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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
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 Applied For
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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.............................................................................13
Item 3. DESCRIPTION OF PROPERTY........................................................................20
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..........................................................................20
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CORPORATE PERSONS..........................................................................22
Item 6. EXECUTIVE COMPENSATION.........................................................................26
Item 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS...................................................................................30
Item 8. DESCRIPTION OF SECURITIES......................................................................31
PART II..........................................................................................................37
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE
COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS............................................................................37
Item 2. LEGAL PROCEEDINGS..............................................................................38
Item 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS....................................................................................39
Item 4. RECENT SALES OF UNREGISTERED SECURITIES........................................................39
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS......................................................40
PART F/S.........................................................................................................41
PART III.........................................................................................................41
Item 1. EXHIBITS.......................................................................................41
SIGNATURES.......................................................................................................44
FINANCIAL STATEMENTS............................................................................................F-1
EXHIBITS
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PART I
Item 1. DESCRIPTION OF BUSINESS.
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.
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
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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 an agreement
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 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 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
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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
industry reports, it is estimated that over $1 trillion of sub-prime loans were
originated in 1998.
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 seminars for mortgage brokers
across Texas in the past and intend to build on those previous successes to
expand the Company's correspondent broker base.
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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 and 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 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.
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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.
PRICING
The Company originates or purchases individual loans at a desired
yield range of approximately 11.5% or more, then sells them to various investors
in pools of $1 million or more at a lower yield (for instance 9.5%) resulting in
a yield spread premium being paid by the investor. 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 spread 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. 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.
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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 payments are received earlier than anticipated by the
Company, the Company may be responsible for partial or full repayment of any
premium received from the investor, thereby reducing profits.
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.
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 March 31,
1999 1998
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Total dollars funded $18,384,816 $12,653,414
Number of Loans 296 234
Gross fee revenue $20,548,383 $10,345,625
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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
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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 its credit index profile ("CIP") as a
statistical credit based tool to predict likely future performance of a
borrower. 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 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 $8 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
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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 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
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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. 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 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
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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 takes 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 applied for FNMA approval
and management believes that it will be approved. If the Company's application
to FNMA is approved, the Company will be exempt from any licensing requirements
under the new law. If the Company does not receive FNMA approval, it will be
subject to the licensing requirements of Senate Bill 1074 and will need to make
the necessary filings.
There can be no assurance that the Company will maintain compliance
with these requirements in the future or receive the necessary FNMA or State of
Texas approvals 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
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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 at a later date for the expansion of its
operations. 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.
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
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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 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.
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<PAGE> 15
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 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 an annual
report of the Company's operations, including 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.
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.
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<PAGE> 16
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 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.
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 decline in
spreads in the marketplace.
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.
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.
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<PAGE> 17
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 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.
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<PAGE> 18
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, 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.
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<PAGE> 19
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 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. The Company may need to raise additional
capital to complete these necessary investments in technology.
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<PAGE> 20
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 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,
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<PAGE> 21
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 is currently in the process of requesting compliance certificates from
these vendors to certify their Year 2000 readiness. The Company has received
compliance certificates from substantially all of these vendors and expects to
receive the balance of these certificates by September 30, 1999.
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 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;
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<PAGE> 22
- 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.
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.
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<PAGE> 23
<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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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 Director 56 1999 2000
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. 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 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
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<PAGE> 25
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. 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 corporate and private settings.
Additionally, Farley is a franchisee of Successful Money Management Seminars,
corporate and public seminars to equip individuals with the knowledge
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<PAGE> 26
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 currently manages his investments and consults with
businesses on financial matters. Prior to that, he was 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 been a Director of the Company since March
1998. After receiving a BS in Architecture and a Masters in Regional and City
Planning in 1978 from the University of Oklahoma, he relocated to Galveston,
Texas and accepted a position as City Planner. His next two jobs were with
APCOA, a division of ITT, and National Convenience Stores whereby he negotiated
real estate acquisitions, new business development, identified joint venture and
merger candidates. In 1983, he founded Hardy Realty, Inc., consulting on
selective site selection and real estate transactions as well as building and
developing numerous small residential and commercial projects. He has obtained a
real estate brokerage license in Texas, Oklahoma, and Ohio. Early in 1984, Mr.
Hardy began exploring the possibility of purchasing real estate notes as a
personal investment and thereby started a continual process of self education on
the business. By 1986, with the real estate development and brokerage business
coming to a halt, he aggressively turned his attention to purchasing
mortgage-backed securities for institutional investors, private parties and for
his own account. His relocation to Austin followed his decision to accept an
offer to open a new office for one of the largest institutional purchasers of
seller-carried back real estate notes in the country, Metropolitan Mortgage &
Securities. After establishing that office, he was hired to train and speak at
seminars across the country on the subject as well as consult with start up
companies and seasoned portfolio managers on the industry. Mr. Hardy has
developed written and video training material, as well as helped to standardize
the process for evaluating non-institutional grade mortgages, managing
non-performing loans, and Real Estate Owned ("REO") assets. He continued to
consult with investors and others, as well as purchase and service for his own
account real estate secured debt instruments.
SHANNON D. STEWART has served as Vice President of Marketing
Operations at AFC since 1998. His work there involves 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 Antonio, Texas where he was responsible for developing the
customer base, customer service and
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<PAGE> 27
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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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
separate compensation to its executive officers. 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 $100,000 in fiscal
1999.
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
- ---------------------------------------------------------------------------------------------------------------------
Long Term
Compensation All Other
Annual Compensation Awards Compen-
- -------------------------------------------------------------------------------------------------------- sation(1)($)
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 $-- $-- -- $9,073
President and Chief 1998 31,000 -- -- -- 1,512
Executive Officer
- ---------------------------------------------------------------------------------------------------------------------
Terry G. Hartnett, 1999 108,000 -- -- -- 8,362
Executive Vice President 1998 57,500 -- -- -- 1,394
and Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Taxable fringe benefits including value of personal use of the
Company provided automobile.
(2) The term "SAR" refers to stock appreciation rights.
(3) For the fiscal years ended March 31, 1999 and 1998.
The following table provides information regarding stock options
granted to the Subsidiary's officer on July 23, 1999. No stock options or stock
appreciation rights ("SAR's") were granted during fiscal 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
OPTION\SAR GRANTS
- --------------------------------------------------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SAR's Exercise
Underlying Granted to or Base
Options/SAR's Employees in Price Expiration
Name Granted (#) Fiscal Year ($/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 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.
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<PAGE> 30
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 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.
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<PAGE> 31
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.
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.
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<PAGE> 32
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 purpose of developing real estate and selling residential
lots. CalTex also served as a vehicle to acquire certain types of mobile home
financing instruments. 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 residential lots were sold, the Company would make loans
to borrowers who were purchasing the lots. In an effort to close out sales of
certain lots, employees of the Company and their family members purchased some
residential lots 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 lots 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." 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.
30
<PAGE> 33
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, L.H. Hardy, Jr., Bradley J. Farley
and Glenn G. Farley have each guaranteed the indebtedness of the Company on one
or more loan agreements, leases or mortgage purchase agreements.
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 the
required collateral 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.
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.
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<PAGE> 34
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 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%
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<PAGE> 35
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 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
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<PAGE> 36
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 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
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<PAGE> 37
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 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
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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 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
36
<PAGE> 39
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. Shareholders of Innovation International may be
free to trade their shares under Rule 144 as described herein. 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 to
register the 2,000,000 shares of Common Stock reserved under the Company's stock
option programs. See
37
<PAGE> 40
"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. 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 July 23, 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 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 on June 30, 1999, a
temporary restraining order, which order restrains the trustee sale scheduled
for July 6, 1999, until notice and the opportunity for hearing is afforded the
Defendants. 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.
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.
38
<PAGE> 41
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.
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.
AFC has issued shares of its common stock and preferred stock since
its inception in 1997. 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. 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. 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.
None of the securities discussed herein were registered under the
Securities Act of 1933. Except for shares issued in the spin-off, an exemption
was claimed in each case pursuant to Regulation D or Section 4(2) of the
Securities Act of 1933. Except for shares issued in the spin-off, all shares
which were not issued under Rule 504 exemption were issued with restrictive
legend and stop transfer orders. 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.
39
<PAGE> 42
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 will also provide 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 and will enter into an
indemnification agreement with each of its directors. Under its form of
indemnification agreement, the Company agrees to indemnify its directors against
all expenses, liability or losses incurred by the directors in their capacity as
such: (i) to the fullest extent permitted by applicable law; (ii) as provided in
the Bylaws as in effect on the date of such agreement; and (iii) in the event
the Company does not maintain the aforementioned insurance or comparable
coverage, to the full extent provided in the applicable policies as in effect on
the date of such agreement (the Company's obligations described in (ii) and
(iii) being subject to certain exceptions). Contractual rights under such
indemnification agreements are believed to provide the directors more protection
than the Bylaws, which are subject to change. 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.
40
<PAGE> 43
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>
<PAGE> 44
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
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
</TABLE>
41
<PAGE> 45
<TABLE>
<S> <C> <C>
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
7 Not applicable
8(a) Reorganization Plan and Agreement dated May 26, 1999 by and among
Innovation International, Inc., the Company and Austin Funding
Corporation
</TABLE>
42
<PAGE> 46
<TABLE>
<S> <C> <C>
8(b) Amendment to Reorganization Plan and Agreement dated June 12, 1999
10 Consent of Sprouse & Winn
FDS Financial Data Schedule
</TABLE>
43
<PAGE> 47
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 23rd day of July, 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
44
<PAGE> 48
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> 49
AUSTIN FUNDING.COM CORPORATION
(FORMERLY AUSTIN ASSET MANAGEMENT CORPORATION)
AND ITS WHOLLY-OWNED SUBSIDIARY
AUSTIN, TEXAS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
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>
<PAGE> 50
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.
SPROUSE & WINN, L.L.P.
June 22, 1999
F-1
<PAGE> 51
CONSOLIDATED FINANCIAL STATEMENTS
<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
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 58,909 $ 36,996 $ 4,245 $ 115,482
Accounts receivable -0- -0- -0- 1,611,768
Inventory (Note 2) 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
F-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
========= ========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-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 (500) (5) 500 5 -0- -0- -0-
common stock
Issued 108,108
common shares - 108,108 1,081 744,203 -0- 745,284
June 1999
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
F-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 25,560 (58,468) 57,383 58,468
liabilities
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
=========== ========== =========== ===========
NON-CASH FINANCING ACTIVITY:
500 shares of preferred stock were issued in exchange for a limited
partnership interest in April 1998.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-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 as a 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 in the business of
buying, selling and servicing real estate mortgages to secondary
markets.
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.
F-6
<PAGE> 57
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)
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.
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.
FEDERAL INCOME TAX
AFCC accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
F-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)
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.
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.
F-8
<PAGE> 59
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>
F-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 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>
F-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 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.
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,
------------------
1999 1998
-------- -------
<S> <C> <C>
Current $ -0- $43,271
Deferred (44,812) 3,845
-------- -------
Total taxes $(44,812) $47,116
======== =======
</TABLE>
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.
F-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 7: INCOME TAXES (CONTINUED)
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 note
receivable 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.
F-12
<PAGE> 63
INDEX TO 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
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
</TABLE>
<PAGE> 64
<TABLE>
<S> <C> <C>
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
7 Not applicable
8(a) Reorganization Plan and Agreement dated May 26, 1999 by and among
Innovation International, Inc., the Company and Austin Funding
Corporation
</TABLE>
<PAGE> 65
<TABLE>
<S> <C> <C>
8(b) Amendment to Reorganization Plan and Agreement dated June 12, 1999
10 Consent of Sprouse & Winn
FDS Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2(a)
CERTIFICATE OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
AUSTIN ASSET MANAGEMENT CORPORATION
The undersigned hereby certify that they are the duly elected and
acting President and Secretary, respectively, of Austin Asset Management
Corporation, a corporation organized and existing under the laws of the State of
Nevada (the "Corporation"), and that, for the purpose of amending and restating
its original Articles of Incorporation, which were filed with the Secretary of
State of the State of Nevada on April 29, 1999, pursuant to and by virtue of
Chapter 78 of the Nevada Revised Statutes, the following Amended and Restated
Articles of Incorporation have been duly adopted in accordance with the
provisions of Chapter 78 of the Nevada Revised Statutes.
ARTICLE FIRST
NAME
The name of the corporation is AUSTIN ASSET MANAGEMENT CORPORATION. The
name of the corporation is changed to AUSTIN FUNDING.COM CORPORATION (the
"Corporation").
ARTICLE SECOND
PRINCIPAL OFFICE
The address of the registered office of the Corporation in the State of
Nevada is 711 S. Carson, Suite 4, Carson City, Nevada 89701. The name of the
resident agent of the Corporation at such address is Resident Agents of Nevada,
Inc.
ARTICLE THIRD
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity, within or without the State of Nevada, for which the Corporation may
be organized under the provisions of Chapter 78 of the Nevada Revised Statutes.
<PAGE> 2
ARTICLE FOURTH
SHARES OF STOCK
Section 4.01 Number and Class.
(a) The aggregate number of shares of stock that the
Corporation shall have authority to issue is One Hundred Million (100,000,000)
shares, consisting of Eighty Million (80,000,000) shares designated "Common
Stock" and Twenty Million (20,000,000) shares designated "Preferred Stock". The
shares of Common Stock and the shares of Preferred Stock shall each have a par
value of $.001 per share.
(b) The Board of Directors of the Corporation shall have the
full authority permitted by law, at any time and from time to time, to divide
the authorized and unissued shares of Preferred Stock into classes or series, or
both, and to determine the following provisions, designations, powers,
preferences and relative, participating, optional and other special rights and
the qualifications, limitations or restrictions thereof for shares of any such
class or series of Preferred Stock:
(1) the designation of such class or series, the
number of shares to constitute such class or series and the
stated or liquidation value thereof;
(2) whether the shares of such class or series shall
have voting rights, in addition to any voting rights provided
by law, and, if so, the terms of such voting rights;
(3) the dividends, if any, payable on such class or
series, whether any such dividends shall be cumulative, and,
if so, from what dates, the conditions and dates upon which
such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on
any shares of stock of any other class or any other series of
the same class;
(4) whether the shares of such class or series shall
be subject to redemption at the election of the Corporation
and/or the holders of such class or series and, if so, the
times, price and other conditions of such redemption,
including securities or other property payable upon any such
redemption, if any;
(5) the amount or amounts, if any, payable upon
shares of such class or series upon, and the rights of the
holders of such class or series in, the voluntary or
involuntary liquidation, dissolution or winding up, or any
distribution of the assets, of the Corporation;
(6) whether the shares of such class or series shall
be subject to the operation of a retirement or sinking fund
and, if so, the extent to and manner in which any such
retirement or sinking fund shall be applied to the purchase or
2
<PAGE> 3
redemption of the shares of such class or series for
retirement or other corporate purposes and the terms and
provisions relative to the operation thereof;
(7) whether the shares of such class or series shall
be convertible into, or exchangeable for, shares of stock of
any other class or any other series of the same class or any
securities, whether or not issued by the Corporation, and, if
so, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same, and
any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be
effective while any shares of such class or series are
outstanding upon the payment of dividends or the making of
other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or
shares of stock of any other class or any other series of the
same class;
(9) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the
issuance of any additional shares of stock, including
additional shares of such class or series or of any other
series of the same class or of any other class;
(10) the ranking (be it pari passu, junior or senior)
of each class or series vis-a-vis any other class or series of
any class of Preferred Stock as to the payment of dividends,
the distribution of assets and all other matters; and
(11) any other powers, preferences and relative,
participating, optional and other special rights and any
qualifications, limitations or restrictions thereof, insofar
as they are not inconsistent with the provisions of these
Articles of Incorporation, to the full extent permitted in
accordance with the laws of the State of Nevada.
(c) Such divisions and determinations may be accomplished
solely by action of the Board of Directors, which shall have the full authority
permitted by law to make such divisions and determinations.
(d) The powers, preferences and relative, participating,
optional and other special rights of each class or series of Preferred Stock and
the qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other classes or series at any time outstanding; provided
that each series and class is given a distinguishing designation and that all
shares of a series have powers, preferences and relative, participating,
optional and other special rights and the qualifications, limitations or
restrictions thereof identical with those of other shares of the same series
and, except to the extent otherwise provided in the description of the series,
with those other series of the same class.
Section 4.02 Dividends - Preferred Stock. Holders of shares of
Preferred Stock shall
3
<PAGE> 4
be entitled to receive, when, as and if declared by the Board of Directors, out
of funds legally available for the payment thereof, dividends at the rates fixed
by the Board of Directors for the respective series before any dividends shall
be declared and paid, or set aside for payment, on shares of Common Stock with
respect to the same dividend period. Nothing in this ARTICLE FOURTH shall limit
the power of the Board of Directors to create a series of Preferred Stock with
dividends the rate of which is calculated by reference to, and the payment of
which is concurrent with, dividends on shares of Common Stock.
Section 4.03 Liquidation or Dissolution. In the event of the voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
holders of shares of each series of Preferred Stock will be entitled to receive
the amount fixed for such series upon any such event plus, in the case of any
series on which dividends will have been determined by the Board of Directors to
be cumulative, an amount equal to all dividends accumulated and unpaid thereon
to the date of final distribution whether or not earned or declared before any
distribution shall be paid, or set aside for payment, to holders of Common
Stock. If the assets of the Corporation are not sufficient to pay such amounts
in full, holders of all shares of Preferred Stock will participate in the
distribution of assets ratably in proportion to the full amounts to which they
are entitled or in such order or priority, if any, as will have been fixed in
the resolution or resolutions providing for the issue of the series of Preferred
Stock. Neither the merger nor consolidation of the Corporation into or with any
other corporation, nor a sale, transfer or lease of all or part of its assets,
will be deemed a liquidation, dissolution or winding up of the Corporation
within the meaning of this paragraph except to the extent specifically provided
for herein. Nothing in this ARTICLE FOURTH shall limit the power of the Board of
Directors to create a series of Preferred Stock for which the amount to be
distributed upon any liquidation, dissolution or winding up of the Corporation
is calculated by reference to, and the payment of which is concurrent with, the
amount to be distributed to the holders of shares of Common Stock.
Section 4.04 Redemption. The Corporation, at the option of the Board
of Directors, may redeem all or part of the shares of any series of Preferred
Stock on the terms and conditions fixed for such series.
Section 4.05 Voting Rights - Holders of Preferred Stock. Except as
otherwise required by law, as otherwise provided herein or as otherwise
determined by the Board of Directors as to the shares of any series of Preferred
Stock prior to the issuance of any such shares, the holders of Preferred Stock
shall have no voting rights and shall not be entitled to any notice of meetings
of stockholders.
Section 4.06 Voting Rights - Holders of Common Stock. Each holder of
shares of Common Stock shall be entitled to one vote for each share of Common
Stock held of record on all matters on which the holders of shares of Common
Stock are entitled to vote. Subject to the provisions of applicable law and any
certificate of designation providing for the issuance of any series of Preferred
Stock, the holders of outstanding shares of Common Stock shall have and possess
the exclusive right to notice of stockholders' meetings and the exclusive power
to vote. No stockholder will be permitted to cumulate votes at any election of
directors.
4
<PAGE> 5
Section 4.07 Dividends - Common Stock. Subject to all the rights of the
Preferred Stock, the holders of the Common Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment thereof, dividends payable in cash, stock or
otherwise. Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred Stock
of each series shall have been paid in full in cash the amounts to which they
respectively shall be entitled or a sum sufficient for such payment in full
shall have been set aside, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests, to the exclusion of the holders of the
Preferred Stock.
ARTICLE FIFTH
DIRECTORS
Section 5.01 Governing Board. The members of the governing board of
the Corporation shall be styled directors of the Corporation.
Section 5.02 Board of Directors. The Board of Directors shall consist
of at least one but no more than 10 members. The names and addresses of the
present members of the Board of Directors are as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Glenn A. LaPointe 823 Congress Ave., Suite 515
Austin, Texas 78701
Bradley J. Farley 1202 Hallmark
San Antonio, Texas 78216
Glenn G. Farley 709 East Calton Road
Laredo, Texas 78041
L. H. Hardy, Jr. P.O. Box 161775
Austin, Texas 78716
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
Terry G. Hartnett 6000 Shepherd Mountain Cove
Austin, Texas 78745
Shannon DeW. Stewart 1901 Aster Way
Round Rock, Texas 78664
Karen R. Heller 17206 Reed Park Road
Jonestown, Texas 78645
Jennifer Ann V. Bullock 6049 Abilene Trail
Austin, Texas 78749
</TABLE>
Section 5.03 Change in the Number of Directors. The number of directors
which shall constitute the whole Board of Directors of the Corporation shall be
such as from time to time shall be determined by resolution adopted by a
majority of the entire Board of Directors, but in no event shall the number of
directors be less than one nor more than 10; provided, however, that compliance
with the foregoing limitation shall be determined without counting directors
elected by the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation. The directors, other than
those who may be elected by the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, one class of directors
shall have an initial term expiring in 2000; the second class of directors shall
have an initial term expiring in 2001; and the third class of directors shall
have an initial term expiring in 2002. Except as specifically contemplated by
the prior sentence and other than with respect to any directors elected by the
holders of any series of Preferred Stock pursuant to the terms of these Articles
of Incorporation, at each annual meeting of the stockholders of the Corporation,
the date of which shall be fixed by or pursuant to the Bylaws of the
Corporation, the successors of the class of directors whose term expires at that
meeting shall be elected to hold office for a term expiring at the third
succeeding annual meeting of stockholders. Each director shall hold office until
such director's successor is duly elected and qualified. The election of
directors need not be by written ballot.
