do not require the consent or approval of any governmental
authority, or, if such consent or approval is required, it has been
obtained; and
<PAGE> 93
(d) This Agreement, and each Trust Receipt issued hereunder, when
executed and delivered by the Custodian will constitute valid, legal and
binding obligations of the Custodian, enforceable against the Custodian
in accordance with their respective terms, except (i) as the enforcement
thereof may be limited by applicable debtor relief laws and (ii) that
certain equitable remedies may not be available regardless of whether
enforcement is sought in equity or law.
16. All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered to the other
party at the address shown on the first page hereof, or such other address as
may hereafter be furnished to the other party by like notice.
17. Each authorized representative (an "Authorized Representative") of
the Buyer is authorized to give and receive notices, requests and instructions
and to deliver certificates and documents in connection with this Agreement on
behalf of the Buyer and the specimen signature for each such Authorized
Representative of the Buyer initially authorized hereunder is set forth on
Exhibit Four hereof. From time to time, the Buyer shall deliver to the Custodian
a revised Exhibit Four, reflecting changes in the information previously given,
but the Custodian shall be entitled to rely conclusively on the last Exhibit
Four until receipt of a superseding Exhibit Four. Each Authorized Representative
of the Seller is authorized to give and receive notices, requests and
instructions and to deliver certificates and documents in connection with this
Agreement on behalf of the Seller and the specimen signature for each such
Authorized Representative of the Seller initially authorized hereunder is set
forth on Exhibit Five hereof. From time to time, the Seller shall deliver to the
Custodian a revised Exhibit Five, reflecting changes in the information
previously given, but the Custodian shall be entitled to rely conclusively on
the last Exhibit Five until receipt of a superseding Exhibit Five.
18. The Seller shall indemnify and hold the Custodian and its
directors, officers, agents and employees harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against it or them hereunder and under the
Repurchase Agreement.
19. The duties and obligations of the Custodian shall be determined
solely by the express provisions of this Agreement. The Custodian shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement or as set forth in a written amendment
to this Agreement executed by the parties hereto or their successors or assigns.
The Custodian shall not assign, transfer, pledge or grant a security interest in
any of its rights, benefits or privileges hereunder, nor shall the Custodian
delegate or appoint any other person or entity to perform or carry out any of
its duties, responsibilities or obligations under this Agreement. Any act or
instrument purporting to effect any such assignment, transfer, pledge, grant,
delegation or appointment shall be void. No representations, warranties,
covenants (other than those expressly made by the Custodian in this Agreement)
or obligations of the Custodian shall be implied with respect to this Agreement
or the Custodian's services hereunder. Without limiting the generality of
the foregoing, the Custodian:
(a) shall have no duties or obligations other than those
specifically set forth herein
<PAGE> 94
or as may subsequently be agreed in writing by the parties hereto and shall use
the same degree of care and skill as is reasonably expected of financial
institutions acting in comparable capacities;
(b) will be regarded as making no representations and having no
responsibilities (except as expressly set forth herein) as to the validity,
sufficiency, value, genuineness, ownership or transferability of any
certificates or Mortgage Loans represented thereby, and will not be required to
and will not make any representations as to the validity, value or genuineness
of Mortgage Loans;
(c) shall not be obligated to take any legal action hereunder that
might in its judgment involve any expense or liability unless it has been
furnished with reasonable indemnity;
(d) may rely on and shall be protected in acting in good faith
upon any certificate, instrument, opinion, notice, letter, telegram or other
document, or any security, delivered to it and in good faith believed by it to
be genuine and to have been signed by the proper party or parties;
(e) may rely on and shall be protected in acting in good faith
upon the written instructions of the Seller and such employees and
representatives of the Seller as the Seller may hereinafter designate in
writing;
(f) may consult counsel satisfactory to it (including counsel for
the Seller and the Buyer) and the opinion of such 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 furtherance of its duties
hereunder, in accordance with the opinion of such counsel;
(g) shall not be liable for any error of judgment, or for any act
done or step taken or omitted by it, in good faith, or for any mistake of fact
or law, or for anything that it may do or refrain from doing in connection
therewith, except in the case of negligent performance or omission; and
(h) may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or through agents or attorneys, provided,
however, that the execution of such trusts or powers by any such agents or
attorneys shall not diminish, or relieve the Custodian for, responsibility
therefor to the same degree as if the Custodian itself had executed such trusts
or powers.