Section 5.04 Election of Directors. Advance notice of stockholder
nominations for the election of directors and advance notice of business to be
brought by stockholders before an annual meeting must be given in the manner
provided in the Bylaws of the Corporation. Except as otherwise provided for or
fixed by or pursuant to the provisions of ARTICLE FOURTH hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled only by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor
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shall have been duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Section 5.05 Removal of Directors. Subject to the rights of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect directors under specified circumstances, any director
may be removed from office, with or without cause, only by the affirmative vote
of the holders of at least seventy percent (70%) of the voting power of all
shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE SIXTH
STOCKHOLDERS
Section 6.01 Action by Stockholders. Any action required or permitted
to be taken by the stockholders of the Corporation may be effected at a duly
called annual or special stockholders' meeting, or by a consent adopted in
writing by such shareholders. Special meetings of stockholders of the
Corporation may be called by the Chairman of the Board of Directors or by a
majority vote of the entire Board of Directors.
Section 6.02 No Preemptive Rights. Stockholders of the Corporation
shall not have any preemptive rights to subscribe for additional issues of stock
of the Corporation except as may be agreed from time to time by the Corporation
and any such stockholder. Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of Preferred Stock issued by the Corporation,
if any, shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, an election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of the applicable resolution or resolutions of the Board
of Directors adopted pursuant to ARTICLE FOURTH of these Articles of
Incorporation.
ARTICLE SEVENTH
PERIOD OF DURATION
The Corporation is to have a perpetual existence.
ARTICLE EIGHTH
DIRECTOR AND OFFICER LIABILITY
To the fullest extent permitted by applicable law as then in effect, no
director or officer shall be personally liable to the Corporation or any of its
stockholders for damages for breach of fiduciary duty as a director or officer,
except for liability for (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) for the payment of
distributions to stockholders in violation of Section 78.300 of the Nevada
Revised Statutes. Any repeal or modification of this ARTICLE EIGHTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions occurring
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prior to such repeal or modifications.
ARTICLE NINTH
STOCKHOLDER LIABILITY
The holders of the capital stock of the Corporation shall not be
personally liable for the payment of the Corporation's debts and the private
property of the holders of the capital stock of the Corporation shall not be
subject to the payment of debts of the Corporation to any extent whatsoever.
ARTICLE TENTH
AMENDMENTS TO BYLAWS
Subject to the provisions of these Articles of Incorporation, the
Bylaws of the Corporation may be altered, amended or repealed at any annual
meeting of the stockholders (or at any special meeting thereof duly called for
that purpose or by a consent adopted in writing by such shareholders) by an
affirmative vote of the shares of at least seventy percent (70%) of the voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class; provided, that in the
notice of such meeting, if any, notice of such purpose shall be given. Subject
to the laws of the State of Nevada, these Articles of Incorporation and the
Bylaws of the Corporation, the Board of Directors may, be majority vote of those
present at any meeting at which a quorum is present, amend the Bylaws of the
Corporation, or enact such other Bylaws as in their judgment may be advisable
for the regulation of the conduct of the affairs of the Corporation.
ARTICLE ELEVENTH
MERGER/SALE
Any plan of merger or exchange of this Corporation with another
corporation or entity, or any sale, lease or exchange of all of its property and
assets, or any dissolution of this Corporation, shall require the affirmative
vote of the holders of at least seventy percent (70%) of the voting power of all
of the then-outstanding shares of the Corporation entitled to vote, voting
together as a single class.
ARTICLE TWELFTH
RESERVED RIGHTS
The Corporation reserves the right to supplement, amend or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Nevada, and all rights
conferred on stockholders herein are granted subject to this reservation;
provided, however, that, notwithstanding any other provision of these Articles
of Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any vote of the holders of any class or
series of the stock of this Corporation required by law or by these Articles of
Incorporation, the affirmative vote of the holders of at least seventy percent
(70%) of the voting power of all of the then-outstanding
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shares of the Corporation entitled to vote, voting together as a single class,
shall be required to amend or repeal Articles FIFTH, SIXTH, EIGHTH, NINTH,
TENTH, ELEVENTH or TWELFTH.
CERTIFICATION
We the undersigned President and Secretary of Austin Asset Management
Corporation do hereby further certify:
1. That, at a meeting duly convened on the 19th day of July, 1999, the
Board of Directors, by a unanimous vote adopted a resolution to amend the
original Articles of Incorporation of the Corporation as set forth in Exhibit
"A" attached hereto.
2. That the number of shares of the Corporation outstanding and
entitled to vote on an amendment to the Articles of Incorporation to the
Corporation is 21,333,333; that said changes and amendment have been consented
to and approved by a majority vote of the stockholders holding at least a
majority of each class of stock outstanding and entitled to vote thereon.
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<PAGE> 10
IN WITNESS WHEREOF, Austin Asset Management Corporation has caused this
Certificate of Amended and Restated Articles of Incorporation to be executed by
the following authorized officers of said corporation on this ___ day of July,
1999.
AUSTIN ASSET MANAGEMENT CORPORATION
By:
----------------------------------------
Glenn A. LaPointe, President
By:
----------------------------------------
Terry G. Hartnett, Secretary
10
<PAGE> 11
STATE OF TEXAS }
}
COUNTY OF TRAVIS }
On July ____, 1999, personally appeared before me, a Notary Public,
Glenn A. LaPointe, President of Austin Asset Management Corporation, who
acknowledged that he executed the above instrument.
(Seal)
----------------------------------------------
Notary Public in and for the State of Texas
STATE OF TEXAS }
}
COUNTY OF TRAVIS }
On July ____, 1999, personally appeared before me, a Notary Public,
Terry G. Hartnett, Secretary of Austin Asset Management Corporation, who
acknowledged that he executed the above instrument.
(Seal)
----------------------------------------------
Notary Public in and for the State of Texas
11
<PAGE> 1
EXHIBIT 2(b)
BYLAWS
OF
AUSTIN FUNDING.COM CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
STOCKHOLDERS
SECTION 1.01. Place of Stockholders' Meetings.............................. 1
SECTION 1.02. Day and Time of Regular Meetings of Stockholders............. 1
SECTION 1.03. Purposes of Regular Meetings................................. 1
SECTION 1.04. Special Meetings of Stockholders............................. 2
SECTION 1.05. Notice of Meetings of Stockholders........................... 2
SECTION 1.06. Quorum of Stockholders....................................... 3
SECTION 1.07. Chairman and Secretary of Meeting............................ 3
SECTION 1.08. Voting by Stockholders....................................... 3
SECTION 1.09. Proxies...................................................... 4
SECTION 1.10. Inspectors................................................... 4
SECTION 1.11. List of Stockholders......................................... 4
SECTION 1.12. Confidential Voting.......................................... 5
SECTION 1.13. Action by Stockholders....................................... 5
ARTICLE II
DIRECTORS
SECTION 2.01. Powers of Directors.......................................... 5
SECTION 2.02. Method of Election........................................... 5
SECTION 2.03. Vacancies on Board........................................... 7
SECTION 2.04. Meetings of the Board........................................ 7
SECTION 2.05. Quorum and Action............................................ 8
SECTION 2.06. Presiding Officer and Secretary of Meeting................... 8
SECTION 2.07. Action by Consent Without Meeting............................ 8
SECTION 2.08. Standing Committees.......................................... 8
SECTION 2.09. Other Committees............................................. 9
SECTION 2.10. Compensation of Directors.................................... 10
ARTICLE III
OFFICERS
SECTION 3.01. Officers, Titles, Elections, Terms........................... 10
SECTION 3.02. General Powers of Officers................................... 11
SECTION 3.03. Powers and Duties of the Chairman............................ 11
SECTION 3.04. Powers and Duties of the President........................... 11
SECTION 3.05. Powers and Duties of Executive Vice Presidents,
Senior Vice Presidents and Vice Presidents................... 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3.06. Powers and Duties of the Chief Financial Officer............. 11
SECTION 3.07. Powers and Duties of the Controller and Assistant
Controllers................................................. 12
SECTION 3.08. Powers and Duties of the Treasurer and Assistant
Treasurers.................................................. 12
SECTION 3.09. Powers and Duties of the Secretary and Assistant
Secretaries................................................. 13
ARTICLE IV
INDEMNIFICATION
SECTION 4.01. Right to Indemnification..................................... 13
SECTION 4.02. Insurance, Contracts and Funding............................. 14
SECTION 4.03. Indemnification; Not Exclusive Right......................... 14
SECTION 4.04. Advancement of Expenses; Procedures; Presumptions and
Effect of Certain Proceedings; Remedies..................... 14
SECTION 4.05. Indemnification of Employees and Agents...................... 18
SECTION 4.06. Severability................................................. 18
ARTICLE V
CAPITAL STOCK
SECTION 5.01. Stock Certificates........................................... 19
SECTION 5.02. Record Ownership............................................. 19
SECTION 5.03. Transfer of Record Ownership................................. 19
SECTION 5.04. Lost, Stolen or Destroyed Certificates....................... 20
SECTION 5.05. Transfer Agent; Registrar; Rules Respecting
Certificates................................................ 20
SECTION 5.06. Fixing Record Date for Determination of
Stockholders of Record...................................... 20
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
SECTION 6.01. Voting....................................................... 21
SECTION 6.02. General Authorization to Transfer Securities Held by the
Corporation.................................................. 21
ARTICLE VII
DEPOSITARIES AND SIGNATORIES
SECTION 7.01. Depositaries................................................. 22
SECTION 7.02. Signatories.................................................. 22
ARTICLE VIII
Seal....................................................................... 22
</TABLE>
ii
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<TABLE>
<S> <C> <C>
ARTICLE IX
Fiscal Year................................................................ 22
ARTICLE X
Waiver of or Dispensing With Notice........................................ 23
ARTICLE XI
Political Contributions By the Corporation................................. 23
ARTICLE XII
Amendment of Bylaws........................................................ 23
ARTICLE XIII
Offices and Agent.......................................................... 24
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
AUSTIN FUNDING.COM CORPORATION
JULY 19, 1999
ARTICLE I
STOCKHOLDERS
SECTION 1.01. Place of Stockholders' Meetings. All meetings of the
stockholders of the Corporation shall be held at such place or places, within or
outside the State of Nevada, as may be fixed by the Corporation's Board of
Directors (the "Board", and each member thereof a "Director") from time to time
or as shall be specified in the respective notices thereof.
SECTION 1.02. Day and Time of Annual Meetings of Stockholders. An
annual or regular meeting of stockholders shall be held at such place (within or
outside the State of Nevada), date and hour as shall be determined by the Board
and designated in the notice thereof. The Board may designate any date for the
annual meeting, subject only to any mandatory limitations set by the Nevada
General Corporation Law (the "NGCL"), as it may be amended from time to time,
including the provisions of NGCL Section 78.345. Failure to hold an annual
meeting of stockholders at such designated time shall not affect otherwise valid
corporate acts or work a forfeiture or dissolution of the Corporation.
SECTION 1.03. Purposes of Annual Meetings. (a) At each annual meeting,
the stockholders shall elect the successors of the class of Directors whose term
expires at such annual meeting for a term expiring at the third succeeding
annual meeting. At any such annual meeting any business properly brought before
the meeting may be transacted.
(b) To be properly brought before an annual meeting, business must be
(i) specified in the notice of the meeting (or any supplement thereto) given by
or at the direction of the Board, (ii) otherwise properly brought before the
meeting by or at the direction of the Board, or (iii) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be personally delivered or sent by United States mail,
postage prepaid, to the Secretary of the Corporation, 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 the scheduled date of such annual meeting
or the tenth day following the day on which public announcement of the scheduled
date of such annual meeting is first made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting and, in
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the event that such business includes a proposal to amend either the Articles of
Incorporation or these Bylaws, the text of the proposed amendment, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to propose such business,
(iv) any material interest of the stockholder in such business, and (v) if the
stockholder intends to solicit proxies in support of such stockholder's
proposal, a representation to that effect. The foregoing notice requirements
shall be deemed satisfied by a stockholder if the stockholder has notified the
Secretary of the Corporation of his or her intention to present a proposal at an
annual meeting and such stockholder's proposal has been included in a proxy
statement that has been prepared by management of the Corporation to solicit
proxies for such annual meeting; provided, however, that if such stockholder
does not appear or send a qualified representative to present such proposal at
such annual meeting, the Corporation need not present such proposal for a vote
at such meeting, notwithstanding that proxies in respect of such vote may have
been received by the Corporation. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Bylaw. The Chairman of an
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of this Bylaw or if the stockholder solicits proxies in support
of such stockholder's proposal without such stockholder having made the
representation required by clause (v) of this Bylaw, and if the Chairman should
so determine, the Chairman shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
SECTION 1.04. Special Meetings of Stockholders. Except as otherwise
expressly required by applicable law, special meetings of the stockholders or of
any class or series entitled to vote may be called for any purpose or purposes
by the Chairman or by a majority vote of the entire Board, to be held at such
place (within or outside the State of Nevada), date and hour as shall be
determined by the Board and designated in the notice thereof. Only such business
as is specified in the notice of any special meeting of the stockholders shall
come before such meeting.
SECTION 1.05. Notice of Meetings of Stockholders. Except as otherwise
expressly required or permitted by applicable law, not less than 10 days nor
more than 60 days before the date of every stockholders' meeting the Secretary
shall give to each stockholder of record entitled to vote at such meeting
written notice stating the place, day and time of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
Except as provided in Section 1.06 (d) or as otherwise expressly required by
applicable law, notice of any adjourned meeting of stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken. Any previously scheduled meeting of stockholders may be
postponed, and (unless the Articles of Incorporation otherwise provide) any
special meeting of stockholders may be canceled, by resolution of the Board upon
public notice given prior to the date previously scheduled for such meeting of
stockholders. Any notice, if mailed, shall be deemed to be given when deposited
in the United States mail,
2
<PAGE> 7
postage prepaid, addressed to the stockholder at the address for notices to such
stockholder as it appears on the records of the Corporation.
SECTION 1.06. Quorum of Stockholders. (a) Unless otherwise expressly
required by applicable law, at any meeting of the stockholders, the presence in
person or by proxy of at least one-third of the stockholders entitled to cast
votes thereat shall constitute a quorum for the entire meeting, notwithstanding
the withdrawal of stockholders entitled to cast a sufficient number of votes in
person or by proxy to reduce the number of votes represented at the meeting
below a quorum. Shares of the Corporation's stock belonging to the Corporation
or to another corporation, if one-third or more of the shares entitled to vote
in an election of the directors of such other corporation is held by the
Corporation, shall neither be counted for the purpose of determining the
presence of a quorum nor entitled to vote at any meeting of the stockholders.
(b) At any meeting of the stockholders at which a quorum shall be
present, a majority of those present in person or by proxy may adjourn the
meeting from time to time without notice other than announcement at the meeting.
In the absence of a quorum, the officer presiding thereat shall have power to
adjourn the meeting from time to time until a quorum shall be present. Notice of
any adjourned meeting other than announcement at the meeting shall not be
required to be given, except as provided in Section 1.06(d) below and except
where expressly required by applicable law.
(c) At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called, but only those stockholders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof unless a new record date is fixed by the Board.
(d) If an adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given in the manner specified in Section 1.05 to
each stockholder of record entitled to vote at the meeting.
SECTION 1.07. Chairman and Secretary of Meeting. The Chairman or, in
his or her absence, another officer of the Corporation designated by the
Chairman, shall preside at meetings of the stockholders. The Secretary shall act
as secretary of the meeting, or in the absence of the Secretary, an Assistant
Secretary shall so act, or if neither is present, then the presiding officer may
appoint a person to act as secretary of the meeting.
SECTION 1.08. Voting by Stockholders. (a) Except as otherwise expressly
required by applicable law, at every meeting of the stockholders each
stockholder shall be entitled to the number of votes specified in the Articles
of Incorporation, in person or by proxy, for each share of stock standing in his
or her name on the books of the Corporation on the date fixed pursuant to the
provisions of Section 5.06 of these Bylaws as the record date for the
3
<PAGE> 8
determination of the stockholders who shall be entitled to receive notice of and
to vote at such meeting.
(b) When a quorum is present at any meeting of the stockholders,
questions shall be decided by the vote of a majority in voting power of the
stockholders present in person or by proxy and entitled to vote at such meeting,
unless a question is one upon which by express provision of law, the Articles of
Incorporation or these Bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
(c) Except as required by applicable law, the vote at any meeting of
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his or her proxy, if there be such proxy, and shall
state the number of shares voted.
SECTION 1.09. Proxies. Any stockholder entitled to vote at any meeting
of stockholders may vote either in person or by his or her attorney-in-fact.
Every proxy shall be in writing and shall be subscribed by the stockholder or
his or her duly authorized attorney-in-fact, but need not be sealed, witnessed
or acknowledged.
SECTION 1.10. Inspectors. (a) The election of Directors and any other
vote by ballot at any meeting of the stockholders shall be supervised by at
least two inspectors. Such inspectors may be appointed by the Chairman before or
at the meeting. If the Chairman shall not have so appointed such inspectors or
if one or both inspectors so appointed shall refuse to serve or shall not be
present, such appointment shall be made by the officer presiding at the meeting.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability.
(b) The inspectors shall (i) ascertain the number of shares of the
Corporation outstanding and the voting power of each, (ii) determine the shares
represented at any meeting of stockholders and the validity of the proxies and
ballots, (iii) count all proxies and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares represented at the meeting, and their count of all proxies and
ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors.
SECTION 1.11. List of Stockholders. (a) At least 10 days before every
meeting of stockholders, the Chief Financial Officer shall cause to be prepared
and made a complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder.
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<PAGE> 9
(b) During ordinary business hours, for a period of at least 10 days
prior to the meeting, such list shall be open to examination by any stockholder
for any purpose germane to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the Corporation's registered office.
(c) The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and it may be inspected by any
stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section 1.11 or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
SECTION 1.12. Confidential Voting. (a) Proxies and ballots that
identify the votes of specific stockholders shall be kept in confidence by the
tabulators and the inspectors of election unless (i) there is an opposing
solicitation with respect to the election or removal of Directors, (ii)
disclosure is required by applicable law, (iii) a stockholder expressly requests
or otherwise authorizes disclosure, or (iv) the Corporation concludes in good
faith that a bona fide dispute exists as to the authenticity of one or more
proxies, ballots or votes, or as to the accuracy of any tabulation of such
proxies, ballots or votes.
(b) The tabulators and inspectors of election and any authorized agents
or other persons engaged in the receipt, count and tabulation of proxies and
ballots shall be advised of this Bylaw and instructed to comply herewith.
(c) The inspectors of election shall certify, to the best of their
knowledge based on due inquiry, that proxies and ballots have been kept in
confidence as required by this Section 1.12.
SECTION 1.13 Action by Stockholders. Any action required or permitted
to be taken by the stockholders of the Corporation may be effected at a duly
called annual or special stockholders' meeting, or by a consent adopted in
writing by such shareholders.
ARTICLE II
DIRECTORS
SECTION 2.01. Powers of Directors. The business and affairs of the
Corporation shall be managed by or under the direction of the Board, which may
exercise all the powers of the Corporation except such as are by applicable law,
the Articles of Incorporation or these Bylaws required to be exercised or
performed by the stockholders.
SECTION 2.02. Method of Election. The number of Directors which shall
constitute the whole Board shall be as set forth in the Articles of
Incorporation. The Directors shall be classified as specified in the Articles of
Incorporation. Directors need not be stockholders of the Corporation or citizens
of the United States of America. Nominations of persons for
5
<PAGE> 10
election as Directors may be made by the Board or by any stockholder who is a
stockholder of record at the time of giving of the notice of nomination provided
for in this Section 2.02 and who is entitled to vote for the election of
Directors. Any stockholder of record entitled to vote for the election of
Directors at a meeting may nominate a person or persons for election as
Directors only if written notice of such stockholder's intent to make such
nomination is given in accordance with the procedures for bringing business
before the meeting set forth in Section 1.03(b) of these Bylaws, either by
personal delivery or by United States mail, postage prepaid, to the Secretary
(i) with respect to an election to be held at an annual meeting of stockholders,
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 the scheduled date of such
annual meeting and not later than the close of business on the later of the 90th
day prior to the scheduled date of such annual meeting or the 10th day following
the day on which public announcement of the date of such annual meeting is first
made, and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of Directors, not earlier than the 90th day prior
to such special meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day following the date on
which notice of such meeting is first given to stockholders. Each such notice
shall set forth:
(a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of
stock of the Corporation 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;
(c) 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;
(d) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board;
(e) the consent of each nominee to serve as a Director if so elected;
and
(f) if the stockholder intends to solicit proxies in support of such
stockholder's nominee(s), a representation to that effect.
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The chairman of any meeting of stockholders to elect Directors and the Board may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure or if the stockholder solicits proxies in support of
such stockholder's nominee(s) without such stockholder having made the
representation required by clause (f) of this Bylaw.
Except as specifically required in the Articles of Incorporation, at
each meeting of the stockholders for the election of Directors at which a quorum
is present, the persons receiving the greatest number of votes, up to the number
of Directors to be elected, shall be the Directors.
SECTION 2.03. Vacancies on Board; Increase in Size of Board. (a) Any
Director may resign from office at any time by delivering a written resignation
to the Chairman or the Secretary. The resignation will take effect at the time
specified therein or, if no time is specified, at the time of its receipt by the
Corporation. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation.
(b) Newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled in
the manner provided in the Articles of Incorporation.
SECTION 2.04. Meetings of the Board. (a) The Board may hold its
meetings, both regular and special, either within or outside the State of
Nevada, at such places as from time to time may be determined by the Board or as
may be designated in the respective notices or waivers of notice thereof.
(b) Annual meetings of the Board shall be held at such times and at
such places as from time to time shall be determined by the Board.
(c) The first meeting of each newly elected Board shall be held as soon
as practicable after the annual meeting of the stockholders and shall be for the
election of officers and the transaction of such other business as may come
before it.
(d) Special meetings of the Board shall be held whenever called by
direction of the Chairman or at the request of Directors constituting a majority
of the number of Directors then in office.
(e) Members of the Board or any Committee of the Board may participate
in a meeting of the Board or Committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
(f) The Secretary, or an Assistant Secretary designated by the
Secretary, shall give notice to each Director of any meeting of the Board by
mailing the same at least two days before the meeting or by electronically
transmitting or delivering the same not later than the
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day before the meeting. Such notice need not include a statement of the business
to be transacted at, or the purpose of, any such meeting. Any and all business
may be transacted at any meeting of the Board. No notice of any adjourned
meeting need be given. No notice to or waiver by any Director shall be required
with respect to any meeting at which the Director is present.
SECTION 2.05. Quorum and Action. Except as otherwise expressly required
by applicable law, the Articles of Incorporation or these Bylaws, at any meeting
of the Board, the presence of at least one-third of the entire Board shall
constitute a quorum for the transaction of business; but if there shall be less
than a quorum at any meeting of the Board, a majority of those present may
adjourn the meeting from time to time. Unless otherwise provided by applicable
law, the Articles of Incorporation or these Bylaws, the vote of a majority of
the Directors present (and not abstaining) at any meeting at which a quorum is
present shall be necessary for the approval and adoption of any resolution or
the approval of any act of the Board.
SECTION 2.06. Presiding Officer and Secretary of Meeting. The Chairman
or, in the absence of the Chairman, a member of the Board selected by the
members present, shall preside at meetings of the Board. The Secretary, or an
Assistant Secretary designated by the Secretary, shall act as secretary of the
meeting, but in the absence of the Secretary, or an Assistant Secretary
designated by the Secretary, the presiding officer may appoint a secretary of
the meeting.
SECTION 2.07. Action by Consent Without Meeting. Any action required or
permitted to be taken at any meeting of the Board or of any Committee thereof
may be taken without a meeting if all members of the Board or Committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or the Committee.
SECTION 2.08. Standing Committees. By resolution adopted by a majority
of the entire Board, the Board shall elect, from among its members, individuals
to serve on the Standing Committees established by this Section 2.08. Each
Standing Committee shall be comprised of such number of Directors, not less than
two, as shall be elected to such Committee; provided that no officer or employee
of the Corporation shall be eligible to serve on the Audit, Compensation and
Personnel or Stock Plan Committees. Each Committee shall keep a record of all
its proceedings and report the same to the Executive and Policy Committee and/or
the Board. One-third of the members of a Committee, but not less than two, shall
constitute a quorum, and the act of a majority of the members of a Committee
present at any meeting at which a quorum is present shall be the act of the
Committee. Each Standing Committee shall meet at the call of its chairman or any
two of its members. The chairmen of the various Committees shall preside, when
present, at all meetings of such Committees, and shall have such powers and
perform such duties as the Board may from time to time prescribe. The Standing
Committees of the Board, and functions of each, are as follows:
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(a) Executive and Policy Committee. The Executive and Policy Committee
shall, during the intervals between the meetings of the Board, possess and
exercise all of the powers of the Board in the management of the business and
affairs of the Corporation, except as otherwise provided by applicable law, the
Articles of Incorporation or these Bylaws.
(b) Compensation and Personnel Committee. The Compensation and
Personnel Committee shall exercise the power of oversight of the compensation
and benefits of the employees of the Corporation, and shall be charged with
evaluating management performance, and establishing executive compensation. This
Committee shall have access to its own independent outside compensation counsel
and shall consist of a majority of independent directors. For purposes of this
Section 2.08(b), "independent director" shall mean a Director who: (i) has not
been employed by the Corporation in an executive capacity within the past five
years; (ii) is not, and is not affiliated with a company or firm that is, an
advisor or consultant to the Corporation; (iii) is not affiliated with a
significant customer or supplier of the Corporation; (iv) has no personal
services contract(s) with the Corporation; (v) is not affiliated with a
tax-exempt entity that receives significant contributions from the Corporation;
and (vi) is not a familial relative of any person described by clauses (i)
through (v). This Bylaw shall not be amended or repealed except by a majority of
the voting power of the stockholders present in person or by proxy and entitled
to vote at any meeting at which a quorum is present.
(c) Audit Committee. The Audit Committee shall recommend the selection
of the independent auditors for the Corporation, confirm the scope of audits to
be performed by such auditors, review audit results and internal accounting and
control procedures and policies, review the fees paid to the Corporation's
independent auditors, and review and recommend the approval of the audited
financial statements of the Corporation and the annual reports to stockholders.
The Audit Committee shall also review expense accounts of senior executives.
(d) Stock Plan Committee. The Stock Plan Committee shall have the
responsibility for administering and recording awards for all stock options and
incentive plans for the Company.
(e) Corporate Governance and Legal Affairs Committee. The Legal Affairs
Committee shall review and consider major claims and litigation and legal,
regulatory, intellectual property and related governmental policy matters
affecting the Corporation and its subsidiaries, and review management policies
and programs relating to compliance with legal and regulatory requirements and
business ethics.
(f) Nominating Committee. The Nominating Committee shall make
recommendations as to the organization, size and composition of the Board and
Committees thereof, select candidates for election to the Board and the
Committees thereof, and consider the qualifications, compensation and retirement
of Directors.
SECTION 2.09. Other Committees. By resolution passed by a majority of
the entire Board, the Board may also appoint from among its members such other
Committees, Standing or otherwise, as it may from time to time deem desirable
and may delegate to such Committees
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such powers of the Board as it may consider appropriate; consistent with
applicable law, the Articles of Incorporation and these Bylaws.
SECTION 2.10. Compensation of Directors. Unless otherwise restricted by
the Articles of Incorporation or these Bylaws, Directors shall receive for their
services on the Board or any Committee thereof such compensation and benefits,
including the granting of options, together with expenses, if any, as the Board
may from time to time determine. The Directors may be paid a fixed sum for
attendance at each meeting of the Board or Committee thereof and/or a stated
annual sum as a Director, together with expenses, if any, of attendance at each
meeting of the Board or Committee thereof. Nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE III
OFFICERS
SECTION 3.01. Officers, Titles, Elections, Terms. (a) The Board may
from time to time elect a Chairman, a President, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Chief Financial Officer, a Controller, a Treasurer, a Secretary, a General
Counsel, one or more Assistant Controllers, one or more Assistant Treasurers,
one or more Assistant Secretaries, and one or more Associate or Assistant
General Counsels, to serve at the pleasure of the Board or otherwise as shall be
specified by the Board at the time of such election and until their successors
are elected and qualified or until their earlier death, retirement, resignation
or removal.
(b) The Board may elect or appoint at any time such other officers or
agents with such duties as it may deem necessary or desirable. Such other
officers or agents shall serve at the pleasure of the Board or otherwise as
shall be specified by the Board at the time of such election or appointment and,
in the case of such other officers, until their successors are elected and
qualified or until their earlier death, retirement, resignation or removal. Each
such officer or agent shall have such authority and shall perform such duties as
may be provided herein or as the Board may prescribe. The Board may from time to
time authorize any officer or agent to appoint and remove any other such officer
or agent and to prescribe such person's authority and duties.
(c) Any vacancy in any office may be filled for the unexpired portion
of the term by the Board. Each officer elected or appointed during the year
shall hold office until the next annual meeting of the Board at which officers
are regularly elected or appointed and until his or her successor is elected or
appointed and qualified or until his or her earlier death, retirement,
resignation or removal.
(d) Any officer or agent elected or appointed by the Board may be
removed at any time by the affirmative vote of a majority of the entire Board.
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(e) Any officer may resign from office at any time. Such resignation
shall be made in writing and given to the President or the Secretary. Any such
resignation shall take effect at the time specified therein, or, if no time is
specified, at the time of its receipt by the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
SECTION 3.02. General Powers of Officers. Except as may be otherwise
provided by applicable law or in Article VI or Article VII of these Bylaws, the
Chairman, the President, any Executive Vice President, any Senior Vice
President, any Vice President, the Chief Financial Officer, the General Counsel,
the Controller, the Treasurer and the Secretary, or any of them, may (i) execute
and deliver in the name of the Corporation, in the name of any Division of the
Corporation or in both names any agreement, contract, instrument, power of
attorney or other document pertaining to the business or affairs of the
Corporation or any Division of the Corporation, including, without limitation,
agreements or contracts with any government or governmental department, agency
or instrumentality, and (ii) delegate to any employee or agent the power to
execute and deliver any such agreement, contract, instrument, power of attorney
or other document.
SECTION 3.03. Powers and Duties of the Chairman. The Chairman shall be
the Chief Executive of the Corporation and shall report directly to the Board.
Except in such instances as the Board may confer powers in particular
transactions upon any other officer, and subject to the control and direction of
the Board, the Chairman shall manage and direct the business and affairs of the
Corporation and shall communicate to the Board and any Committee thereof
reports, proposals and recommendations for their respective consideration or
action. He or she may do and perform all acts on behalf of the Corporation and
shall preside at meetings of the Board and the stockholders.
SECTION 3.04. Powers and Duties of the President. The President shall
have such powers and perform such duties as the Board or the Chairman may from
time to time prescribe or as may be prescribed in these Bylaws.
SECTION 3.05. Powers and Duties of Executive Vice Presidents, Senior
Vice Presidents and Vice Presidents. Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents shall have such powers and perform such duties as
the Board or the Chairman may from time to time prescribe or as may be
prescribed in these Bylaws.
SECTION 3.06. Powers and Duties of the Chief Financial Officer. The
Chief Financial Officer shall have such powers and perform such duties as the
Board or the Chairman may from time to time prescribe or as may be prescribed in
these Bylaws. The Chief Financial Officer shall cause to be prepared and
maintained (i) a stock ledger containing the names and addresses of all
stockholders and the number of shares held by each and (ii) the list of
stockholders for each meeting of the stockholders as required by Section 1.11 of
these Bylaws. The Chief Financial Officer shall be responsible for the custody
of all stock books and of all unissued stock certificates.
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SECTION 3.07. Powers and Duties of the Controller and Assistant
Controllers. (a) The Controller shall be responsible for the maintenance of
adequate accounting records of all assets, liabilities, capital and transactions
of the Corporation. The Controller shall prepare and render such balance sheets,
income statements, budgets and other financial statements and reports as the
Board or the Chairman may require, and shall perform such other duties as may be
prescribed or assigned pursuant to these Bylaws and all other acts incident to
the position of Controller.
(b) Each Assistant Controller shall perform such duties as from time to
time may be assigned by the Controller or by the Board. In the event of the
absence, incapacity or inability to act of the Controller, then any Assistant
Controller may perform any of the duties and may exercise any of the powers of
the Controller.
SECTION 3.08. Powers and Duties of the Treasurer and Assistant
Treasurers. (a) The Treasurer shall have the care and custody of all the funds
and securities of the Corporation, except as may be otherwise ordered by the
Board, and shall cause such funds (i) to be invested or reinvested from time to
time for the benefit of the Corporation as may be designated by the Board, the
Chairman, the President, the Chief Financial Officer or the Treasurer or (ii) to
be deposited to the credit of the Corporation in such banks or depositories as
may be designated by the Board, the Chairman, the President, the Chief Financial
Officer or the Treasurer, and shall cause such securities to be placed in
safekeeping in such manner as may be designated by the Board, the Chairman, the
President, the Chief Financial Officer or the Treasurer.
(b) The Treasurer, any Assistant Treasurer or such other person or
persons as may be designated for such purpose by the Board, the Chairman, the
President, the Chief Financial Officer or the Treasurer may endorse in the name
and on behalf of the Corporation all instruments for the payment of money, bills
of lading, warehouse receipts, insurance policies and other commercial documents
requiring such endorsement.
(c) The Treasurer, any Assistant Treasurer or such other person or
persons as may be designated for such purpose by the Board, the Chairman, the
President, the Chief Financial Officer or the Treasurer (i) may sign all
receipts and vouchers for payments made to the Corporation; (ii) shall render a
statement of the cash account of the Corporation to the Board as often as it
shall require the same; and (iii) shall enter regularly in books to be kept for
that purpose full and accurate account of all moneys received and paid on
account of the Corporation and of all securities received and delivered by the
Corporation.
(d) The Treasurer shall perform such other duties as may be prescribed
or assigned pursuant to these Bylaws and all other acts incident to the position
of Treasurer. Each Assistant Treasurer shall perform such duties as may from
time to time be assigned by the Treasurer or by the Board. In the event of the
absence, incapacity or inability to act of the Treasurer, then
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any Assistant Treasurer may perform any of the duties and may exercise any of
the powers of the Treasurer.
SECTION 3.09. Powers and Duties of the Secretary and Assistant
Secretaries. (a) The Secretary, or an Assistant Secretary designated by the
Secretary, shall keep the minutes of all proceedings of the stockholders, the
Board and the Committees of the Board. The Secretary, or an Assistant Secretary
designated by the Secretary, shall attend to the giving and serving of all
notices of the Corporation, in accordance with the provisions of these Bylaws
and as required by applicable law. The Secretary, or an Assistant Secretary
designated by the Secretary, shall be the custodian of the seal of the
Corporation. The Secretary shall affix or cause to be affixed the seal of the
Corporation to such contracts, instruments and other documents requiring the
seal of the Corporation, and when so affixed may attest the same and shall
perform such other duties as may be prescribed or assigned pursuant to these
Bylaws and all other acts incident to the position of Secretary.
(b) Each Assistant Secretary shall perform such duties as may from time
to time be assigned by the Secretary or by the Board. In the event of the
absence, incapacity or inability to act of the Secretary, then any Assistant
Secretary may perform any of the duties and may exercise any of the powers of
the Secretary.
ARTICLE IV
INDEMNIFICATION
SECTION 4.01. (a) Right to Indemnification. The Corporation, to the
fullest extent permitted by applicable law as then in effect, shall indemnify
any person who is or was a Director or officer of the Corporation and who is or
was involved in any manner (including, without limitation, as a party or a
witness) or is threatened to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, any
action, suit or proceeding by or in the right of the Corporation to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that such person
is or was a Director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, limited
liability company, trust or other enterprise (including, without limitation, any
employee benefit plan) (a "Covered Entity"), against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding. Any
Director or officer of the Corporation entitled to indemnification as provided
in this Section 4.01(a) is hereinafter called an "Indemnitee." Any right of an
Indemnitee to indemnification shall be a contract right and shall include the
right to receive, prior to the conclusion of any Proceeding, payment of any
expenses incurred by the Indemnitee in connection with such Proceeding,
consistent with the provisions of applicable law as then in effect and the other
provisions of this Article IV.
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(b) Effect of Amendments. Neither the amendment or repeal of, nor the
adoption of a provision inconsistent with, any provision of this Article IV
(including, without limitation, this Section 4.01(b)) shall adversely affect the
rights of any Director or officer under this Article IV: (i) with respect to any
Proceeding commenced or threatened prior to such amendment, repeal or adoption
of an inconsistent provision or (ii) after the occurrence of a Change in Control
(as defined in Section 4.04(e)(i) of this Article IV), with respect to any
Proceeding arising out of any action or omission occurring prior to such
amendment, repeal or adoption of an inconsistent provision, in either case
without the written consent of such Director or officer.
SECTION 4.02. Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any Indemnitee against any
expenses, judgments, fines and amounts paid in settlement as specified in
Section 4.01(a) or Section 4.05 of this Article IV or incurred by any Indemnitee
in connection with any Proceeding referred to in such Sections, to the fullest
extent permitted by applicable law as then in effect. The Corporation may enter
into contracts with any Director, officer, employee or agent of the Corporation
or any director, officer, employee, fiduciary or agent of any Covered Entity in
furtherance of the provisions of this Article IV and may create a trust fund or
use other means (including, without limitation, a letter of credit) to ensure
the payment of such amounts as may be necessary to effect indemnification as
provided in this Article IV.
SECTION 4.03. Indemnification Not Exclusive Right. The right of
indemnification provided in this Article IV shall not be exclusive of any other
rights to which any Indemnitee may otherwise be entitled, and the provisions of
this Article IV shall inure to the benefit of the heirs and legal
representatives of any Indemnitee and shall be applicable to Proceedings
commenced or continuing after the adoption of this Article IV, whether arising
from acts or omissions occurring before or after such adoption.
SECTION 4.04. Advancement of Expenses; Procedures; Presumptions and
Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation,
of the foregoing provisions, the following procedures, presumptions and remedies
shall apply with respect to the advancement of expenses and the right to
indemnification under this Article IV:
(a) Advancement of Expenses. All reasonable expenses incurred by or on
behalf of an Indemnitee in connection with any Proceeding shall be advanced to
the Indemnitee by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Any such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and shall include
any written affirmation or undertaking required by applicable law in effect at
the time of such advance.
(b) Procedures for Determination of Entitlement to Indemnification. (i)
To obtain indemnification under this Article IV, an Indemnitee shall submit to
the Secretary of the Corporation a written request, including such documentation
and information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent
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the Indemnitee is entitled to indemnification (the "Supporting Documentation").
The determination of the Indemnitee's entitlement to indemnification shall be
made not later than 60 days after receipt by the Corporation of the written
request for indemnification together with the Supporting Documentation. The
Secretary of the Corporation shall, promptly upon receipt of such a request for
indemnification, advise the Board in writing that the Indemnitee has requested
indemnification.
(ii) The Indemnitee's entitlement to indemnification under
this Article IV shall be determined in one of the following ways: (A) by a
majority vote of the Disinterested Directors (as hereinafter defined), if they
constitute a quorum of the Board; (B) by a written opinion of Independent
Counsel (as hereinafter defined) if (x) a Change in Control (as hereinafter
defined) shall have occurred and the Indemnitee so requests or (y) a quorum of
the Board consisting of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so directs; (C) by the
stockholders of the Corporation (but only if a majority of the Disinterested
Directors, if they constitute a quorum of the Board, presents the issue of
entitlement to indemnification to the stockholders for their determination); or
(D) as provided in Section 4.04(c) of this Article IV.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section
4.04(b)(ii), a majority of the Disinterested Directors shall select the
Independent Counsel, but only an Independent Counsel to which the Indemnitee
does not reasonably object; provided, however, that if a Change in Control shall
have occurred, the Indemnitee shall select such Independent Counsel, but only an
Independent Counsel to which a majority of the Disinterested Directors does not
reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article IV, if a Change in Control shall have
occurred, the Indemnitee shall be presumed to be entitled to indemnification
under this Article IV (with respect to actions or failures to act occurring
prior to such Change in Control) upon submission of a request for
indemnification together with the Supporting Documentation in accordance with
Section 4.04(b) of this Article IV, and thereafter the Corporation shall have
the burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered under Section
4.04(b) of this Article IV to determine entitlement to indemnification shall not
have been appointed or shall not have made a determination within 60 days after
receipt by the Corporation of the request therefor together with the Supporting
Documentation, the Indemnitee shall be deemed to be, and shall be, entitled to
indemnification unless (A) the Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The termination
of any Proceeding described in Section 4.01 of this Article IV, or of any claim,
issue or matter therein, by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, adversely
affect the right of the Indemnitee to indemnification or create a presumption
that the Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed
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to the best interests of the Corporation or, with respect to any criminal
Proceeding, that the Indemnitee had reasonable cause to believe that his or her
conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is
made pursuant to Section 4.04(b) of this Article IV that the Indemnitee is not
entitled to indemnification under this Article IV, (A) the Indemnitee shall be
entitled to seek an adjudication of his or her entitlement to such
indemnification either, at the Indemnitee's sole option, in (x) an appropriate
court of the State of Texas or any other court of competent jurisdiction or (y)
an arbitration to be conducted by a single arbitrator pursuant to the rules of
the American Arbitration Association provided that all hearings shall be
conducted in Travis County, Texas; (B) any such judicial proceeding or
arbitration shall be de novo and the Indemnitee shall not be prejudiced by
reason of such adverse determination; and (C) if a Change in Control shall have
occurred, in any such judicial proceeding or arbitration the Corporation shall
have the burden of proving that the Indemnitee is not entitled to
indemnification under this Article IV (with respect to actions or failures to
act occurring prior to such Change in Control).
(ii) If a determination shall have been made or deemed to have
been made, pursuant to Section 4.04(b) or (c) of this Article IV, that the
Indemnitee is entitled to indemnification, the Corporation shall be obligated to
pay the amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination unless (A) the Indemnitee
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (B) such indemnification
is prohibited by law. In the event that (x) advancement of expenses is not
timely made pursuant to Section 4.04(a) of this Article IV or (y) payment of
indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 4.04(b) or (c) of this Article IV, the Indemnitee shall be
entitled to seek judicial enforcement of the Corporation's obligation to pay to
the Indemnitee such advancement of expenses or indemnification. Notwithstanding
the foregoing, the Corporation may bring an action, in an appropriate court in
the State of Texas or any other court of competent jurisdiction, contesting the
right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in Subclause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 4.04(d)
that the procedures and presumptions of this Article IV are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Corporation is bound by all the provisions of this Article
IV.
(iv) In the event that the Indemnitee, pursuant to this
Section 4.04(d), seeks a judicial adjudication of or an award in arbitration to
enforce his or her rights under, or to recover damages for breach of, this
Article IV, the Indemnitee shall be entitled to recover
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from the Corporation, and shall be indemnified by the Corporation against, any
expenses actually and reasonably incurred by the Indemnitee if the Indemnitee
prevails in such judicial adjudication or arbitration. If it shall be determined
in such judicial adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by the Indemnitee in connection with such judicial
adjudication or arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Article IV:
(i) "Change in Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
Item 6(e) (or any successor provision) of Schedule 14A of Regulation 14A (or any
amendment or successor provision thereto) promulgated under the Securities
Exchange Act of 1934 (the "Act"), whether or not the Corporation is then subject
to such reporting requirement; provided that, without limitation, a change in
control shall be deemed to have occurred if (A) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Corporation representing 25% or more of the voting power of
all outstanding shares of stock of the Corporation entitled to vote generally in
an election of Directors without the prior approval of at least two-thirds of
the members of the Board in office immediately prior to such acquisition; (B)
the Corporation is a party to any merger, exchange or consolidation in which the
Corporation is not the continuing or surviving corporation or pursuant to which
shares of the Corporation's common stock would be converted into cash,
securities or other property, other than a merger of the Corporation in which
the holders of the Corporation's common stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger; (C) there is a sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all, or substantially all, the assets of the Corporation, or liquidation or
dissolution of the Corporation; (D) the Corporation is a party to a merger,
exchange, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (E) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new Director whose election or nomination for election by the
stockholders was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board.