20. For the purpose of facilitating the execution of this Agreement and
for other purposes, this Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed to be an original, and together
shall constitute and be one and the same instrument.
21. The Buyer shall have the right, without the consent of the
Custodian or the Seller, to assign, in whole or in part, its interests under
this Agreement in all of the Mortgage Loans subject to any Transaction, and
designate any person to exercise any rights of the Buyer, hereunder, and the
assignee or designee shall accede to the rights and obligations hereunder of the
Buyer with respect to such Mortgage Loans. All references to the Buyer shall be
deemed to include its assignee or designee. In connection with any such
assignment, the Custodian may require that arrangements reasonably satisfactory
to it be made for the exchange of previously executed and outstanding Trust
Receipts for a Trust Receipt representing such assignment.
<PAGE> 95
22. This Agreement shall terminate with respect to any Transaction upon
the earlier of (a) the repurchase of all of the Mortgage Loans subject to such
Transaction by the Seller pursuant to the Repurchase Agreement, which repurchase
shall be evidenced by a notice from the Buyer to the Custodian stating that
beneficial ownership of the Mortgage Loans has been transferred to the Seller,
or (b) the Buyer's election to obtain possession of the Mortgage Loans subject
to a Transaction following an Event of Default (as defined in the Repurchase
Agreement) by the Seller, which election shall be evidenced by a notice from the
Buyer to the Custodian stating that the Seller is in default under the
Repurchase Agreement, a copy of which notice shall be simultaneously delivered
to the Seller, and delivery of the Custodian's Mortgage Files pursuant to the
Buyer's instructions.
23. Neither the failure nor any delay on the part of any party hereto
to exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of the
same or any other right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence be construed as
a waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party or parties purportedly granting such waiver.
24. The provisions of this Agreement are independent of and severable
from each other, and no provision shall be affected or rendered invalid or
unenforceable by virtue of the fact that for any reason any other provision or
provisions may be invalid or unenforceable in whole or in part.
25. This Agreement constitutes the entire agreement and understanding
of the parties with respect to the matters and transactions contemplated by this
Agreement and supersedes any prior agreement and understandings with respect to
those matters and transactions.
26. This Agreement shall be construed in accordance with the laws of
the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
27. This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by any party at the closing, and (c)
financial statements, certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
28. The exhibits to this Agreement are hereby incorporated and made a
part hereof and are an integral part of this Agreement.
29. For purposes of this Agreement, except as otherwise expressly
provided or
<PAGE> 96
unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned
to them in this Agreement and include the plural as well as
the singular, and the use of any gender herein shall be
deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally
accepted accounting principles;
(c) references herein to "Articles", "Sections", "Subsections",
"Paragraphs", and other subdivisions without reference to a
document are to designated Articles, Sections, Subsections,
Paragraphs and other subdivisions of this Agreement;
(d) a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the
same Section in which the reference appears, and this rule
shall also apply to Paragraphs and other subdivisions;
(e) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Agreement as a whole and not to
any particular provision; and
(f) the term "include" or "including" shall mean without
limitation by reason of enumeration.
<PAGE> 97
IN WITNESS WHEREOF, Seller, Buyer and Custodian have caused their names
to be signed hereto by their respective officers thereunto duly authorized, all
as of the date first written above.