(ii) "Disinterested Director" means a Director who is not or
was not a party to the proceeding in respect of which indemnification is sought
by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a
law firm that neither presently is, nor in the past five years has been,
retained to represent:
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(A) the Corporation or the Indemnitee in any matter
material to either such party; or
(B) any other party to the Proceeding giving rise to a
claim for indemnification under this Article IV.
Notwithstanding the foregoing, the term "Independent Counsel," shall not include
any person who, under applicable standards of professional conduct, would have a
conflict of interest in representing either the Corporation or the Indemnitee in
an action to determine the Indemnitee's rights under this Article IV.
SECTION 4.05. Indemnification of Employees and Agents. Notwithstanding
any other provision of this Article IV, the Corporation, to the fullest extent
permitted by applicable law as then in effect, may indemnify any person other
than a Director or officer of the Corporation who is or was an employee or agent
of the Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed Proceeding by reasons of the fact that such
person is or was an employee or agent of the Corporation or, at the request of
the Corporation, a director, officer, employee, fiduciary or agent of a Covered
Entity against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such Proceeding. The Corporation may also advance expenses
incurred such employee, fiduciary or agent in connection with any such
Proceeding, consistent with the provisions of applicable law as then in effect.
SECTION 4.06. Severability. If any provision of this Article IV shall
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Article IV (including, without limitation, all portions of
any Section of this Article IV containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Article IV
(including, without limitation, all portions of any Section of this Article IV
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
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ARTICLE V
CAPITAL STOCK
SECTION 5.01. Stock Certificates. (a) Every holder of stock in the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by him or her in the Corporation and designating the class and
series of stock to which such shares belong, which certificate shall otherwise
be in such form as the Board shall prescribe and as provided in Section 5.01(d).
Each such certificate shall be signed by, or in the name of, the Corporation by
the Chairman or the President or any Vice President, and by the Treasurer or any
Assistant Treasurer or the Secretary or any Assistant Secretary.
(b) If such certificate is countersigned by a transfer agent other than
the Corporation or its employee, or by a registrar other than the Corporation or
its employee, the signatures of the officers of the Corporation may be
facsimiles, and, if permitted by applicable law, any other signature on the
certificate may be a facsimile.
(c) In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not inconsistent
with the Articles of Incorporation. They shall be numbered and registered in the
order in which they are issued. No certificate shall be issued until fully paid.
(e) All certificates surrendered to the Corporation shall be canceled
(other than treasury shares) with the date of cancellation and shall be retained
by the Chief Financial Officer, together with the powers of attorney to transfer
and the assignments of the shares represented by such certificates, for such
period of time as such officer shall designate.
SECTION 5.02. Record Ownership. A record of the name of the person,
firm or corporation and address of such holder of each certificate, the number
of shares represented thereby and the date of issue thereof shall be made on the
Corporation's books. The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof, and accordingly
shall not be bound to recognize any equitable or other claim to or interest in
any share on the part of any person, whether or not it shall have express or
other notice thereof, except as required by applicable law.
SECTION 5.03. Transfer of Record Ownership. Transfers of stock shall be
made on the books of the Corporation only by direction of the person named in
the certificate or such person's attorney, lawfully constituted in writing, and
only upon the surrender of the certificate therefor and a written assignment of
the shares evidenced thereby. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the
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entry of the transfer if, when the certificates are presented to the Corporation
for transfer, both the transferor and transferee request the Corporation to do
so.
SECTION 5.04. Lost, Stolen or Destroyed Certificates. Certificates
representing shares of the stock of the Corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board from time to time may authorize in
accordance with applicable law.
SECTION 5.05. Transfer Agent; Registrar; Rules Respecting Certificates.
The Corporation shall maintain one or more transfer offices or agencies where
stock of the Corporation shall be transferable. The Corporation shall also
maintain one or more registry offices where such stock shall be registered. The
Board may adopt such rules and regulations as it may deem proper concerning the
issue, transfer and registration of stock certificates in accordance with
applicable law.
SECTION 5.06. Fixing Record Date for Determination of Stockholders of
Record. (a) The Board may fix, in advance, a date as the record date for the
purpose of determining the stockholders entitled to notice of, or to vote at,
any meeting of the stockholders or any adjournment thereof, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date shall not be more than 60 days nor
less than 10 days before the date of a meeting of the stockholders. If no record
date is fixed by the Board, the record date for determining the stockholders
entitled to notice of or to vote at a stockholders' meeting shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
(b) The Board may fix, in advance, a date as the record date for the
purpose of determining the stockholders entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or in order to make a determination of the stockholders for the purpose of any
other lawful action, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than 60 calendar days prior to such action. If no record date
is fixed by the Board, the record date for determining the stockholders for any
such purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.
(c) Unless a record date shall have previously been fixed or determined
pursuant to this section, whenever action by stockholders is proposed to be
taken by consent in writing without a meeting of stockholders, the Board of
Directors may fix a record date for the purpose of determining stockholders
entitled to consent to that action, which record date shall not precede, and
shall not be more than ten (10) days after, the date upon which the resolution
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fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors and the prior action of the Board of
Directors is not required by the NGCL, the record date for determining
stockholders entitled to consent to action in writing without a meeting shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office, its principal place of business, or an officer or agent of
the Corporation having custody of the books in which proceedings of meetings of
stockholders are recorded. Delivery shall be by hand or by certified or
registered mail, return receipt requested. Delivery to the Corporation's
principal place of business shall be addressed to the president or the principal
executive officer of the Corporation. If no record date shall have been fixed by
the Board of Directors and prior action of the Board of Directors is required by
the NGCL, the record date for determining stockholders entitled to consent to
action in writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts a resolution taking such prior
action.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
SECTION 6.01. Voting. Unless the Board shall otherwise order, the
Chairman, the President, any Executive Vice President, any Senior Vice
President, any Vice President, the Chief Financial Officer, the Controller, the
Treasurer or the Secretary shall have full power and authority, on behalf of the
Corporation, to attend, act and vote at any meeting of the stockholders of any
corporation in which the Corporation may hold stock and at such meeting to
exercise any or all rights and powers incident to the ownership of such stock,
and to execute on behalf of the Corporation a proxy or proxies empowering
another or others to act as aforesaid. The Board from time to time may confer
like powers upon any other person or persons.
SECTION 6.02. General Authorization to Transfer Securities Held by the
Corporation. (a) Any of the following officers, to wit: the Chairman, the
President, any Executive Vice President, any Senior Vice President, any Vice
President, the Chief Financial Officer, the Controller, the Treasurer, any
Assistant Controller, any Assistant Treasurer, and each of them, hereby is
authorized and empowered to transfer, convert, endorse, sell, assign, set over
and deliver any and all shares of stock, bonds, debentures, notes, subscription
warrants, stock purchase warrants, evidences of indebtedness, or other
securities now or hereafter standing in the name of or owned by the Corporation,
and to make, execute and deliver any and all written instruments of assignment
and transfer necessary or proper to effectuate the authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of assignment and
transfer executed pursuant to and in accordance with the foregoing Section
6.02(a), a certificate of the Secretary or any Assistant Secretary in office at
the date of such certificate setting forth the provisions hereof and stating
that they are in full force and effect and setting forth the names of persons
who are then officers of the corporation, all persons to whom such instrument
and
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annexed certificate shall thereafter come shall be entitled, without further
inquiry or investigation and regardless of the date of such certificate, to
assume and to act in reliance upon the assumption that (i) the shares of stock
or other securities named in such instrument were theretofore duly and properly
transferred, endorsed, sold, assigned, set over and delivered by the
Corporation, and (ii) with respect to such securities, the authority of the
provisions of these Bylaws and of such officers is still in full force and
effect.
ARTICLE VII
DEPOSITARIES AND SIGNATORIES
SECTION 7.01. Depositaries. The Chairman, the President, the Chief
Financial Officer and the Treasurer are each authorized to designate
depositaries for the funds of the Corporation deposited in its name or that of a
Division of the Corporation, or both, and the signatories with respect thereto
in each case, and from time to time, to change such depositaries and
signatories, with the same force and effect as if each such depositary and the
signatories with respect thereto and changes therein had been specifically
designated or authorized by the Board; and each depositary designated by the
Board or by the Chairman, the President, the Chief Financial Officer or the
Treasurer shall be entitled to rely upon the certificate of the Secretary or any
Assistant Secretary of the Corporation or of a Division of the Corporation
setting forth the fact of such designation and of the appointment of the
officers of the Corporation or of the Division or of both or of other persons
who are to be signatories with respect to the withdrawal of funds deposited with
such depositary, or from time to time the fact of any change in any depositary
or in the signatories with respect thereto.
SECTION 7.02. Signatories. Unless otherwise designated by the Board or
by the Chairman, the President, the Chief Financial Officer or the Treasurer,
all notes, drafts, checks, acceptances, orders for the payment of money and all
other negotiable instruments obligating the Corporation for the payment of money
shall be (a) signed by the Treasurer or any Assistant Treasurer and (b)
countersigned by the Controller or any Assistant Controller, or (c) either
signed or countersigned by the Chairman, the President, any Executive Vice
President, any Senior Vice President or any Vice President in lieu of either the
officers designated in clause (a) or the officers designated in clause (b) of
this Section 7.02.
ARTICLE VIII
SEAL
The seal of the Corporation shall be in such form and shall have such
content as the Board shall from time to time determine.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall end on March 31 in each year,
or on such other date as the Board shall determine.
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ARTICLE X
WAIVER OF OR DISPENSING WITH NOTICE
(a) Whenever any notice of the time, place or purpose of any meeting of
the stockholders is required to be given by applicable law, the Articles of
Incorporation or these Bylaws, a written waiver of notice, signed by a
stockholder entitled to notice of a stockholders' meeting, whether by telegraph,
cable or other form of recorded communication, whether signed before or after
the time set for a given meeting, shall be deemed equivalent to notice of such
meeting. Attendance of a stockholder in person or by proxy at a stockholders'
meeting shall constitute a waiver of notice to such stockholder of such meeting,
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting was not lawfully called or convened.
(b) Whenever any notice of the time or place of any meeting of the
Board or Committee of the Board is required to be given by applicable law, the
Articles of Incorporation or these Bylaws, a written waiver of notice signed by
a Director, whether by telegraph, cable or other form of recorded communication,
whether signed before or after the time set for a given meeting, shall be deemed
equivalent to notice of such meeting. Attendance of a Director at a meeting
shall constitute a waiver of notice to such Director of such meeting.
(c) No notice need be given to any person with whom communication is
made unlawful by any law of the United States or any rule, regulation,
proclamation or executive order issued under any such law.
ARTICLE XI
POLITICAL CONTRIBUTIONS BY THE CORPORATION
The Corporation and its direct and indirect subsidiaries shall be
permitted to make contributions or expenditures (a) in connection with the
election of any candidate for state or local political office in jurisdictions
which permit such contributions, including contributions to any committee
supporting such a candidate, to the extent such contributions or expenditures
are permitted by applicable law, and (b) to the extent necessary to permit in
the United States the expenditure of corporate assets for the payment of
expenses for establishing, registering and administering any political action
committee and of soliciting contributions thereto, all as may be authorized by
Federal or state laws.
ARTICLE XII
AMENDMENT OF BYLAWS
Subject to the provisions of the Articles of Incorporation, the Bylaws
of the Corporation may be altered, amended or repealed at any annual meeting of
the stockholders (or at any special meeting thereof duly called for that purpose
or by a consent adopted in writing by such
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shareholders) by an affirmative vote of the shares of at least seventy percent
(70%) of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class;
provided, that in the notice of such meeting, if any, notice of such purpose
shall be given. Subject to the laws of the State of Nevada, these Articles of
Incorporation and the Bylaws of the Corporation, the Board of Directors may, be
majority vote of those present at any meeting at which a quorum is present,
amend the Bylaws of the Corporation, or enact such other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Corporation.
ARTICLE XIII
OFFICES AND AGENT
(a) Registered Office and Agent. The registered office of the
Corporation in the State of Nevada shall be 711 S. Carson, Suite 4, Carson City,
Nevada 89701. The name of the registered agent is Resident Agents of Nevada.
Such registered agent has a business office identical with such registered
office.
(b) Other Offices. The Corporation may also have offices at other
places, either within or outside the State of Nevada, as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
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EXHIBIT 6(a)
AUSTIN FUNDING.COM CORPORATION
1999 STOCK OPTION AND INCENTIVE PLAN
1. DEFINITIONS. The following definitions are applicable to the Plan:
"Affiliate" - Any "parent corporation" or "subsidiary corporation" of
the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Award" - The grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation
Right or any combination thereof, as provided in the Plan.
"Code" - The Internal Revenue Code of 1986, as amended.
"Committee" - The Committee referred to in Section 3 hereof.
"Continuous Service" - The absence of any interruption or termination
of service as a director, advisory director, director emeriti, officer or
employee of the Corporation or an Affiliate, except that when used with
respect to any Options or Rights which at the time of exercise are intended
to be Incentive Stock Options, continuous service means the absence of any
interruption or termination of service as an employee of the Corporation or
an Affiliate. Service shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Corporation or in the case of transfers between payroll locations of the
Corporation or between the Corporation, its parent, its subsidiaries or its
successor. With respect to any advisory director or director emeritus,
continuous service shall mean availability to perform such functions as may
be required of such persons.
"Corporation" - Austin Funding.Com Corporation, a Nevada corporation.
"Employee" - Any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - In the case of (i) an Option, the price per Share
at which the Shares subject to such Option may be purchased upon exercise
of such Option, and (ii) a Right, the price per Share (other than the
Market Value per Share on the date of exercise and the Offer Price per
Share as defined in Section 10 hereof) which, upon grant, the Committee
determines shall be utilized in calculating the aggregate value which a
Participant shall be entitled to receive pursuant to Sections 9, 10 or 12
hereof upon exercise of such Right.
<PAGE> 2
"Incentive Stock Option" - An option to purchase Shares granted by the
Committee pursuant to Section 6 hereof which is subject to the limitations
and restrictions of Section 8 hereof and is intended to qualify under
Section 422(b) of the Code.
"Limited Stock Appreciation Right" - A stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 10
hereof.
"Market Value" - The average of the high and low quoted sales price on
the date in question (or, if there is no reported sale on such date, on the
last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which the Shares are listed or
admitted to trading or, if the Shares are not listed or admitted to trading
on any such exchange, the mean between the closing high bid and low asked
quotations with respect to a Share on such date on the NASDAQ System, or
any similar system then in use or, if no such quotations are available, the
fair market value on such date of a Share as the Committee shall determine.
"Non-Employee Director" - A director who (i) is not currently an
officer or employee of the Corporation; (ii) is not a former employee of
the Corporation who receives compensation for prior services (other than
from a tax- qualified retirement plan); (iii) has not been an officer of
the Corporation; (iv) does not receive remuneration from the Corporation in
any capacity other than as a director; and (v) does not possess an interest
in any other transactions or is not engaged in a business relationship for
which disclosure would be required under Item 404(a) or (b) of Regulation
S-K.
"Non-Qualified Stock Option" - An option to purchase Shares granted by
the Committee pursuant to Section 6 hereof which is not intended to qualify
under Section 422(b) of the Code.
"Option" - An Incentive Stock Option or a Non-Qualified Stock Option.
"Participant" - Any director, advisory director, director emeritus,
officer or employee of the Corporation or any Affiliate who is selected by
the Committee to receive an Award or who is granted an Award pursuant to
Section 19 hereof.
"Plan" - The 1999 Stock Option and Incentive Plan of the Corporation.
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"Related" - In the case of (i) a Right, a Right which is granted in
connection with, and to the extent exercisable, in whole or in part, in
lieu of an Option or another Right, and (ii) an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in
part, in lieu thereof has been granted.
"Right" - A Limited Stock Appreciation Right or a Stock Appreciation
Right.
"Shares" - The shares of common stock of the Corporation.
"Stock Appreciation Right" - A stock appreciation right with respect
to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" - The beneficial owner of more than ten
percent (10%) of any class of the Corporation's equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
2. PLAN PURPOSE. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, director emeritus,
officers and employees of the Corporation and its Affiliates. It is intended
that designated options granted pursuant to the provisions of this Plan to
persons employed by the Corporation or its Affiliates will qualify as Incentive
Stock Options. Options granted to persons who are not employees will be
Non-Qualified Stock Options.
3. ADMINISTRATION. The Plan shall be administered by a Committee consisting
of two or more members, each of whom shall be a Non-Employee Director. The
members of the Committee shall be appointed by the Board of Directors of the
Corporation. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion to (i) select
Participants and grant Awards; (ii) determine the number of Shares to be subject
to types of Awards generally, as well as to individual Awards granted under the
Plan; (iii) determine the terms and conditions upon which Awards shall be
granted under the Plan; (iv) prescribe the form and terms of instruments
evidencing such grants; and (v) establish from time to time regulations for the
administration of the Plan, interpret the Plan, and make all determinations
deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. PARTICIPATION IN COMMITTEE AWARDS. The Committee may select from time to
time participants in the Plan from those directors (including advisory directors
and directors emeriti), officers and employees of the Corporation or its
Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
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<PAGE> 4
5. SHARES SUBJECT TO PLAN. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is Two Million (2,000,000) Shares of the Corporation. The
Shares with respect to which Awards may be made under the Plan may be either
authorized and unissued shares or issued shares heretofore or hereafter
reacquired and held as treasury shares. Shares which are subject to Related
Rights and Related Options shall be counted only once in determining whether the
maximum number of Shares with respect to which Awards may be granted under the
Plan has been exceeded. An Award shall not be considered to have been made under
the Plan with respect to any Option or Right which terminates and new Awards may
be granted under the Plan with respect to the number of Shares as to which such
termination has occurred.
6. GENERAL TERMS AND CONDITIONS OF OPTIONS AND RIGHTS. The Committee shall
have full and complete authority and discretion, except as expressly limited by
the Plan, to grant Options and/or Rights and to provide the terms and conditions
(which need not be identical among Participants) thereof. In particular, the
Committee shall prescribe the following terms and conditions: (a) the Exercise
Price of any Option or Right, which shall not be less than the Market Value per
Share at the date of grant of such Option or Right, (b) the number of Shares
subject to, and the expiration date of, any Option or Right, which expiration
date shall not exceed ten years from the date of grant, (c) the manner, time and
rate (cumulative or otherwise) of exercise of such Option or Right, and (d) the
restrictions, if any, to be placed upon such Option or Right or upon Shares
which may be issued upon exercise of such Option or Right.
At the time of any Award, the Participant shall enter into an agreement
with the Corporation in a form specified by the Committee, agreeing to the terms
and conditions of the Award and such other matters as the Committee, in its sole
discretion, shall determine (the "Option Agreement").
7. EXERCISE OF OPTIONS OR RIGHTS.
7.1 TIME OF EXERCISE. Except as provided herein, an Option or Right
granted under the Plan shall be exercisable during the lifetime of the
Participant to whom such Option or Right was granted only by such
Participant and, except as provided in paragraphs 7.3 and 7.4 of this
Section 7, no such Option or Right may be exercised unless at the time such
Participant exercises such Option or Right, such Participant has maintained
Continuous Service since the date of grant of such Option or Right.
7.2 NOTICE. To exercise an Option or Right under the Plan, the
Participant to whom such Option or Right was granted shall give written
notice to the Corporation in form satisfactory to the Committee (and, if
partial exercises have been permitted by the Committee, by specifying the
number of Shares with respect to which such Participant elects to exercise
such Option or Right) together with full payment of the Exercise Price, if
any and to the extent required. The date of exercise shall be the date on
which
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such notice is received by the Corporation. Payment, if any is required,
shall be made either (a) in cash (including check, bank draft or money
order), or (b) by delivering (i) Shares already owned by the Participant
and having a fair market value equal to the applicable exercise price, such
fair market value to be determined in such appropriate manner as may be
provided by the Committee or as may be required in order to comply with or
to conform to requirements of any applicable laws or regulations, or (ii) a
combination of cash and such Shares.
7.3 SERVICE. If a Participant to whom an Option or Right was granted
shall cease to maintain Continuous Service for any reason (excluding death,
disability and termination of employment by the Corporation or any
Affiliate for cause), such Participant may, but only within the period of
three months immediately succeeding such cessation of Continuous Service
and in no event after the expiration date of such Option or Right, exercise
such Option or Right to the extent that such Participant was entitled to
exercise such Option or Right at the date of such cessation; provided,
however, that such right of exercise after cessation of Continuous Service
shall not be available to a Participant if the Committee otherwise
determines and so provides in the applicable instrument or instruments
evidencing the grant of such Option or Right. If a Participant to whom an
Option or Right was granted shall cease to maintain Continuous Service by
reason of death or disability, then, unless the Committee shall have
otherwise provided in the instrument evidencing the grant of an Option or
Right, all Options and Rights granted and not fully exercisable shall
become exercisable in full upon the happening of such event and shall
remain so exercisable (a) in the event of death for the period described in
paragraph 7.4 of this Section 7, and (b) in the event of disability for a
period of one year following such date. If the Continuous Service of a
Participant to whom an Option or Right was granted by the Corporation is
terminated for cause, all rights under any Option or Right of such
Participant shall expire immediately upon the effective date of such
termination.