AUSTIN FUNDING CORPORATION
as Seller
By: /s/ GLENN LAPOINTE
--------------------------------------
Name: Glenn LaPointe
------------------------------------
Title: President
-----------------------------------
IMPAC WAREHOUSE LENDING GROUP
as Buyer
By: /s/ ZOILA VELASCO
--------------------------------------
Name: Zoila Velasco
------------------------------------
Title: Vice President
-----------------------------------
BANKERS TRUST COMPANY,
as Custodian
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 98
EXHIBIT ONE
CERTIFICATE OF SELLER
I, ____________________________, hereby certify that I am the duly
elected _______________________________ of AUSTIN FUNDING CORPORATION (the
"Seller"). All terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms in the Custody Agreement, dated as of JUNE 22,
1999 among the Seller, Impac Warehouse Lending Group (the "Buyer"), Bankers
Trust Company, as custodian.
The undersigned hereby represents, warrants and covenants on behalf of
the Seller that, pursuant to the sale of the mortgage loans set forth on Annex 1
hereto (the "Mortgage Loans") by the Seller to Buyer pursuant to a Master
Repurchase Agreement, dated as of JUNE 22, 1999 between the Seller and the
Buyer, the Seller sells, transfers, assigns, sets over and otherwise conveys to
Buyer all of its right (including the power to convey title thereto), title and
interest in and to each document held by or on behalf of the Seller with respect
to each Mortgage Loan. Any such documents that have not been delivered to the
Custodian shall be held by the Seller, in trust for the benefit of the Buyer and
shall be delivered to the Buyer or its assignee or designee upon demand.
IN WITNESS WHEREOF, I have hereunto signed my name, this ____ day of
________ 1999.
By: /s/ GLENN LAPOINTE
----------------------------------
Name: Glenn LaPointe
Title: President
<PAGE> 99
ANNEX 1
MORTGAGE LOAN SCHEDULE
<PAGE> 100
ANNEX 2
(1) the original note or other evidence of indebtedness (the "Mortgage
Note") of the obligor thereon (each such obligor, a "Mortgagor").
(2) the original mortgage, deed of trust or other instrument (the
"Mortgage") creating a first lien on the underlying property securing
the Mortgage Loan (the "Mortgaged Property").
(3) the original assignment of the Mortgage.
(4) any intervening assignment of the Mortgage, including any warehousing
assignment.
(5) any assumption, modification, extension or guaranty agreement.
(6) any lender's title insurance policy and any written commitment or
interim binder issued by the title insurance company evidencing that
the required title insurance coverage is in effect and unconditionally
guaranteeing the holder of the Mortgage Loan that the lender's title
insurance policy will be issued.
(7) any instrument necessary to complete identification of any exception
set forth in the exception schedule in the title insurance policy
(e.g., map or plat, restrictions, easements, sewer agreements, home
association declarations, etc.).
(8) any survey of the Mortgaged Property.
(9) any hazard insurance policy or flood insurance policy, with extended
coverage of the hazard insurance policy.
(10) any Mortgage Loan closing statement (Form HUD-1) and any other
truth-in-lending, real estate settlement procedure forms or other
disclosure statements required by law.
(11) any residential loan application.
(12) any verification of employment and income.
(13) any verification of acceptable evidence of source and amount of
downpayment.
(14) any credit report on the borrower under the Mortgage Loan.
(15) any residential appraisal report.
(16) any photograph of the Mortgaged Property.
<PAGE> 101
(17) any power of attorney or other instrument that authorized and empowered
any person other than the Mortgagor to sign the Mortgage Note or
Mortgage or any other material document or instrument relating to the
Mortgage Loan not signed by the Mortgagor.
(18) any tax receipts, insurance premiums, ledger sheets, payment records,
insurance claim files and correspondence, current and historical
computerized data files, underwriting standards used for origination
and all other papers and records developed or originated by the Seller,
any servicer or others, required to document the Mortgage Loan or to
service the Mortgage Loan.
<PAGE> 102
EXHIBIT TWO
TRUST RECEIPT
TRANSACTION NUMBER________
________________,199__
To: [BUYER]
Reference is made to the Custody Agreement among Impac Warehouse
Lending Group (the "Buyer"), __________________________ (the "Seller") and
______________________ _______________________, as custodian (the "Custodian")
dated as of ___________ 1, 1999 (the "Custody Agreement"), pursuant to which the
Seller has delivered to the Custodian, with respect to each Mortgage Loan set
forth on Schedule A hereto (the "Mortgage Loan Schedule"), the documents set
forth in Section 2 of the Custody Agreement.
With respect to each Mortgage Loan listed on the Mortgage Loan Schedule
and except as otherwise noted on the Schedule of Exceptions set forth on
Schedule B hereto, the Custodian confirms that (1) the Custodian has received
all of the documents required to be delivered to the Custodian pursuant to
Section 2 of the Custody Agreement, (2) the Custodian has reviewed each
Custodian's Mortgage File in accordance with Section 4 of the Custody Agreement,
and the documents contained in each Custodian's Mortgage File conform to the
requirements set forth in Section 4 of the Custody Agreement, and (3) the
Custodian has physical possession of the documents in each Custodian's Mortgage
File and will continue to hold each Custodian's Mortgage File as bailee of and
agent for, and for the sole and exclusive use and benefit of, the addressee of
this Trust Receipt, until such addressee directs the Custodian to the contrary
in accordance with the Custody Agreement.
All terms used herein and not otherwise defined herein shall have the
respective meaning ascribed to such term in the Custody Agreement.
[CUSTODIAN]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 103
SCHEDULE A
MORTGAGE LOAN SCHEDULE
<PAGE> 104
SCHEDULE B
SCHEDULE OF EXCEPTIONS
<PAGE> 105
EXHIBIT THREE
REQUEST FOR RELEASE OF DOCUMENTS
To: [CUSTODIAN]
Re: Custody Agreement, dated as of ___________________ 1,
1999, among Impac Warehouse Lending Group ("Buyer"),
__________________________ ("Seller"), and
___________________ as custodian ("Custodian")
In connection with the administration of the Mortgage Loans held by you
as Custodian for the Buyer pursuant to the above-captioned Custody Agreement, we
request the release, and hereby acknowledge receipt, of the (Custodian's
Mortgage File/[specify documents]) for the Mortgage Loan described below, for
the reason indicated.
Mortgage Loan Number:
Reason for Requesting Documents (check one)
1 Mortgage Loan Paid in Full
- --- (Seller, in its capacity as servicer, hereby
certifies that all amounts received in connection
therewith will be held in trust for the Buyer as
provided in the Master Repurchase Agreement, dated as
of _____________ 1, 199__, between the Seller and the
Buyer (the "Repurchase Agreement").
2. Mortgage Loan Liquidated by _________________________
- --- (Seller, in its capacity as servicer, hereby
certifies that all proceeds of foreclosure, insurance
or other liquidation have been finally received and
will be held in trust for the Buyer as provided in
the Repurchase Agreement.)
3. Mortgage Loan in Foreclosure.
- ---
4. Other (explain)
- --- ----------------------------
----------------------------
<PAGE> 106
If box 1 or 2 above is checked, and if all or part of the Custodian's
Mortgage File was previously released to us, please release to us our previous
receipt on file with you, as well as any additional documents in your possession
relating to the above specified Mortgage Loan.
If box 3 or 4 above is checked, upon our return of all of the above
documents to you as Custodian, please acknowledge your receipt by signing in the
space indicated below, and returning this form.
----------------------------------------
as Servicer
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Date:
-----------------------------------
Release of documents consented to:
[BUYER]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
Documents returned
to Custodian:
[CUSTODIAN]
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Date:
-----------------------------------
<PAGE> 107
EXHIBIT FOUR
AUTHORIZED OFFICERS OF THE BUYER
Name Specimen Signature
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
<PAGE> 108
EXHIBIT FIVE
AUTHORIZED OFFICERS OF THE SELLER
Name Specimen Signature
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
<PAGE> 1
EXHIBIT 6(p)
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT ("Agreement") is executed this 30th day
of September, 1999, by and between Austin Funding.com Corporation, a Nevada
corporation (the "Company") and Bradley J. Farley ("Farley").