7.4 DEATH OF PARTICIPANT. In the event of the death of a Participant
while in the Continuous Service of the Corporation or an Affiliate or
within the three-month period referred to in paragraph 7.3 of this Section
7, the person to whom any Option or Right held by the Participant at the
time of his death is transferred by will or the laws of descent and
distribution, or in the case of an Award other than an Incentive Stock
Option, pursuant to a qualified domestic relations order, as defined in the
Code or Title 1 of ERISA or the rules thereunder may, but only to the
extent such Participant was entitled to exercise such Option or Right upon
his death as provided in paragraph 7.3 above, exercise such Option or Right
at any time within a period of one year succeeding the date of death of
such Participant, but in no event later than ten years from the date of
grant of such Option or Right. Following the death of any Participant to
whom an Option was granted under the Plan, irrespective of whether any
Related Right shall have theretofore been granted to the Participant or
whether the person entitled to exercise such Related Right desires to do
so, the Committee may, as an alternative means of settlement of such
Option, elect to pay to the person to whom such Option is transferred by
will or by the laws of descent and distribution, or in the case of
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an Option other than an Incentive Stock Option, pursuant to a qualified
domestic relations order, as defined in the Code or Title I of ERISA or the
rules thereunder, the amount by which the Market Value per Share on the
date of exercise of such Option shall exceed the Exercise Price of such
Option, multiplied by the number of Shares with respect to which such
Option is properly exercised. Any such settlement of an Option shall be
considered an exercise of such Option for all purposes of the Plan.
7.5 OTHER TERMS. Notwithstanding the provisions of Sections 7.3 and
7.4 to the contrary, the Committee may, in its sole discretion, establish
different terms and conditions pertaining to the effect of termination to
the extent permitted by applicable federal and state law. Cash settlements
of Rights may be made only in accordance with any applicable restrictions
pursuant to Rule 16b-3(e) under the Securities Exchange Act of 1934 or any
similar or successor provision.
8. INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted only to
Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (a) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (b) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (c) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (d) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least one hundred ten percent (110%)
percent of the Market Value per Share at the date of grant and such Incentive
Stock Option is not exercisable after the expiration of five years from the date
such Incentive Stock Option is granted, and (e) the aggregate Market Value
(determined as of the time any Incentive Stock Option is granted) of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by a Participant in any calendar year shall not exceed $100,000.
9. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
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whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto; provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. LIMITED STOCK APPRECIATION RIGHTS. At the time of grant of an Option or
Stock Appreciation Right to any Participant, the Committee shall have full and
complete authority and discretion to also grant to such Participant a Limited
Stock Appreciation Right which is Related to such Option or Stock Appreciation
Right; provided, however and notwithstanding any other provision of the Plan,
that if the Related Option is an Incentive Stock Option, the Related Limited
Stock Appreciation Right shall satisfy all the restrictions and limitations of
Section 8 hereof as if such Related Limited Stock Appreciation Right were an
Incentive Stock Option and as if all other Rights which are Related to Incentive
Stock Options were Incentive Stock Options.
A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any tender
offer or exchange offer for Shares other than one made by the Corporation;
provided, that the corporation, person or other entity making the offer acquires
pursuant to such offer either (a) twenty-five percent (25%) of the Shares
outstanding immediately prior to the commencement of such offer, or (b) a number
of Shares which, together with all other Shares acquired in any tender offer or
exchange offer (other than one made by the Corporation) which expired within
sixty (60) days of the expiration date of the offer in question, equals
twenty-five percent (25%) of the Shares outstanding immediately prior to the
commencement of the offer in question. The term "Offer Price per Share" as used
in this Section 10 shall mean the highest price per Share paid in any Offer
which Offer is in effect any time during the period beginning on the sixtieth
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(60th) day prior to the date on which a Limited Stock Appreciation Right is
exercised and ending on the date on which such Limited Stock Appreciation Right
is exercised. Any securities or property which are part or all of the
consideration paid for Shares in the Offer shall be valued in determining the
Offer Price per Share at the higher of (i) the valuation placed on such
securities or property by the corporation, person or other entity making such
Offer, or (ii) the valuation placed on such securities or property by the
Committee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. EFFECT OF MERGER. In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted at least
six months prior to such event shall have the right (subject to the provisions
of the Plan and any limitation or vesting period applicable to such Option or
Right), thereafter and during the term of each such Option or Right, to receive
upon exercise of any such Option or Right an amount equal to the excess of the
fair market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. ASSIGNMENTS AND TRANSFERS. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
14. EMPLOYEE RIGHTS UNDER THE PLAN. No director, officer or employee shall
have a right to be selected as a Participant nor, having been so selected, to be
selected again as a
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Participant and no director, officer, employee or other person shall have any
claim or right to be granted an Award under the Plan or under any other
incentive or similar plan of the Corporation or any Affiliate. Neither the Plan
nor any action taken thereunder shall be construed as giving any employee any
right to be retained in the employ of the Corporation or any Affiliate.
15. DELIVERY AND REGISTRATION OF STOCK. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Corporation shall not be required to
deliver any Shares under the Plan prior to (a) the admission of such shares to
listing on any stock exchange or other system on which Shares may then be
listed, and (b) the completion of such registration or other qualification of
such Shares under any state or Federal law, rule or regulation, as the Committee
shall determine to be necessary or advisable. This Plan is intended to comply
with Rule 16b-3 under the Securities Exchange Act of 1934. Any provision of the
Plan which is inconsistent with said Rule shall, to the extent of such
inconsistency, be inoperative and shall not affect the validity of the remaining
provisions of the Plan.
16. WITHHOLDING TAX. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the exercise of a Right under the Plan
any taxes required by law to be withheld with respect to such cash payments.
Where a Participant or other person is entitled to receive Shares pursuant to
the exercise of an Option or Right pursuant to the Plan, the Corporation shall
have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, and may, in its sole discretion, withhold
sufficient Shares to cover the amount of taxes which the Corporation is required
to withhold. No discretion or choice shall be conferred upon any Participant, or
other Person entitled to receive Shares, with respect to the form, timing or
method of any such tax withholding.
17. AMENDMENT OR TERMINATION. The Board of Directors of the Corporation may
amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 11 hereof) no amendment shall be made without
approval of the stockholders of the Corporation which shall (a) increase the
aggregate number of Shares with respect to which Awards may be made under the
Plan, (b) materially increase the benefits accruing to Participants, (c)
materially change the requirements as to eligibility for participation in the
Plan, or (d) change the class of persons eligible to participate in the Plan;
provided, however, that no such amendment, suspension or termination shall
impair the rights of any Participant, without his consent, in any Award
theretofore made pursuant to the Plan. Notwithstanding anything else in this
Plan to the contrary, to the extent that the Plan provides for formula awards,
as defined in Rule 16b-3(c)(2)(ii) under the Securities Exchange Act of
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1934, such provisions may not be amended more than once every six (6) months,
other than as required to comply with changes in the Code, ERISA or the rules
thereunder.
18. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective upon
its ratification by stockholders of the Corporation. It shall continue in effect
for a term of ten years unless sooner terminated under Section 17 hereof.
19. FORMULA GRANT. If any options are granted under the Plan, the following
non-employee members of the Board of Directors of the Corporation at the time of
stockholder ratification of this Plan are hereby granted ten-year, Non-Qualified
Stock Options to the following shares: L. H. Hardy, Jr. - 5,000 shares and
Bradley J. Farley - 5,000 shares. The Exercise Price per share on such options
shall equal the Market Value per share of the Shares on the date of grant. Each
such Option shall be evidenced by a Non-Qualified Stock Option Agreement in a
form approved by the Board of Directors and shall be subject in all respects to
the terms and conditions of this Plan, which are controlling.
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EXHIBIT 6(b)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), effective as of July 19, 1999
(the "Effective Date"), is entered into by and between Austin Funding
Corporation (the "Company") and Glenn A. LaPointe (the "Employee").
RECITALS
WHEREAS, the Board of Directors of the Company ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Company may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Company to enter into this Agreement with the Employee in order to assure
continuity of management of the Company and to reinforce and encourage the
continued attention and dedication of the Employee to the Employee's assigned
duties without distraction in the face of potentially disruptive circumstances
arising from the possibility of a change in control of the Company, although no
such change is now contemplated; and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is agreed as follows:
1. DEFINITIONS.
1.1 Change In Control. The term "Change in Control" means (a) an
event of a nature that would be required to be reported in response to Item 1 of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(b) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly of securities of the Company representing
twenty percent (20%) or more of the Company's outstanding securities; (c)
individuals who are members of the Board of Directors on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-fourths (3/4ths)
of the directors comprising the Incumbent Board, or whose nomination for
election by the Company's stockholders was approved by the nominating committee
serving under an Incumbent Board, shall be considered a member of the Incumbent
Board; or (d) a reorganization, merger, consolidation, sale of all or
substantially all of the assets of the Company or a similar transaction in which
the Company is not the resulting
<PAGE> 2
entity. The term "Change in Control" shall not include an acquisition of
securities by an employee benefit plan of the Company.
1.2 Date of Termination. The term "Date of Termination" means the
date upon which the Employee ceases to serve as an employee of the Company.
1.3 Effective Date. The term "Effective Date" means July 1, 1999.
1.4 Involuntary Termination. The term "Involuntary Termination"
means termination of the employment of Employee without the Employee's express
written consent, and shall include a material diminution of or interference with
the Employee's duties, responsibilities and benefits as President and Chief
Executive Officer of the Company, including, without limitation, any of the
following actions unless consented to in writing by the Employee: (a) a change
in the principal workplace of the Employee to a location outside of a thirty
(30) mile radius from the Company's headquarters office as of the date hereof;
(b) a material demotion of the Employee; (c) a material reduction in the number
or seniority of other personnel reporting to the Employee or a material
reduction in the frequency with which, or in the nature of the matters with
respect to which, such personnel are to report to the Employee, other than as
part of a Company-wide reduction in staff; (d) a material adverse change in the
Employee's salary, perquisites, benefits, contingent benefits or vacation, other
than as part of an overall program applied uniformly and with equitable effect
to all members of the senior management of the Company; and (e) a material
permanent increase in the required hours of work or the workload of the
Employee. The term "Involuntary Termination" does not include Termination for
Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Company's affairs under applicable law.
1.5 Termination for Cause. The terms "Termination for Cause" and
"Terminated for Cause" mean termination of the employment of the Employee
because of the Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule, or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement. The Employee shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board of Directors at a meeting of the Board called and held for such purpose
(after reasonable notice to the Employee and an opportunity for the Employee,
together with the Employee's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Employee has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
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2. TERM. The term of this Agreement shall be the period of three years
commencing on the Effective Date unless extended as provided herein and subject
to earlier termination as provided herein. Beginning on the first anniversary of
the Commencement Date and on each anniversary thereafter, the term of this
Agreement shall be extended for a period of one year in addition to the
then-remaining term; provided that (a) the Company has not given notice to the
Employee in writing at least sixty (60) days prior to such date that the term of
this Agreement shall not be extended further; and (b) prior to such date, the
Board of Directors explicitly reviews and approves the extension. Reference
herein to the term of this Agreement shall refer to both such initial term and
such extended terms. Notwithstanding the foregoing, in the event that there is
no net increase in operating profits of the Company for two consecutive years,
the Board of Directors may terminate this Agreement with no obligation to the
Employee on the part of the Company.
3. EMPLOYMENT. The Employee is employed as President and Chief
Executive Officer of the Company. As such, the Employee shall render
administrative and management services for the Company and its subsidiaries as
are customarily performed by persons situated in similar executive capacities,
and shall have such other powers and duties the Board of Directors may prescribe
from time to time.
4. COMPENSATION.
4.1 Salary. The Company agrees to pay the Employee during the term
of this Agreement an annual salary of $180,000.00. The amount of the Employee's
salary shall be reviewed annually by the Board of Directors. Adjustments in
salary or other compensation shall not limit or reduce any other obligation of
the Company under this Agreement. The Employee's salary in effect from time to
time during the term of this Agreement shall not thereafter be reduced.
4.2 Bonuses. The Employee shall be entitled to an annual bonus for
fiscal years 1999, 2000 and 2001, payable within thirty (30) days after the
filing with the Securities and Exchange Commission of the Company's Annual
Report on Form 10-K (the "10-K"), equal to twelve percent (12%) of the excess of
(a) the Company's net income for any such year as reported in the related 10-K
over (b) $500,000.00, as calculated without regard to (i) any change in
accounting principals after June 30, 1999, (ii) any extraordinary items, (iii)
any gain or loss from the sale of securities, physical assets or deposits, or
(iv) any other item which, in the reasonable judgment of the Board of Directors,
did not arise in the ordinary course of business.
4.3 Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers, provided that the Employee accounts for
such expenses as required under such policies and procedures.
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<PAGE> 4
5. BENEFITS.
5.1 Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, and other retirement or employee benefits or combinations thereof, in
which all executive officers participate.
5.2 Fringe Benefits. The Employee shall be eligible to participate
in, and receive benefits under, any fringe benefit plans which are or may become
applicable to all executive officers. Employee shall also receive an automobile
allowance of no more than $750.00 per month.
6. VACATIONS; LEAVE. The Employee shall be entitled to four
non-consecutive weeks of paid vacation, no more than two of which shall be
consecutive.
7. TERMINATION OF EMPLOYMENT.
7.1 Involuntary Termination. The Board of Directors may terminate
the Employee's employment at any time but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. Except as provided in
Section 2 of this Agreement, in the event of Involuntary Termination other than
in connection with or within twelve (12) months after a Change in Control, the
Company shall, during the twelve (12) months following the Date of Termination,
(a) pay to the Employee the Employee's salary at the rate in effect immediately
prior to the Date of Termination, in such manner and at such times as such
salary would have been payable if the Employee had continued to be employed
under this Agreement, and (b) provide to the Employee health benefits as
maintained for the benefit of executive officers from time to time during such
periods; provided, that the Company's obligations under this Section 7.1 shall
be reduced to the extent that the Employee earns salary and receives
substantially similar health benefits from another employer during such period.
7.2 Termination for Cause. In the event of Termination for Cause,
the Company shall pay the Employee the Employee's salary through the Date of
Termination, and the Company shall have no further obligation to the Employee
under this Agreement.
7.3 Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon sixty (60) days' written
notice or such shorter period as may be agreed upon between the Employee and the
Board of Directors. In the event of such voluntary termination, the Company
shall be obligated to continue to pay to the Employee the Employee's salary and
benefits only through the Date of Termination, at the time such payments are
due, and the Company shall have no further obligation to the Employee under this
Agreement.
7.4 Change in Control. Except as provided in Section 2 of this
Agreement, in the event of Involuntary Termination in connection with or within
twelve (12) months after a Change in Control which occurs at any time while the
Employee is employed under this
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<PAGE> 5
Agreement, the Company shall, subject to Section 8 of this Agreement, (a) pay to
the Employee in a lump sum in cash within twenty-five (25) business days after
the Date of Termination an amount equal to two hundred ninety-nine percent
(299%) of the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (b) provide to the
Employee during the remaining term of this Agreement such health benefits as are
maintained for executive officers from time to time during the remaining term of
this Agreement or substantially the same health benefits as were maintained for
its executive officers immediately prior to the Date of Termination.
7.5 Death; Disability. In the event of the death of the Employee
while employed under this Agreement and prior to any termination of employment,
the Employee's estate, or such person as the Employee may have previously
designated in writing, shall be entitled to receive the salary of the Employee
through the day on which the Employee died. If the Employee becomes disabled, as
such term is defined in the Company's then current disability plan, if any, or
if the Employee is otherwise unable to serve as President and Chief Executive
Officer of the Company, the Employee shall be entitled to receive group and
other disability income benefits of the type, if any, then provided for
executive officers.
7.6 Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of the
Company's affairs by a notice served under law applicable to the Employee's
conduct, the Company's obligations under this Agreement shall be suspended as of
the date of service, unless stayed by appropriate proceedings. If the charges in
the notice are dismissed, the Company may in its discretion (a) pay the Employee
all or part of the compensation withheld while its obligations under this
Agreement were suspended and (b) reinstate in whole or in part any of its
obligations which were suspended.
7.7 Permanent Suspension or Prohibition. If the Employee is removed
and/or permanently prohibited from participating in the conduct of the Company's
affairs by an order issued under law applicable to the Employee's conduct, all
obligations of the Company under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
8. CONFIDENTIAL INFORMATION. The Employee acknowledges that in the
course of his employment, he will have access to and become informed of
confidential and secret information which is a competitive asset of the Company
and its subsidiaries ("Confidential Information"), including, without
limitation, (a) the terms of any agreement between the Company or any subsidiary
thereof and any employee, customer or supplier, (b) pricing strategy, (c)
merchandising and marketing methods, (d) product development ideas and
strategies, (e) financial results, (f) strategic plans and demographic analyses,
and (g) any non-public information concerning the Company or any of its
subsidiaries, or their respective employees, suppliers or customers. The
Employee agrees that he will keep all Confidential Information in strict
confidence and will not make known, divulge, reveal, furnish, make available, or
use any Confidential Information that could materially affect the operations,
profitability or reputation of the Company or any of its subsidiaries (except in
the course of his
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<PAGE> 6
regular authorized duties). The Employee may disclose information as required by
law (after giving the Company notice and opportunity to contest such
requirement). The Employee's obligations under this Section 8 are in addition
to, and not in limitation of or preemption of, all other obligations of
confidentiality which the Employee may have to the Company and its subsidiaries
under general legal or equitable principles.
9. NO ASSIGNMENT.
9.1 Consent Required. This Agreement is personal to each of the
parties hereto, and neither party may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent of the other
party; provided, however, that the Company shall require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession or assignment had taken place. Failure of the Company to obtain such
an assumption agreement prior to the effectiveness of any such succession or
assignment shall be a breach of this Agreement and shall entitle the Employee to
compensation in the same amount and on the same terms as the compensation
pursuant to Section 7.4 hereof. For purposes of implementing the provisions of
this Section 9.1, the date on which any such succession becomes effective shall
be deemed the Date of Termination.
9.2 Benefits. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of and be enforceable by the Employee's
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
10. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, via facsimile
transmission or mailed first-class, postage prepaid, registered or certified
mail as follows:
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(a) If to the Company:
Austin Funding.Com, Inc.
823 Congress Avenue, Suite 515
Austin, Texas 78701
Phone: 512/481-8000
Fax: 512/481-8002
(b) If to the Employee:
Glenn A. LaPointe
823 Congress Avenue, Suite 515
Austin, Texas 78701
Phone: 512/481-8000
Fax: 512/481-8002
11. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
12. HEADINGS. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
13. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Texas.
15. ARBITRATION. The Company and the Employee agree that in the event
of any dispute arising between the parties arising out of or relating to this
Agreement, or any breach thereof, such dispute shall be settled by arbitration
to be conducted in Austin, Texas, in accordance with the Commercial Arbitration
Rules (except as modified below) of the American Arbitration Association and
with the Expedited Procedures thereof (collectively, the "Rules"). Each of the
parties hereto agrees that such arbitration shall be conducted by a panel of
three arbitrators selected in accordance with the Rules. Each of the parties
agrees that in any such arbitration the award shall be made in writing no more
than thirty (30) days following the end of the proceeding. Any award rendered by
the arbitrator shall be final and binding and judgment may be entered on it in
any court of competent jurisdiction. The prevailing party (as determined by the
arbitrator) shall in addition be awarded by the arbitrator such party's own
attorneys' fees and expenses in connection with such proceeding. The
non-prevailing party (as determined by the arbitrator) shall pay the fees and
expenses of the arbitration.
7
<PAGE> 8
16. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the transaction described herein and contains all the covenants and
agreements between the parties with respect to the transaction described herein.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on the same or separate
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
AUSTIN FUNDING CORPORATION
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
-----------------------------------------
Glenn A. LaPointe
8
<PAGE> 1
EXHIBIT 6(c)
CONSULTING AGREEMENT
This Agreement is effective as of April 14, 1999, by and between
Bradley J. Farley, (hereinafter referred to as "CONSULTANT"), and Austin Funding
Corporation, a Texas Corporation, with offices at 823 Congress Avenue, Suite
515, Austin, Texas 78701 (hereinafter referred to as "COMPANY").
In consideration of the mutual promises contained herein and as a
memorialization of the terms of performance of the work described herein, the
parties agree as follows:
1. SCOPE OF WORK.
CONSULTANT agrees to perform certain consultant services relating to
COMPANY'S business. COMPANY hereby retains CONSULTANT to perform such services
pursuant to the terms hereinafter set forth.
2. COMPENSATION AND REIMBURSEMENT OF EXPENSES.
(a) COMPANY agrees to pay CONSULTANT $15,000.00 per month payable
within 10 days of each successive month.
3. CONFIDENTIAL INFORMATION.
CONSULTANT agrees to keep all information relating to COMPANY and the
customers of the COMPANY to which they acquire access confidential, if not
already known to the general public, and also agrees not to use or disclose such
confidential information to any other person for any purpose without the express
written consent of COMPANY.
4. INDEPENDENT CONTRACTOR.
CONSULTANT is and shall perform this Agreement as an independent
contractor, and, as such, shall have and maintain sole control over his
operations and/or services. CONSULTANT shall not be, represent, act, report to
act, or be deemed to be the agent, representative, employee or servant of
COMPANY. CONSULTANT is responsible for any income or other tax. The amounts
payable to CONSULTANT hereunder are inclusive of any gross receipts, sales or
other tax. CONSULTANT is obligated to indemnify COMPANY for any loss of COMPANY
arising from CONSULTANT's failure to pay any tax.