WHEREAS, Farley has advanced funds to the Company in the aggregate
principal amount of $1,433,000 (the "Loan"); and
WHEREAS, the Company is authorized to issue 20,000,000 shares of its
Preferred Stock, of which no shares have been issued as of the date of this
Agreement; and
WHEREAS, in order to facilitate the efficient and orderly operation of
the business of the parties hereto, it is desirable for Farley to exchange (i)
his right to receive repayment of the Loan (the "Payment Right") for (ii) shares
of Series A Preferred Stock of the Company as set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and for the purpose of
stating the method, terms and conditions of the exchange of the shares described
herein and such other provisions as the parties deem necessary or desirable, the
parties hereto agree as follows:
1. Exchange of Payment Right for Company Preferred Stock. For the
consideration and upon the terms provided herein, the Company hereby issues and
delivers to Farley a certificate for 1,500,000 shares of its Series A Preferred
Stock, par value $0.01 per share, to have and to hold together with all and
singular the rights and appurtenances thereto, and Farley hereby forgives all
outstanding indebtedness due it from the Company, including, without limitation,
the Payment Right with respect to the Loan, and Farley releases the Company from
all liability therefor.
2. The Company Representations. The Company hereby represents and
warrants to Farley as follows:
(a) The Company is a Nevada corporation which has been duly
organized and is validly existing and in good standing under the laws of the
State of Nevada and has the corporate power to own all of its property and
assets and to carry on its business as it is now being conducted.
(b) The Company has full power, authority and legal right to enter
into this Agreement and to consummate the transactions contemplated herein. Upon
execution and delivery of this Agreement, it will be a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except as enforcement of remedies may be limited by bankruptcy,
receivership, reorganization, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights.
1
<PAGE> 2
(c) There are no actions, suits, labor disputes, arbitrations,
grievance proceedings, government investigations or other proceedings pending
or, to the knowledge of the officers of the Company, threatened against or
affecting the Company or any of its properties or assets, at law or in equity,
or before or by any governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind,
which might affect the Company's ability to consummate the transactions called
for herein.
(d) The Company has the authority to issue shares of its Series A
Preferred Stock and when such shares are issued to Farley pursuant to this
Agreement, such shares will be validly issued and outstanding, fully paid,
nonassessable and free and clear of all mortgages, pledges, liens, security
interests, options, rights, encumbrances or claims.
3. Farley Representations. Farley hereby warrants and represents to the
Company as follows:
(a) Farley is an individual resident of the State of Texas, and has
the authority and power to own all of his property and assets and to carry on
his business as it is now being conducted.
(b) Upon execution and delivery of this Agreement, such Agreement
will be a legal, valid and binding obligation of Farley enforceable against
Farley in accordance with its terms except as enforcement of remedies may be
limited by bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights.
(c) There are no actions, suits, labor disputes, arbitrations,
grievance proceedings, government investigations or other proceedings pending
or, to the knowledge of Farley, threatened against or affecting Farley or any of
his properties or assets, at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, which might affect Farley's
ability to consummate the transactions called for herein.
(d) Farley further represents, warrants, and covenants as follows:
(i) Farley acknowledges that the shares to be delivered to him
pursuant to this Agreement have not been and are not being registered
under the Securities Act of 1933, as amended (the "1933 Act") or the
securities laws of any state and that accordingly such stock is not fully
transferable except as permitted under various exemptions contained in
the 1933 Act, the laws of the applicable states, the rules of the
Securities and Exchange Commission.
(ii) Farley covenants, warrants and represents to the Company
that none of the shares of Series A Preferred Stock sold to him pursuant
to this Agreement will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of by him, except after full compliance
with all of the applicable provisions of the 1933 Act, applicable state
laws or pursuant to an exemption therefrom.
2
<PAGE> 3
(iii) Farley is acquiring the shares under this Agreement for
his own account, for investment, and not with a view to the resale or
other disposition thereof; that has no intention of selling,
transferring, hypothecating or otherwise disposing of all or any part of
such shares at any particular time, for any particular price, or upon the
happening of any particular event or circumstances; and Farley further
understands that the Company is relying upon the truth and accuracy of
these covenants, warranties and representations in issuing the shares
without first registering the same under the 1933 Act or the applicable
state laws.
Farley further agrees that the certificates evidencing the
shares it will receive may contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED
UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS THEN IN EFFECT
WITH RESPECT TO SUCH SHARES OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENT OF SUCH ACT IS THEN IN FACT APPLICABLE
TO SUCH SALE, TRANSFER, OR OFFER FOR SALE.
(iv) Farley has received and has read this Agreement and a copy
of the Company's recent filing on Form 10-SB with the Securities and
Exchange Commission. Farley has had the opportunity to have an officer of
the Company answer any questions regarding the terms and conditions of
this particular investment. Farley has further had the opportunity to
obtain any additional information necessary to verify the accuracy of the
information contained in this Agreement. Farley has made an investigation
with respect to certain of the information set out herein and has been
given access to information by the Company and in making the decision to
purchase the shares has relied solely upon review of the documents
mentioned in this paragraph, the representations made by the Company
herein and the independent investigations made by representatives of
Farley.
(v) Farley represents that he is an accredited investor as that
term is defined in Regulation D, 17 C.F.R. ss. 230.501(a). Farley is
experienced in investment and business matters and has received all
financial and other information he has requested about the Company and
its business. He is able to bear the economic risk of his investment in
the Series A Preferred Stock, and he has sufficient financial resources
to sustain a loss of my entire investment in the Company without material
economic hardship if such a loss should occur.
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4. Additional Documents. From time to time, as and when requested by
the Company, Farley shall execute and deliver or cause to be executed and
delivered all such other instruments, and shall take or cause to be taken all
such other action, as the Company may deem necessary or desirable in order to
consummate the terms of this Agreement.
5. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, and their respective successors and
assigns.
6. Laws. This Agreement shall be performable in Travis County, Texas,
and shall be governed by and construed and enforced in accordance with the laws
of the State of Texas.
7. Amendments. No amendments, modifications or alterations of the terms
hereto shall be binding unless the same be in writing dated subsequent to the
date hereof and duly exercised by the parties hereto.
8. Survival of Representations. Each party hereto covenants and agrees
that the warranties and representations in this Agreement, and in any document
delivered or to be delivered pursuant hereto, shall survive the date hereof.
9. Arbitration. Any controversy or claim arising out of this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitration may be entered in any court having jurisdiction
thereof. The arbitration agreement set forth herein shall not limit a court from
granting a temporary restraining order or preliminary injunction in order to
preserve the status quo of the parties pending arbitration. Further, the
arbitrator(s) shall have power to enter such orders by way of interim award, and
they shall be enforceable in court. The place of such arbitration shall be in
Travis County, Texas.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof superseding any and
all prior or contemporaneous oral or prior written agreements, proposals,
letters of intent and understandings, and cannot be modified, changed, waived or
terminated except by a writing which expressly states that it is an amendment,
modification or waiver, refers to this Agreement and is signed by the party to
be charged. No course of conduct or dealing shall be construed to modify, amend
or otherwise affect any of the provisions hereof.
11. Severability. If any portion of this Agreement is declared by a
court of competent jurisdiction to be invalid or unenforceable, such declaration
shall not affect the validity of the remaining provisions.
12. Counterparts. This Agreement may be executed simultaneously 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.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
effective as of the date stated above.
AUSTIN FUNDING.COM CORPORATION,
a Nevada corporation
By:
------------------------------------
Glenn A. LaPointe, President
---------------------------------------
Bradley J. Farley, Individually
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EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form 10-SB of
Austin Funding.com Corporation (the "Corporation") of our report dated June 22,
1999, relating to the consolidated financial statements of Austin Funding.com
Corporation as of March 31, 1999 and 1998 and to the reference to our firm in
the Registration Statement.
SPROUSE & WINN, L.L.P.
Certified Public Accountants
Austin, Texas
October 14, 1999