5. TERMINATION.
(a) This Agreement shall terminate at such time CONSULTANT sells,
transfers, or assigns the shares of capital stock in Company held by him.
Consulting Agreement Page 1
<PAGE> 2
(b) The provisions in Paragraphs 3 and 4 shall survive the termination
of any other obligations under this Agreement.
(c) If either party shall at any time default in the payment of any fee
or commit any breach of any promise or agreement contained in any paragraph and
shall fail to remedy any such default or breach within seven days after written
notice by the other party, the other party may at its option terminate its
obligations under this Agreement with the exception of the obligations in
Paragraphs 3 and 4. By exercising its option to terminate its obligations under
this Agreement, a party does not waive its right to damages for a breach
previously committed by the other party.
6. FAILURE TO ENFORCE.
Failure by either party to enforce at any time, or for any period of
time, a provision hereof shall not be construed to be a wavier of such provision
or the right of such party thereafter to enforce each and every such provision.
7. APPLICABLE LAW.
This Agreement is to be interpreted in accordance with the laws of the
State of Texas (except conflicts of law provisions) in effect at the time of the
execution of this Agreement. Under this Agreement, venue shall lie in the County
of Travis in the State of Texas.
8. NOTICES.
Any notice, communication or statement required or permitted to be
given hereunder shall be in writing and deemed to have been sufficiently given
when delivered in person or by certified mail, return receipt requested postage
prepaid, to the address of the respective parties below or other address if the
respective party is notified of new address in writing:
CONSULTANT: Bradley J. Farley
1202 Hallmark, Suite 306
San Antonio, Texas 78216
Phone: (210) 340-6666
Fax: (210) 340-4940
COMPANY: Austin Funding Corporation
823 Congress Avenue, Suite 515
Austin, Texas 78701
Phone: (512) 481-8000
Fax: (512) 481-8001
Consulting Agreement Page 2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the date and year written below.
CONSULTANT
/s/ BRADLEY J. FARLEY
----------------------------------------
Bradley J. Farley
1202 Hallmark, Suite 306
San Antonio, Texas 78216
COMPANY:
Austin Funding Corporation
By:
--------------------------------------
Glenn LaPointe, President
Consulting Agreement Page 3
<PAGE> 1
EXHIBIT 6(d)
WHOLE LOAN PURCHASE AGREEMENT
"CORRESPONDENT FUNDING"
THIS AGREEMENT made and entered into this 17th day of March, 1998, by
and between Austin Funding Corp. a corporation duly organized under the laws of
the State of Texas and having its principal place of business in Austin, Texas
(hereinafter referred to as "Seller"), and EquiCredit Corporation of America, a
corporation duly organized under the laws of the State of Delaware and its
subsidiaries identified as signatories hereto (herein after referred to
collectively as "Buyer").
WHEREAS, Buyer wishes to purchase from time to time and Seller wishes
to sell from time to time all of Seller's right, title, and interest in and to
certain mortgage loans secured by mortgages, deeds of trust, and other forms of
security instruments on residential dwellings.
In consideration of the promises and the mutual covenants,
representations, warranties, and agreements contained herein, and in further
consideration of monies to be paid by Buyer to Seller, the parties hereto
mutually agree with each other as follows:
1. From time to time, Buyer desires to purchase and Seller desires to
sell the following described chooses in action, property and property rights:
a. All those certain loan borrowers' notes, promissory notes, promises
to pay and other obligations (all hereinafter called "Notes"), offered for sale
by Seller from time to time and purchased by Buyer from time to time including
the servicing rights associated therewith;
b. All those certain real estate mortgages, deeds of trust, other
instruments and property rights, and all similar and additional rights and
security of every kind and nature collateral to, securing or pertaining to the
Notes (all hereinafter called "Security Instruments");
<PAGE> 2
-2-
c. All those original borrower credit files and any and all original
documents of whatever name and nature which specifically relate to the Notes and
Security Instruments described herein. Whenever the terms, Notes and Security
Instruments are used herein, they shall, as the context so admits, refer also to
any and all of those documents referred to in this subparagraph of the
Agreement. The Notes, Security Instruments and the item described in this
paragraph shall be collectively referred to as the "Accounts."
2. All such Accounts shall be purchased by Buyers "without recourse"
only with respect to the Note obligor's obligation to repay the loan which
condition shall not affect the covenants, representations, warranties,
indemnifications, and agreements set forth herein.
3. Buyer retains the absolute right to reject any Account submitted for
purchase by Seller. In a like manner, Seller retains the absolute right to
either retain or sell any Account to other parties. Neither will the Buyer be
obligated to purchase nor will the Seller be obligated to sell any Account until
Buyer has issued a Conditional Approval in the form of Exhibit "A" attached
hereto. After issuance of the Conditional Approval, delivery by Seller shall be
mandatory. Buyer and Seller will mutually agree on periodic delivery schedules
for closed loans upon which a Conditional Approval has been delivered. At the
time of delivery and funding Seller will prepare a Confirmation of Proposed Sale
in the form of Exhibit "B" and a Mortgage Loan Schedule, a sample of which is
attached.
4. The purchase price and consideration herein established for the
Accounts to be sold, assigned, transferred and endorsed over to Buyer pursuant
to this Agreement shall be the unpaid principal balance of the Notes at the date
of purchase plus accrued interest and a premium or discount based upon the
premium schedule of Buyer in effect on the date of purchase as reflected in the
Conditional Approval.
<PAGE> 3
-3-
5. As a material inducement to Buyer to purchase the Accounts, Seller
represents, warrants and covenants to Buyer, and such representations,
warranties and covenants shall survive and be deemed to be continuing
representations, warranties and covenants during the term of the Agreement and
shall be deemed to be incorporated into and be part of each sale by Seller to
Buyer of Account(s) hereunder as follows:
a. Seller has been duly incorporated and organized, and is
validly existing and in good standing under the laws of its
state of incorporation; has the corporate power and authority
to conduct its business; is duly qualified and in good
standing as a foreign corporation in those jurisdictions where
the conduct of its business or the ownership of its properties
requires qualification and, to the best of Seller's knowledge,
has complied with all applicable statutes, laws, rules,
regulations, ordinances, pronouncements, orders, directives
and decrees of all federal, state, county and municipal
authorities, bodies, bureaus, commissions and agencies and any
other entity to whose jurisdiction or regulation Seller is
subject. Seller is licensed or exempt from licensing in all
states where Seller originates loans for which a license is
required.
b. The execution and performance of this Agreement will not
violate any law or the term of its incorporation documents or
bylaws, as amended, nor violate or result in a default or in
the creation or imposition of any lien or encumbrance upon any
of the Notes and Security Instruments sold to Buyer hereunder
(immediately, with the passage of time or with the giving of
notice or both) under any other
<PAGE> 4
-4-
contract, agreement or instrument to which Seller is a parry
or by which it is bound.
c. Seller has the corporate power and authority to enter into and
perform this Agreement and to sell the Accounts to Buyer, and
this Agreement and any document or instrument to be delivered
hereto have been duly authorized, executed and delivered and
the transactions contemplated herein have been duly
authorized.
d. This Agreement constitutes a valid and legally binding
obligation of Seller and is enforceable against Seller in
accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other,
similar laws relating to or affecting creditors' rights
generally or the application of equitable principles in any
proceeding, whether at law or in equity.
e. No representation, warranty or statement by Seller contained
herein or in any certificate or other document furnished or to
be furnished by Seller pursuant hereto contains or at the time
of delivery shall contain any untrue statement of material
fact, or omits, or shall omit at the time of delivery, to
state a material fact necessary to make it not misleading.
f. To the best of Seller's knowledge, no consent or approval of
any person, no waiver of any lien or other similar right, and
no consent, license, approval, authorization or declaration of
any governmental authority, body, commission, bureau or
agency is, or will be,
<PAGE> 5
-5-
required in connection with the execution, delivery,
performance, validity or enforcement of this Agreement or any
other agreement, instrument or document to be executed or
delivered in connection herewith or pursuant hereto.
g. To the best of Seller's knowledge, there is no litigation,
investigation, nor proceeding pending or threatened against or
otherwise affecting Seller's performance of its obligations
hereunder and/or the validity or enforceability of this
Agreement, and Seller has no knowledge of any circumstances
indicating that any such suit, investigation or proceeding is
likely or imminent.
6. Seller represents, warrants and covenants, and such representations,
warranties and covenants shall survive and be deemed to be continuing
representations, warranties and covenants during the term of each Account, that,
with respect to the Accounts sold to Buyer hereunder:
a. The information with respect to each Account set forth in the
Mortgage Loan Schedule is true and correct and accurately
reflects that the scheduled payments are current as of the
Sale date;
b. (i) Each Account is principally secured by the property
described in the Security Instrument. Each property is
improved by a one- to four-family residential dwelling, which,
to the best of Seller's knowledge, does not include
cooperatives or mobile homes other than a permanently affixed
mobile home which does not constitute other than real property
under state law, or manufactured housing units, as
<PAGE> 6
-6-
defined in the FNMA Selling Guide, and which does not
constitute other than real property under state law;
(ii) With respect to each Account involving property improved
by a manufactured or mobile home, the Seller has taken all
action necessary to create a valid and perfected first or
second priority (as reflected in the Mortgage Loan Schedule)
lien and security interest in such manufactured or mobile home
and the related Property, including, without limitation, the
filing of UCC financing statements or notations on
certificates of title if necessary, under applicable state
law.
c. The Mortgage Note related to each Mortgage Loan bears a fixed
or variable mortgage interest rate as applicable;
d. Each Note will provide for a schedule of substantially equal
monthly payments which are, if timely paid, sufficient to
fully amortize the principal balance of such Note on or before
its maturity date except for balloon loans, in which case all
balloon loans provide for monthly payments based on an
amortization schedule specified in the related Note and have a
final balloon payment no earlier than 60 months following
origination and no later than the end of the 15th year.
e. Each Security Instrument is a valid and subsisting first or
second lien on the property subject, in the case of any second
mortgage loan, only to a first lien on such property and
subject in all cases to the exceptions to the title set forth
in the title insurance policy with
<PAGE> 7
-7-
respect to the related Loan, which exceptions are generally
acceptable to second mortgage lending companies, and such
other exceptions to which similar properties are commonly
subject and which do not individually, or in the aggregate,
materially and adversely affect the benefits of the security
intended to be provided by such Security Instrument. If the
property is held in an Illinois Land Trust (a "Land Trust
Mortgage"), (i) a natural person is the beneficiary of such
Illinois Land Trust, and either is a party to the Note or is a
guarantor thereof, in either case, in an individual capacity,
and not in the capacity of trustee or otherwise, and, if a
party to the Note, is jointly and severally liable under the
Note; (ii) the Mortgagor is the trustee of such Illinois Land
Trust, is a party to the Note and is the mortgagor under the
Security Instrument in its capacity as such trustee and not
otherwise; (iii) a land trust trustee, duly qualified under
applicable law to serve as such, has been properly designated
and currently so serves and is named as such in the land trust
agreement and such trustee is named in the Security Instrument
as Mortgagor; (iv) all fees and expenses of the land trust
trustee which have previously become due or owing have been
paid and no such fees or expenses are or will become payable
by the Buyer; (v) the beneficiary is solely obligated to pay
any fees and expenses of the land trust trustee and the
priority of the lien of the land trust mortgage is not and
will not be subject or subordinate to any amounts owing to the
land trust trustee; (vi) the Property is occupied by the
beneficiary under the land (if owner occupied) trust agreement
and, if such land trust agreement terminates, the beneficiary
will become the owner of the property.
<PAGE> 8
-8-
f. Except with respect to liens released immediately prior to the
transfer herein contemplated, immediately prior to the
transfer and assignment herein contemplated, the Seller held
good and indefeasible title to, and was the sole owner of,
each Account conveyed by such Seller subject to no liens,
charges, mortgages, encumbrances or rights of others; and
immediately upon the transfer and assignment herein
contemplated, the Buyer will hold good and indefeasible title,
to, and be the sole owner of, each account subject to no
liens, charges, mortgages, encumbrances or rights of others;
g. To the best of such Seller's knowledge, (i) there is no
delinquent tax or assessment lien on any property and (ii)
each property is free of material damage and is in average
repair;
h. The Account is not subject to any right of rescission,
set-off, counterclaim or defense of whatever type or nature,
including, without limitation the defense of usury, nor will
the operation of any of the terms of the Note or the Security
Instrument, or the exercise of any right thereunder, render
either the Note or the Security Instrument 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;
i. To the best of such Seller's knowledge, there is no mechanic's
lien of claim for work, labor or material affecting any
Property which is or
<PAGE> 9
-9-
may be a lien prior to, or equal with, the lien of such
Mortgage except those which are insured against by the title
insurance policy referred to in Section 6(k) below;
j. Each Account at the time it was made complied in all material
respects with applicable state and federal laws and
regulations, including, without limitation, usury, equal
credit opportunity and disclosure laws;
k. With respect to each Account, Seller has received a lender's
title insurance policy, issued in standard American Land Title
Association or California Land Title Association form, or
other form acceptable in a particular jurisdiction, by a title
insurance company acceptable to the Buyer and authorized to
transact business in the state in which the related Property
is situated, together with a condominium endorsement, if
applicable, in an amount at least equal to the original
principal balance of such Account insuring the mortgagee's
interest under the related Mortgage Loan as the holder of a
valid first or second mortgage lien of record on the real
property described in the Mortgage, subject only to exceptions
of the character referred to in Section 6(e) above;
l. The improvements upon each property are covered by a valid and
existing hazard insurance policy with a generally acceptable
carrier that provides for fire and extended coverage;
<PAGE> 10
-10-
m. A flood insurance policy is in effect with respect to each
Property with a generally acceptable carrier in an amount
representing coverage if and to the extent the Property is
located in an area designated other than A or C on the current
applicable flood map published by the Federal Emergency
Management Agency.
n. Each Security Instrument and Note is the legal, valid and
binding obligation of the maker thereof and is enforceable in
accordance with its terms, except only as such enforcement may
be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of
equity (whether considered in a proceeding or action in equity
or at law), and all parties to each Mortgage Loan had full
legal capacity to execute all documents and convey the estate
therein purported to be conveyed;
o. The Seller has performed any and all acts required to be
performed to preserve the rights and remedies of the Buyer in
any insurance policies applicable to the Accounts including,
without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and
establishments of co-insured, joint loss payee and mortgagee
rights in favor of the Buyer;
p. The terms of the Note and the Security Instrument have not
been impaired, altered or modified in any material respect,
except by a written instrument which has been recorded or is
in the process of being recorded, if necessary, to protect the
interests of the Buyer and
<PAGE> 11
-11-
which has been or will be delivered to the Buyer. The
substance of any such alteration or modification is reflected
on the Mortgage Loan Schedule. Each original Security
Instrument was recorded together with any intervening
assignment transferring the Security Instrument to Seller;
q. No instrument of release or waiver has been executed in
connection with the Account and no Mortgagor has been
released, in whole or in part;
r. To the best of Seller's knowledge, all taxes, governmental
assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously
became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such
item which remains unpaid and which has been assessed but is
not yet due and payable. Except for payments in the nature of
escrow payments, including without limitation, taxes and
insurance payments, the Seller has not advanced funds, or
induced, solicited or knowingly received any advance of funds
by a party other than the mortgagor, directly or indirectly,
for the payment of any amount required by the Note or Security
Instrument, except for interest accruing from the date of the
Note or date of disbursement of the mortgage proceeds,
whichever is greater, to the day which precedes by one month
the due date of the first installment of principal and
interest. With respect to properties that are the subject of a
ground lease, to the best of Seller's knowledge, all lease
rents, other payments or assessments that have
<PAGE> 12
-12-
become due have been paid and the Mortgagor is not in
material default under any other provisions of the lease and
the lease is valid, in good standing and in full force and
effect;
s. To the best of Seller's knowledge, there is no proceeding
pending or threatened for the total or partial condemnation of
the property, nor is such a proceeding currently occurring,
and such property is undamaged by waste, fire, earthquake or
earth movement, windstorm, flood, tornado or other casualty,
so as to affect adversely the value of the property as
security for the Account or the use for which the premises
were intended.
t. To the best of such Seller's knowledge, all of the
improvements which were included for the purpose of
determining the appraised value of the property lie wholly
within the boundaries and building restriction lines of such
property, and no improvements on adjoining properties encroach
upon the property;
u. To the best of such Seller's knowledge, no improvement located
on or being part of the property is in violation of any
applicable zoning law or regulation; and all inspections,
licenses and certificates required to be made or issued with
respect to all occupied portions of the property and, with
respect to the use and occupancy of the same, including but
not limited certificates of occupancy and fire underwriting
certificates, have been made or obtained from the appropriate
authorities and the property is lawfully occupied under
applicable law;
<PAGE> 13
-13-
v. The proceeds of the Account have been fully disbursed, and
there is no obligation on the part of the mortgagee to make
future advances thereunder. Any and all requirements as to
completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefore have been complied
with. All costs, fees and expenses incurred in making or
closing or recording the Accounts were paid;
w. The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien
of the corresponding Security Instrument;
x. No Account was originated under a buydown plan;
y. There is no obligation on the part of the Seller or any other
party to make payments in addition to those made by the
borrower;
z. With respect to each Security Instrument constituting 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 such deed of trust, and no fees or
expenses are or will become payable by the Buyer to the
trustee under such deed of trust, except in connection with a
trustee's sale after default by the mortgagor.
aa. No Account has a shared appreciation feature, or other
contingent interest feature;
<PAGE> 14
-14-
bb. With respect to each Account secured by a second priority
lien, the related first lien requires equal monthly payments,
or if it bears an adjustable interest rate, the monthly
payments for the related first lien may be adjusted not more
frequently than once every six months;
cc. With respect to each Account secured by a second priority
lien, either (i) no consent for the Account is required by the
holder of the related first lien or (ii) such consent has
been obtained,
dd. The maturity date of each Account secured by a second priority
lien is prior to the maturity date of the related first lien
if such first lien provides for a balloon payment; and with
respect to any first lien that provides for negative
amortization or deferred interest, the balance of such first
lien used to calculate the combined loan-to-value ratio for
the Account is based on the maximum amount of negative
amortization possible under such first lien;
ee. All parties which have had any interest in the Account,
whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such
interest, were) (1) in compliance with any and all applicable
licensing requirements of the laws of the state wherein the
property is located, and (2) (A) organized under the laws of
such state, or (B) qualified to do business in such state, or
(C) federal savings and loan associations or national banks
having principal offices in such state, or (D) not doing
business in such state so as to require qualification or
licensing;
<PAGE> 15
-15-
ff. The Security Instrument contains a customary provision for the
acceleration of the payment of the unpaid principal balance of
the Account in the event the related security for the Account
is sold without the prior consent of the mortgagee thereunder;
gg. Any future advances made prior to (and excluding) the purchase
date have been consolidated with the outstanding principal
amount secured by the Security Instrument, and the secured
principal amount, as consolidated, bears a single interest
rate and single repayment term reflected on the Mortgage Loan
Schedule. The consolidated principal amount does not exceed
the original principal amount of the Account. The Note does
not permit or obligate the holder to make future advances to
the mortgagor at the option of the mortgagor.
hh. The related Security instrument contains customary and
enforceable provisions which render the rights and remedies of
the holder thereof adequate for the realization against the
property of the benefits of the security, including, (i) in
the case of a Security Instrument designated as a deed of
trust, by trustee's sale, and (ii) otherwise by judicial or
non-judicial foreclosure. There is no homestead or other
exemption available to the mortgagor which would materially
interfere with the right to sell the property at a trustee's
sale or the right to foreclose the Security Instrument.
ii. To the best of Seller's knowledge, there is no default,
breach, violation or event of acceleration existing under the
Security Instrument or the related Note and no event which,
with the passage
<PAGE> 16
-16-
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 Seller has not waived any default,
breach, violation or event of acceleration;
jj. All parties to the Note and the Security Instrument has legal
capacity to execute the Note and the Security Instrument and
each Note and Security Instrument have been duly and properly
executed by such parties;
kk. A full interior inspection appraisal by a licensed independent
appraiser was performed in connection with each property;
ll. If the property consists of a leasehold estate, the Security
Instrument covers property improvements and the mortgagor's
leasehold interest in the land upon which such improvements
are situated; at origination of the Account the term of the
leasehold estate was scheduled to last for at least ten years
beyond the maturity date of the Security Instrument or
provided for perpetual renewal covenants; the leasehold estate
is assignable by the mortgagee; and the lease is valid and in
full force and effect; and
mm. To the best of Seller's knowledge, all documents, used to
support the borrower's application including but not limited
to verifications or other records supporting the borrowers
income, employment or credit are true and genuine.
<PAGE> 17
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In the event any of the representations or warranties contained herein
are untrue with respect to any loan notwithstanding Seller's knowledge, Seller
shall, at the request of Buyer, repurchase such Note and Mortgage at a purchase
price equal to (i) the outstanding principal balance thereon, together with
interest thereon at the interest rate shown on the Note, to date of repurchase,
and (ii) any premium paid by Buyer, provided however, that Buyer must make any
such request within ninety (90) days of the date on which Buyer has actual
knowledge of either (1) an affirmative assertion by maker(s) of the Note, the
insurance carriers, any governmental agency or authorities, or any other entity
other than Buyer or Seller or (2) through Buyer's own examination procedures, a
discovery is made that an Account does not comply with some of or all of the
requirements of subparagraphs (a) through (mm) of this Section 6. Any Note and
Security Instrument returned by Buyer shall be without recourse, representation
or warranty; provided, however, Buyer represents and warrants that no act or
failure to act by Buyer, its subsidiaries or affiliates, including agents and
employees thereof, has caused any such Account or related instrument to become
either invalid or unenforceable in whole or in part.
7. Seller agrees to indemnify and hold harmless Buyer, their respective
agents, successors, and assigns from and against any loss, including all costs
and attorneys fees, arising from a breach of any of the warranties, covenants
and representations made by Seller under the terms of this Agreement,
irrespective of the ownership of Accounts prior to the sale of Accounts by
Seller to Buyer hereunder including, but not limited to, any loss arising from
Seller's failure to properly and timely file and record all Security
Instruments, including real property mortgages and deeds of trust, in all
applicable jurisdictions or arising from any adversary claims, provided that
Seller shall have had the prior right to defend against any such claim. Security
Instruments, when used in this paragraph, refer only to real estate mortgages,
deeds of trust, deeds to secure debt, and other similar security instruments, as
well as fixture filings, lien disclosures on certificates of title on
manufactured housing units, and in certain jurisdictions, assignments of
beneficial interest in land trusts and related UCC financing statements.
<PAGE> 18
-18-
Seller further agrees to protect, indemnify and hold Buyer and its
employees, officers and directors, harmless against, and in respect to any and
all losses, liabilities, cost and expenses (including attorneys fees),
judgments, damages, claims, demands, actions or proceedings, by whosoever
asserted, including, but not limited to, the obligors with respect to the
Accounts sold hereunder, any person or persons who prosecute or defend any
actions or proceedings as representatives of or on behalf of a class or
interested group, or any government instrumentality, body, agency, department or
commission, or any administrative body or agency jurisdiction pursuant to any
applicable statue, rule, regulation, order or decree, arising out of, connected
with, or resulting from any breach of any covenant, representation or warranty
in relation to the Accounts sold to Buyer hereunder; provided that Seller shall
have had the prior right to defend against any such claims.
8. Seller or its agent shall timely remit to applicable insurance
companies any and all unremitted optional credit insurance premiums of any kind
whatsoever collected or received in connection with the Accounts conveyed under
this Agreement, unless such insurance is placed with an insurance company
designated by Buyer. Seller shall be solely responsible for the administration
of any and all credit insurance coverages written at the time of origination of
the Account including without limitation, the processing of any and all credit
insurance claims, and credit insurance premium rebates caused by prepayments or
cancellations. Buyer agrees to promptly advise Seller, in writing, of any and
all credit insurance claims, and prepayment of any Accounts which may
precipitate a credit insurance premium rebate or any cancellation of credit
insurance coverage by any such Account obligor.
9. Seller and Buyer represent and warrant to each other that neither
has engaged nor dealt with any broker or other person or entity who or which may
be entitled to any brokerage fee or commission or similar type fee in respect of
the execution of this Agreement or the performance of the transactions
contemplated hereby. Each of said parties hereby indemnifies and agrees to hold
the other harmless against any and all other claims, losses, liabilities or
expenses which may be asserted against the other as a result of any dealings,
arrangements or agreements with any such broker or other person.
<PAGE> 19
-19-
10. Seller will personally deliver or cause to be delivered to Buyer,
at its designated office, or at such other location as Buyer may designate, each
Account to be conveyed pursuant to the terms of this Agreement and all other
documents required of Seller to be delivered to, at the instruction of, Buyer
hereunder a list of documents required to be delivered at funding and documents
which may be delivered after funding is attached hereto as Exhibit "C". Upon
receipt of the documents required to be delivered at funding, Buyer will wire
the purchase price to Seller, or if the Account(s) are pledged as collateral
security to a warehousing facility, Seller will remit the Purchase Price to such
creditor as a credit against the outstanding balance thereof; provided however,
no such payment shall be tendered until Buyer has received written assurance
from the warehouse creditor that upon receipt of the Purchase Price, the
purchased Account(s) will be released free and clear as collateral security from
any and all warehousing facilities provided by or through such creditor.
11. Buyer shall review a credit package for each Account which shall be
submitted to Buyer by Seller prior to Buyer agreeing to purchase any Account. If
such review occurs prior to the closing of the loan by Seller, Seller agrees
that; in order to insure compliance with the requirements of the Equal Credit
Opportunity Act, Seller will notify the borrower of any adverse action taken on
his application for a loan when notified by Buyer that it has turned down the
loan application along with the specific reasons why such loan application was
turned down. Upon receipt of this information, Seller will notify the borrower
of the adverse action taken, the reason why it was taken, and any and all other
information required by the Equal Credit Opportunity Act and regulations
promulgated thereunder.
12. It is expressly agreed that the Buyer is only buying Accounts
hereunder, and unless otherwise specially provided for herein, Buyer does not
assume or incur any obligation or liability under any contract or lease,
employment, advertising, telephone listing or other contract, or any liability
whatsoever of the Seller, which is in any way involved, either directly or
indirectly with the operation by the Seller of its business or to which Seller
may become a party or liable by reason of its business.
<PAGE> 20
-20-
Nothing contained herein shall be deemed or construed as creating any
partnership or joint venture between Seller and Buyer.
13. Seller does hereby appoint Buyer as its representative and
attorney-in-fact to make, execute, sign, and record in the public records of
any jurisdiction, any and all instruments, documents, satisfactions, assignments
and endorsements relating to the Accounts, necessary, appropriate, or convenient
to vest Buyer with all right, title, and interest in and to the Accounts upon
purchase from Seller, and for the administration and servicing thereof and to
endorse and negotiate checks and drafts to be applied to the accounts. This
Power of Attorney is coupled with an interest and is irrevocable without Buyer's
consent. Such representative and attorney-in-fact shall not, however, have any
right, power or authority to amend or modify this Agreement when acting in such
capacities. Buyer agrees to indemnify and hold harmless Sellers, their
respective agents, successors and assigns (the "Indemnifies") from and against
any loss, including all costs and attorneys fees incurred by the Indemnifies,
arising out of the improper conduct and use by Buyers in their capacity as
representative and attorney-in-fact as set forth in this section.
14. Notices which are required to be given under this Agreement shall
be addressed to Seller and Buyer, postage prepaid, as follows:
TO SELLER: TO BUYER:
Jeffrey H. Dell Legal Department
Austin Funding Corp. EquiCredit Corporation
P.O. Box 36 P.O. Box 53077
Peel, AR 72668 Jacksonville, FL 32201-3077
15. This Agreement may be canceled at any time by either party by
giving the other party thirty (30) days prior written notice; however, such
cancellation shall not affect the rights, authorities, or obligations of either
the Seller or Buyer as set forth in this Agreement for those Accounts
<PAGE> 21
-21-
heretofore acquired by Buyer prior to the effective date of such cancellation,
with such rights, authorities, and obligations surviving said cancellation,
notwithstanding any other provision of this Agreement to the contrary. During
such thirty (30) day notice-to-cancel period, Buyer will not be obligated to
consider any new application packages submitted by Seller, but will be obligated
to purchase any Accounts on which it has issued a written conditional approval
provided all conditions for the extension of credit are satisfied and the loan
is closed within 30 days of the issuance of each respective written conditional
approval. In the event Buyer discovers, in its sole judgment, evidence of
material breach of warranty on any Account, Buyer is relieved of any obligation
to honor any written conditional approval or consider any new application
packages during this 30 day period, and this Agreement shall be immediately
canceled.
16. This Agreement constitutes the entire agreement between the parties
and supersedes and incorporates all representations, promises, statements, oral
or written, made in connection with the subject matter of this Agreement and the
negotiation hereof, and no such representation, promise or statement not
contained herein shall be binding on the parties. This Agreement may not be
varied or altered nor its provisions waived except by an agreement in writing
executed by duly authorized agents of both parties. No portion of this Agreement
shall be deemed or construed for the benefit of any third party. This Agreement
shall also be binding upon and inure to the benefit of the respective successors
and assigns of both parties hereto except it is understood and agreed that this
Agreement shall not be assignable by Seller without Buyer's written approval.
17. If any provision of this Agreement is deemed by a court of
competent jurisdiction to be in violation of any law, rule or regulation, that
provision shall be deemed modified to comply with applicable law, rule, or
regulation.
18. Seller shall within 120 days after the end of its fiscal year
furnish Buyers with a financial statement including at least a balance sheet and
income statement prepared in accordance with generally accepted accounting
principles and certified by an independent Certified Public Accountant.
<PAGE> 22
-22-
Seller shall also furnish Buyer with a Certificate of Insurance demonstrating
that the Seller maintains Fidelity Bond coverage in an amount of not less than
$100,000.00.
19. Seller covenants and agrees that it will not solicit directly or
indirectly by any means other than mass mailing or mass marketing efforts, any
borrower obligated on an account which has been sold hereunder to induce such
borrower to refinance or otherwise pay off the account for a period of
twenty-four months from the date Buyer purchases the Account. The parties
acknowledge that Buyer's damages resulting from a breach of this covenant may be
difficult to ascertain and therefore agree that injunctive relief is an
appropriate remedy for any breach of the covenant, provided, however, that such
remedy shall be non exclusive.
20. This Agreement shall be construed in accordance with the laws of
the State of Florida, and the obligations, rights and remedies of the parties
shall be determined in accordance with such laws.
21. If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of the Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
and through their authorized officers or representatives on the day first above
written.
Signed, sealed and delivered
in the presence of: --------------------------
- -----------------------------
Witness By: GLENN LAPOINTE (SEAL)
As To Seller Its: President
"SELLER"
<PAGE> 23
-23-
Signed, sealed and delivered EQUICREDIT CORPORATION OF AMERICA
in the presence of:
- ---------------------------- By:___________________(SEAL)
Witness Its: Vice President
As to Buyer "BUYER"
Signed, sealed and delivered EQUICREDIT CORPORATION OF IN.
in the presence of:
- ---------------------------- By:___________________(SEAL)
Witness Its: Vice President
As to Buyer "BUYER"
Signed, sealed and delivered EQUICREDIT CORPORATION OF SC.
in the presence of:
- ---------------------------- By:___________________(SEAL)
Witness Its: Vice President
As to Buyer "BUYER"
Signed, sealed and delivered EQUICREDIT CORPORATION OF PA.
in the presence of:
- ---------------------------- By:___________________(SEAL)
Witness Its: Vice President
As to Buyer "BUYER"
<PAGE> 24
[EQUICREDIT CORPORATION LOGO]
EXHIBIT "A"
CONDITIONAL APPROVAL Wholesale Administrative Center
10401 Deerwood Park Blvd.
Jacksonville, Florida 32256
904-987-5000/LO Ext_____
TO: 904-987-5497 - Fax
---------------------------
FROM:
------------------------
RE:
--------------------------
DATE:
------------------------
EXPIRATION DATE:
-------------
LOAN AMOUNT $ DTI DTI CAP TERMS
------- ------ ------ ------
*BUY RATE % CLASS LTV: LTV CAP:
------ ------ ------ ------
ARMS: INITIAL BUY RATE % MARGIN INDEX
----- ----- ------
FULLY INDEXED RATE % MAXIMUM LIFETIME RATE %
----- -----
NOTE: ALL DUE DATES ON ARMS MUST BE 1ST OF THE MONTH
This loan is to be secured by a ___ 1st ___ 2nd deed of trust on the subject
property at
- --------------------------------------------------------------------------------
Owner Occupied Non-Owner Occupied Condo Townhouse
- ---- ---- ---- ----
Single Family Residence 2-4 Family Mobile/Manufactured
- ---- ---- ----
This approval is contingent upon receipt of the items checked below, completed
to the satisfaction of EQUICREDIT CORPORATION.
APPRAISAL
Acceptable original appraisal of $______ with maximum 90 day age at
- --- --- closing.
Interior photos required on C and D class loans (kitchen, bath, etc.)
- --- ---
INCOME
Borrower: Original VOE $______ W2 $____________ Current Paystubs(2)
- --- --- last 2 yrs 1040's averaged $_____________
Co-Borrower: Original VOE $______ W2 $____________ Current Paystubs(2)
- --- --- but 2 yrs 1040's averaged $_____________
Rental Income: $______ Leases ___________ last years 1040's
- --- ---
Social Security: Net/Gross $
- --- --- -----------
Other Income: $ Source
- --- --- ---------------- -----------------
$ Source
---------------- -----------------
MORTGAGE RATING: 1st mtg 2nd mtg other
---- ---- ----
Maximum delinquency of in last 12 months
--------------------------
CB in file
- --- ---
Original VOM
- --- ---
12 Canceled Checks
- --- ---
Verification 1st mtg. is fixed with maximum balance of $ and
escrowed if T & I not in DTI --------
Payoff Letter
- --- ---
OTHER REQUIREMENTS
HUD I to reflect EQCC seasoning requirements are met
- --- ---
Copy of Land Contract
- --- ---
Copy of Deed
- --- ---
Additional Credit bureau(s) to reflect same information as original
submission
Pay the following debts from proceeds:
- --- --- ----------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASE MONEY GUIDELINES
Title commitment with 12 month chain of title
- --- ---
Written verification of funds for down payment and closing costs
- --- --- seasoned 90 days. Max 30 days of
BY:
----------------------------------
*BUY RATE QUOTED IS SUBJECT TO CORRECTION TO CONFORM WITH PREMIUM PRICING
SCHEDULE CURRENTLY IN EFFECT.
<PAGE> 25
EXHIBIT "B"
EquiCredit Corporation of America
Attention:_______________________
10401 Deerwood Park Blvd.
Jacksonville, FL 32256
Re: Confirmation of Proposed Sale under the
Whole Loan Purchase Agreement, dated
_________, 19___("the Agreement")
Ladies/Gentlemen:
This confirmation is being sent pursuant to the Agreement to confirm a
proposed Sale of Mortgage Loans under the Agreement on the following terms:
Purchase Date:
--------------------
Cut-Off Date:
--------------------
Aggregate Outstanding
Principal Amount of
Mortgage Loans as of the
Cut-Off Date to be
Purchased:
--------------------
Approximate Number of
Mortgage Loans to be
Purchased:
--------------------
Purchase Price:
--------------------
---------------------------------
(Seller)
By:
------------------------------
Name:
Title:
EQUICREDIT CORPORATION OF AMERICA
By:
------------------------------
Name:
Title:
<PAGE> 26
SAMPLE
(Attachment to Exhibit B)
MORTGAGE LOAN SCHEDULE
LAST TOTAL INTEREST
NOTE# NAME PRINCIPAL INTEREST BASIS RATE PREMIUM
----- ---- --------- -------- ----- -------- -------
<PAGE> 27
EXHIBIT "C"
I. FUNDING DOCUMENTS
1. Original Note endorsed to EquiCredit Corporation of America or as
designated
2. Federal Truth-in-Lending Disclosure
3. Itemization of Amount Financed
4. Notice of Right to Cancel
5. Copy of Mortgage, including any necessary riders, certified by closing
agent or recorder as delivered for recording
6. Executed Assignment of mortgage in recordable form, but not recorded
7. Security agreement and Notice of Lien for mobile homes
8. Credit underwriting documents & documents needed to satisfy underwriting
conditions
9. Title Insurance Commitment
10. Closing or title affidavit
11. Tax and Insurance Escrow not Available notice
12. Compliance Agreement
13. Photocopy of customer ID
14. Tax ID number Verification - Form 1098
15. Good Faith Estimate
16. HUD-1 or HUD-1A
17. Model Disclosure Statement
18. Notice of Transfer of Servicing Rights
19. Hazard Insurance binder or policy
20. Flood insurance binder or policy if applicable
21. Section 32 Disclosure if applicable
22. Anti-Coercion Disclosure (Florida only)
23. Fair Lending & Appraisal Notice (California only)
24. Disclosure concerning Absence of Lock-in Agreement, Right to Appraisal &
Right to Lawyer (Connecticut only)
25. Foreclosure Notice (Georgia only)
26. Predisclosure Statement, Consumer Repost Disclosure (New York only)
27. Mortgage Loan Commitment (New York, North Carolina, Maryland, Illinois
and New Jersey only)
28. Consumer Guide & Cost Work sheet (Massachusetts only)
29. Title Insurance agent's Choice Disclosure (Wisconsin & South Carolina only)
II. DOCUMENTS TO BE DELIVERED WITHIN 45 DAYS AFTER FUNDING
1. Original Recorded Mortgage
2. Final Title Insurance Policy
3. Hazard Insurance Policy if binder issued at closing
4. Flood Insurance Policy if binder issued at closing
<PAGE> 1
EXHIBIT 6(e)
CONTIMORTGAGE CORPORATION
Wholesale Mortgage Program
MASTER AGREEMENT FOR SALE AND PURCHASE OF MORTGAGES
BY AND BETWEEN
CONTIMORTGAGE CORPORATION, BUYER
AND
AUSTIN FUNDING CORPORATION, SELLER
<PAGE> 2
INDEX
PAGE
I. RECITALS 1
II. DEFINITIONS 1
(A) Agreement 1
(B) Loan to Value Ratio 1
(C) Loan 1
(D) "Marked-Up" Title Insurance Policy,
Binder or Certificate 1
(E) Mortgage 1
(F) Essential Mortgage File Documents 1
(G) Mortgage Loans 1
(H) Mortgaged Property or Subject Property 1
(I) Mortgagor or Borrower 1
(J) Note 1
(K) Purchase Price 2
(L) Related Assets 2
(M) Settlement Date 2
(N) Underwriting Guidelines/Purchasing
Guidelines 2
III. OFFER TO SELL AND ACCEPTANCE OF OFFER 2
(A) Offer 2
(B) Acceptance 2
IV. PURCHASE AND SALE OF LOANS 2
(A) Delivery of Loans 2
(B) Purchase and Sale 3
(C) Purchase Price 3
(D) Payment of Purchase Price 3
(E) OMITTED. 3
(F) Premium Rebate 3
V. REPRESENTATIONS AND WARRANTIES OF THE SELLER 4
(A) Representations and Warranties of the
Seller - General 4
(B) Representations and Warranties of the
Seller As to Each Loan 4
VI. BREACH OF REPRESENTATION AND WARRANTIES 7
(A) Remedy For Breach 7
(B) Reassignments 7
(C) "Buy-Back Price" 7
(D) Definition of "Loss" 7
(E) Remedy For Non-Delivery of Documents 7
(F) Remedy For First Payment Default 7
(G) Remedy to Insure Accuracy of Real Estate
Appraisals 7
VII. REPRESENTATIONS AND WARRANTIES OF THE BUYER 8
<PAGE> 3
INDEX (continued)
PAGE
VIII. INDEMNIFICATION 8
IX. RELATIONSHIP OF THE PARTIES 9
X. OPINION OF COUNSEL 9
XI. CLOSING DOCUMENTS 9
XII. MISCELLANEOUS 9
(A) Additional Covenants 9
(B) Survival or Covenants, Agreements,
Representations and Warranties,
Successors and Assigns 9
(C) Severability 10
(D) Attorneys' Fees 10
(E) Waivers 10
(F) Notice 10
(G) Insurance Prepayment 10
(H) Assignment 10
(I) Captions 10
(J) Entire Agreement 10
(K) Governing Law 10
(L) Termination 10
(M) Arbitration, Jurisdiction and Venue 11
(N) Endorsements 11
<PAGE> 4
MASTER AGREEMENT FOR SALE AND PURCHASE OF MORTGAGES
This Master Agreement for Sale and Purchase of Mortgages is made this
___ day of _________________, 1998, by and between ContiMortgage Corporation,
located at 338 South Warminster Road, Hatboro, PA 19040, a Corporation organized
and existing under the laws of the State of Delaware ("Buyer") and Austin
Funding Corporation, located at 823 Congress Avenue, Suite 707, Austin, TX
78701, a Corporation organized and existing under the laws of Texas ("Seller").
I. RECITALS
WHEREAS, the Seller desires from time to time to offer for sale to the
Buyer and the Buyer desires from time to time to purchase from the Seller on the
terms and subject to the conditions set forth herein certain Loans owned by the
Seller evidenced by notes and secured by mortgages of the agreed-upon priority
on real property owned by the borrowers ("Borrowers").
WHEREAS, the Buyer and the Seller desire to enter into this agreement
to govern the sale and purchase of said Loans.
Now, therefore, in consideration of the above recitals and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
II. DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(A) AGREEMENT: shall mean this Agreement as same may be amended and
supplemented from time to time. The parties agree that this Agreement shall be
used as the master sale and purchase agreement for those loans purchased by
Buyer from Seller in the future, unless otherwise agreed in writing by the
parties.
(B) LOAN TO VALUE RATIO: shall mean the sum of the original principal
amount of the Mortgage Loan and the outstanding principal balance of the first
Mortgage (the "First Mortgage"), if any, at the time of origination of the
Mortgage Loan divided by the lesser of the original purchase price of the
Mortgaged Property if Borrower purchased the Mortgaged Property within twelve
(12) months of the Mortgage Loan origination date or the appraised value of the
Mortgaged Property.
(C) LOAN: the Note, the related Mortgage and the Related Assets are
referred to as "Loan," and collectively as "Loans."
(D) "MARKED-UP" TITLE INSURANCE POLICY, BINDER OR CERTIFICATE: a title
insurance policy as further defined in Article V(B)9 of this Agreement in which
all liens, mortgages, claims, assessments, defects, encumbrances and other
exceptions affecting or against the Mortgaged Property have been removed and are
insured against in favor of Buyer by the title insurance company unless
otherwise agreed or approved by the Buyer in writing.
(E) MORTGAGE: the Note, bond, deed of trust, Mortgage, mortgage
warranty, extension agreement, assumption of indebtedness, assignment and any
other documents constituting the basic instruments for real estate security on
real property owned by the Borrower in the state in which the Mortgaged Property
is located.
(F) ESSENTIAL MORTGAGE FILE DOCUMENTS: as to each Mortgage Loan, the
original of the Note, Mortgage, title insurance policy including endorsements or
"marked-up" title commitment, Related Assets and the additional documents as
described in Exhibit "A," attached hereto and made a part hereof, as applicable.
(G) MORTGAGE LOANS: the Loans identified in the Purchase Schedule
(Exhibit "B") as from time to time are subject to this Agreement.
(H) MORTGAGED PROPERTY OR SUBJECT PROPERTY: the residential real
property subject to the Mortgage which secures the Mortgage Loan.
(I) MORTGAGOR OR BORROWER: the obligor under a Mortgage Loan.
(J) NOTE: the original Note or bond or other evidence of indebtedness
evidencing the indebtedness of the Borrower/Mortgagor under a Mortgage Loan.
-1-
<PAGE> 5
(K) PURCHASE PRICE: the purchase price for the Loan(s) described on
each Purchase Schedule shall be an amount as of the Settlement Date equal to the
sum of the: (1) unpaid principal balances of the Note(s); (2) all interest
accrued (up to but not including the Settlement Date) but unpaid on the Note(s)
(prorated on a 30-day month - 360-day year); and (3) any premiums due Seller, if
applicable, in accordance with the Approval Advice or Purchase Schedule; (4)
less any discount due Buyer, if applicable, in accordance with the Approval
Advice or Purchase Schedule; and (5) less the fee for recordation of
assignments, if applicable.
(L) RELATED ASSETS: the documents as further defined in Article
IV(A)(iv) of this Agreement.
(M) SETTLEMENT DATE: the date of the funding or payment of Purchase
Price by the Buyer for Loans purchased pursuant to this Agreement. Each
Settlement shall be held at the offices of ContiMortgage Corporation, 338 South
Warminster Road, Hatboro, PA 19040.
(N) UNDERWRITING GUIDELINES/PURCHASING GUIDELINES: Exhibit "C" attached
hereto and made a part hereof as may from time to time be amended by Buyer.
III. OFFER TO SELL AND ACCEPTANCE OF OFFER
(A) OFFER. The Seller may offer from time to time to submit to the
Buyer a list of the Loans, along with the Essential Mortgage File Documents, as
defined herein, for each of the Loans, for the Buyer's review. The Buyer shall
then deliver to the Seller a Purchase Schedule on which the Buyer has indicated
which Loans, if any, the Buyer is offering to purchase from the Seller and the
Purchase Price for the Loans Buyer is willing to purchase.
(B) ACCEPTANCE. The Seller shall endorse the Notes and Mortgages
evidencing the Loans on which the Seller agrees to accept the Buyer's offer to
purchase. Such endorsement shall constitute the Seller's acceptance of the
Buyer's offer to purchase the indicated Loans pursuant to the terms and
conditions of this Agreement.
On occasion, Buyer may issue to Seller a written Approval Advice in the
form attached hereto, made a part hereto and marked Exhibit "D," to cover a
specific Loan purchase by Buyer hereunder which is approved by Buyer in advance
of said specific Loan being made by Seller. Any purchase made hereunder that is
subject to an Approval Advice shall be governed first by the terms of such
Approval Advice and then by the terms of this Agreement, and to the extent of a
conflict between the Approval Advice and this Agreement, the Approval Advice
shall govern for that purchase and only that purchase.
Buyer shall have the absolute and sole discretion and option to agree
or decline to purchase any Loan(s) submitted by Seller for review.
IV. PURCHASE AND SALE OF LOANS
(A) DELIVERY OF LOANS.
On or before the business day immediately preceding each Settlement
Date, the Seller shall deliver to the Buyer the following for each Loan
purchased:
(i) Those Loans described by the Buyer on each Purchase
Schedule which are purchased by Buyer pursuant to this Agreement.
(ii) The agreed-upon priority liens and/or Mortgages on
Subject Property.
(iii) The Note(s) and the Mortgage(s) endorsed by an
authorized Officer of Seller to the Buyer pursuant to the language set forth on
Exhibit "E," attached hereto and made a part hereof together with an executed
individual assignment to the Buyer, in recordable form and originals of all
intervening assignments, if any, of the Seller's beneficial interest in the
Mortgage, showing a complete chain of title from origination to the Seller,
including warehousing assignment, with evidence of recording thereon.
(iv) Any and all documents, instruments, collateral
agreements, and assignments and endorsements for all documents, instruments and
collateral agreements, referred to in the Notes and/or Mortgages or related
thereto, including, without limitation, current insurance policies (private
mortgage insurance, if applicable; flood insurance, if applicable; hazard
insurance, title insurance; and other applicable insurance policies) covering
the Subject Property or relating to the Notes and all files, books, papers,
ledger cards, reports and records including, without limitation, loan
applications, Borrower financial statements, separate assignment of rents, if
any, credit reports and appraisals, relating to the Loans (the "Related
Assets"). In all cases, the Related Assets shall be the original documents.
(v) The Essential Mortgage File Document List, including all
writings evidencing the Loan(s) purchased by Buyer. In all cases, these
documents shall be original documents.
-2-
<PAGE> 6
(vi) In the event that Seller cannot deliver to Buyer a duly
recorded assignment of Mortgage or any other document required to be recorded
under this Agreement on the Settlement Date solely because of a delay caused by
the public recording office when such document(s) has been delivered for
recordation, Seller shall deliver to the Buyer a certified copy of each such
document(s) with a statement thereon signed by an Officer of the Seller
certifying each to be a true and correct copy of document(s) delivered to the
appropriate public recording official for recordation. Seller shall deliver to
Buyer such recorded document(s) with evidence of recording indicated thereon no
later than 15 days after Seller receives such document, but in any event, no
later than 120 days from the Settlement Date.
(B) PURCHASE AND SALE.
On each Settlement Date hereunder, Seller shall sell, assign, transfer,
convey and deliver to Buyer all of its right, title and interest in and to the
Loans, assets and documents as more fully enumerated and set forth in Article
IV(A)(i) through (vi) inclusive, which is incorporated herein by reference.
(C) PURCHASE PRICE. The Purchase Price for the Loans described on each
Purchase Schedule shall be an amount as defined in Article II(K) above. The
Purchase Price shall be payable as set forth in Article IV(D) below.
(D) PAYMENT OF PURCHASE PRICE. On each Settlement Date, the Purchase
Price shall be paid as follows: The Buyer shall deposit funds by wire to the
Seller's bank as outlined on the Wire Transfer Authorization (EXHIBIT "F").
(E) OMITTED.
(F) PREMIUM REBATE.
(i) In the event that a premium is paid by the Buyer to the
Seller on a Loan and such Loan is a fixed rate Loan secured by residential real
property located in any state or an adjustable rate Loan secured by residential
real property located in any state, except in Illinois, Indiana, Michigan, New
Jersey and Pennsylvania, and said Loan is prepaid in full by the Borrower, other
than by a refinancing by the Buyer or any of its subsidiaries or affiliates,
within twelve (12) months of Settlement Date, the Seller shall, upon demand by
the Buyer, refund to the Buyer the premium paid by the Buyer to the Seller as
follows: if prepayment in full is within one (1) month of the Settlement Date,
12/12ths of the premium shall be refunded; if prepayment in full is within two
(2) months of the Settlement Date, 11/12ths of the premium shall be refunded; if
prepayment in full is within three (3) months of the Settlement Date, 10/12ths
of the premium shall be refunded; if prepayment in full is within four (4)
months of the Settlement date, 9/12ths of the premium shall be refunded; if
prepayment in full is within five (5) months of the Settlement Date, 8/12ths of
the premium shall be refunded; if prepayment in full is within six (6) months of
the Settlement Date, 7/12ths of the premium shall be refunded; if prepayment in
full is within seven (7) months of the Settlement Date, 6/12ths of the premium
shall be refunded; if prepayment in full is within eight (8) months of the
Settlement Date, 5/12ths of the premium shall be refunded; if prepayment in full
is within nine (9) months of the Settlement Date, 4/12ths of the premium shall
be refunded; if prepayment in full is within ten (10) months of the Settlement
Date, 3/12ths of the premium shall be refunded; if prepayment in full is within
eleven (11) months of the Settlement Date, 2/12ths of the premium shall be
refunded; if prepayment in full is within twelve (12) months of the Settlement
Date, 1/12th of the premium shall be refunded. In the event any fixed rate Loan
is prepaid in full later than twelve (12) months from the Settlement Date of
such Loan, no refund shall be due. In the event the Note carries a prepayment
penalty, the Buyer agrees first to recapture the premium rebate from the
proceeds of the prepayment penalty and then from the Seller, if there is any
deficient balance according to the refund calculation specified above.
(ii) In the event that a premium is paid by the Buyer to the
Seller on a Loan and such Loan is an adjustable rate Loan secured by real
property located in the States of Illinois, Indiana, Michigan, New Jersey or
Pennsylvania and is prepaid in full by the Borrower, other than by a refinancing
by the Buyer or any of its subsidiaries or affiliates, within eighteen (18)
months of the Settlement Date, the Seller shall, upon demand by the Buyer,
refund to the Buyer the premium paid by the Buyer to the Seller as follows: if
prepayment in full is within one (1) month of the Settlement Date, 18/18ths of
the premium shall be refunded; if prepayment in full is within two (2) months of
the Settlement Date, 17/18ths of the premium shall be refunded; if prepayment in
full is within three (3) months of the Settlement Date, 16/18ths of the premium
shall be refunded; if prepayment in full is within four (4) months of the
Settlement Date, 15/18ths of the premium shall be refunded; if prepayment in
full is within five (5) months of the Settlement Date, 14/18ths of the premium
shall be refunded; if prepayment in full is within six (6) months of the
Settlement Date, 13/18ths of the premium shall be refunded; if prepayment in
full is
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within seven (7) months of the Settlement Date, 12/18ths of the premium shall be
refunded; if prepayment in full is within eight (8) months of the Settlement
Date, 11/18ths of the premium shall be refunded; if prepayment in full is within
nine (9) months of the Settlement Date, 10/18ths of the premium shall be
refunded; if prepayment in full is within ten (10) months of the Settlement
Date, 9/18ths of the premium shall be refunded; if prepayment in full is within
eleven (11) months of the Settlement Date, 8/18ths of the premium shall be
refunded; if prepayment in full is within twelve (12) months of the Settlement
Date, 7/18ths of the premium shall be refunded; if prepayment in full is within
thirteen (13) months of the Settlement Date, 6/18ths of the premium shall be
refunded; if prepayment in full is within fourteen (14) months of the Settlement
Date, 5/18ths of the premium shall be refunded; if prepayment in full is within
fifteen (15) months of the Settlement Date, 4/18ths of the premium shall be
refunded; if prepayment in full is within sixteen (16) months of the Settlement
Date, 3/18ths of the premium shall be refunded; if prepayment in full is within
seventeen (17) months of the Settlement Date, 2/18ths of the premium shall be
refunded; if prepayment in full is within eighteen (18) months of the Settlement
Date, 1/18th of the premium shall be refunded. In the event any adjustable rate
Loan is prepaid in full later than eighteen (18) months from the Settlement Date
of such Loan, no refund shall be due. In the event the Note carries a prepayment
penalty, the Buyer agrees first to recapture the Premium Rebate from the
proceeds of the prepayment penalty and then from the Seller, if there is any
deficient balance according to the refund calculation specified above.
V. REPRESENTATIONS AND WARRANTIES OF THE SELLER
(A) REPRESENTATIONS AND WARRANTIES OF THE SELLER - GENERAL. It is
understood and agreed by Seller and Buyer that as a material inducement to Buyer
to enter into this Agreement the Seller hereby represents and warrants to the
Buyer as follows:
1. The Seller is an organization as set forth in the introductory
paragraph of this Agreement and is duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and is duly qualified
as a foreign corporation in all jurisdictions wherein the character of the
property owned or leased or the nature of the business transacted by it makes
qualification as a foreign corporation necessary.
2. The execution and delivery of the Agreement by the Seller and
the performance by the Seller of the obligations to be performed by it hereunder
have been duly authorized by all necessary corporate or other similar action.
Prior to the first Settlement Date, the Seller shall deliver to the Buyer
certified copies of relevant corporate or similar resolutions and a good
standing certificate for the state of its incorporation and, as requested by
Buyer, for each state in which Seller is registered to do business. It is within
Buyer's discretion to periodically request good standing certificates for all
states in which Seller is registered to do business.
3. The execution and delivery of this Agreement by the Seller and
the performance by the Seller of the obligations to be performed by it hereunder
do not, and will not, violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to the Seller or to the charter or bylaws of the Seller.
All parties which have had any interest in the Mortgages, whether as mortgagee,
assignee (other than Buyer or assignee of Buyer) or pledgee are (or during the
period in which they held and disposed of such interest, were) in compliance
with all applicable licensing requirements of the federal, state, and local
government wherein the Subject Property is located.
4. The execution and delivery of this Agreement by the Seller and
the performance by the Seller of the obligations to be performed by it hereunder
do not and will not result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Seller is a party or by which it or its properties may
be bound or affected.
5. This Agreement constitutes, when duly executed and delivered by
the Seller, a legal, valid and binding obligation of the Seller enforceable
against the Seller according to its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium, or
similar laws affecting creditors' rights in general, including equitable
remedies.
6. There are no actions, suits or proceedings pending or, to the
knowledge of the Seller, threatened against or affecting the Seller or the
properties of the Seller before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Seller, would have a material adverse
effect on the financial condition, properties or operation of the Seller. Any
consent by the Buyer to purchase Loans pursuant to this Agreement shall
automatically terminate if: (a)-a decree or order of a court or agency
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, bankruptcy proceeding or any similar proceedings, or
for the winding up or liquidation of its affairs, shall have been entered
against the Seller or a Borrower and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or (b) the Seller or a
Borrower shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities, bankruptcy or similar proceedings relating to the Seller or
relating to all or substantially all of its property; or (c) the Seller or
Borrower shall admit in writing its inability to pay its debts as they become
due, file a petition to take advantage of any applicable insolvency,
reorganization or bankruptcy statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations.
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(B) REPRESENTATIONS AND WARRANTIES OF THE SELLER AS TO EACH LOAN. It is
understood and agreed by Seller and Buyer that as a material inducement to Buyer
to enter into this Agreement the Seller hereby represents and warrants to the
Buyer as of each Settlement Date with respect to each Loan purchased:
1. The Seller is a holder-in-due-course of each Note within the
meaning of the Uniform Commercial Code and is the sole owner of the Loan and has
the right to assign and transfer the Loan to the Buyer. The Seller has not sold,
assigned or otherwise transferred any right or interest in or to the Loan and
has not pledged the Loan as collateral for any loan or obligation of Seller or
other purpose. The assignment of the Loan by the Seller to Buyer validly
transfers such Loan to Buyer free and clear of any pledges, liens, claims,
encumbrances, Mortgages, charges, exceptions and/or security interests.
2. Except as expressly disclosed to and agreed to by the Buyer in
writing, each Loan conforms to: (a) Underwriting Guidelines of Buyer, and (b)
the conditions of the Approval Advice (if applicable).
3. All information set forth in any Purchase Schedule is true and
correct in all respects, and all other information furnished to Buyer by Seller
with respect to the Loan(s) purchased is true and correct as of the Settlement
Date.
4. Each Note and Mortgage and the Related Assets are in every
respect genuine, are the valid instrument they purport on their face to be, are
the legal, valid, binding and enforceable obligation of the Borrower thereunder
and not subject to any discount, allowance, setoff, counterclaim, presently
pending bankruptcy or other defenses; none of the Notes, Mortgages, or Related
Assets arc forged or have affixed thereto any unauthorized signature or have
been entered into by any persons without the required legal capacity; and no
foreclosure (including any non-judicial foreclosure) or any other legal action
has been brought by the Seller or any senior lienholder in connection therewith.
5. No instruments other than those delivered herewith are required
under applicable law to evidence the indebtedness represented by the Loan(s) or
to perfect the lien of the Mortgage(s).
6. Except as has been disclosed to and agreed to by the Buyer in
writing, there is no agreement with the Borrower regarding any variation of the
interest rate and schedules of payment (except as described in the Note and
Mortgage) or other terms and conditions of the Loan, no Borrower has been
released from liability on the Note, and no property has been released from the
Mortgage. If the Loan is a variable rate loan, the Seller represents and
warrants as of each Settlement Date that all applicable notices required by law
or regulation have been provided to the Borrower and that the right to future
changes in the interest rate and payment schedules has not been waived by the
Seller or any previous holder of the Loan.
7. The Loan is secured by a valid Mortgage, of the agreed-upon
priority, on real property, and such Mortgage has been properly received by the
appropriate public recording official to be filed, recorded or otherwise
perfected in due course in accordance with applicable law in the appropriate
jurisdiction.
8. There are no violations of any applicable federal or state law
or regulation, including, without limitation, Fair Credit Reporting Act and
Regulations, the Federal Truth-in-Lending Act and Regulation Z (including but
not limited to Section 32), the Federal Equal Credit Opportunity Act and
Regulation B, the Federal Real Estate Settlement Procedures Act and Regulations,
the Federal Debt Collection Practices Act, the Home Mortgage Disclosure Act, and
any federal or state usury laws and regulations. All disclosures required by
law, federal, state or local, were properly made by the Seller prior to the
closing of the Loan.
9. The Seller holds a marked-up title policy or a title insurance
binder or title certificate which is in full force and effect; which has an
insurance limit at least as great as the outstanding principal balance of the
Loan; which names the Seller, its successors and assigns as the insured party;
and which is issued by a title insurer which has been approved by the Buyer in
writing and is qualified to do business in the jurisdiction where the Subject
Property is located. Said policy shall:
(i) insure the absence of any lien of taxes and other
assessments;
(ii) disclose whether all taxes and other assessments due as
of the date of the policy have been paid in full; and
(iii) disclose all other matters to which like properties are
commonly subject.
If the Buyer purchases a Loan having relied on a marked-up title
insurance binder or title certificate rather than a title insurance policy, the
Seller shall have thirty (30) days to deliver to the Buyer the title insurance
policy.
10. As of the Settlement Date the Seller has transferred to Buyer
all of its right, title and interest in the Note(s), Mortgage(s) and Related
Assets for each Loan purchased free and clear of any pledge, liens, claims,
encumbrances, Mortgages, charges, exceptions or security interests other than as
is disclosed in the title insurance policy to each Loan, together with an
individual flood insurance policy (to the extent required by the Flood Disaster
Protection Act) and an individual current hazard insurance policy (including
fire and extended coverage and other matters as are customary in the area of the
Subject Property), or a blanket policy in lieu
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thereof, or a certificate if the Buyer agrees in writing to accept a
certificate, insuring the Subject Property, with a loss payable clause in favor
of the Seller, its successors and assigns in an amount equal to the lower of:
(a) the replacement value of the Subject Property, or (b) the unpaid principal
balance of the Loan and the senior mortgage deed(s) of trust loan.
11. The Note and Mortgage contain customary, valid, legal and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Subject Property of the
benefits of the security created thereby.
12. The proceeds of the Loan have been fully disbursed and any and all
requirements as to completion of on-site and off-site improvements and
disbursement of any escrow funds therefore have been complied with.
13. There are no mechanic's liens or similar liens or claims which have
been filed for work, labor or material affecting the Subject Property which are
or may be liens prior to or equal with the lien of the Mortgage and senior
Mortgage(s).
14. The Subject Property is free of material damage and waste and is in
good repair and there is no proceeding pending or threatened for the total or
partial condemnation of the Subject Property, and the Subject Property is free
and clear of all hazardous material.
15. All matured obligations pursuant to the Note and Mortgage have been
paid or performed and the Seller has not waived any defaults, breach, violation
or event of acceleration.
16. The Seller has no knowledge of any fact as to such Loan which it
has failed to disclose which would materially and adversely affect the value or
marketability of such Loans.
17. The Seller has no knowledge of any impediments to title that
adversely affect the value, enjoyment or marketability of the Subject Property.
18. Where required by state law, the Seller has filed for record a
request for notice of any action by a senior lienholder under a senior lien, and
the Seller has notified any superior lienholder in writing of the existence of
the Loan and requested notification of any action to be taken against the
Borrower by the superior lienholder. The Seller shall, upon request of the
Buyer, cooperate in recording a new request for action in favor of the Buyer and
in providing superior lienholders with written requests for notification to the
Buyer of action against the Borrower.
19. There is no default, breach, violation or event of acceleration
existing under any senior Mortgage which, with notice, and the expiration of any
grace or cure period, would constitute a default, breach, violation or event of
acceleration.
20. Each Note and Mortgage contains a 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.
21. All real estate appraisals made in connection with each Loan shall
have been performed in accordance with industry standards in the appraising
industry in the area where the appraised property is located. Any variances
ascertained pursuant to Article VI(G) of this Agreement greater than ten (10%)
percent shall constitute conclusive evidence of a breach of this warranty.
22. No hazardous or toxic materials or wastes or products regulated by
any law or ordinance or asbestos or asbestos products or materials or
polychlorinated biphenyls or urea formaldehyde insulation have been used or
employed in the construction, use or maintenance of the Subject Property or have
ever been stored, treated at or disposed of on the Subject Property,
23. There has not occurred nor has any person or entity alleged that
there has occurred, upon the Subject Property any spillage, leakage, discharge
or release into the air, soil or groundwater of any hazardous material or
regulated wastes.
24. The Seller has not, in connection with each Loan purchased by
Buyer, taken any action which might result in a claim against the Buyer or an
obligation by the Buyer to refund unearned finance charges, credit life
insurance premiums or any other fees in respect to the transactions between
Buyer and Seller as described in this Agreement. The Seller agrees to indemnify
and hold the Buyer harmless from and against any claims, liabilities, damages or
costs (including reasonable attorney fees) relating to any Borrower, insurer or
other party who claims to be due a refund of finance charges or insurance
premiums or any other fees in connection with transactions contemplated by this
Agreement.
25. The Seller has not, in connection with each Loan purchased by
Buyer, incurred any obligation, made any commitment or taken any action which
might result in a claim against the Buyer or an obligation by the Buyer to pay a
sales brokerage commission, finder's fee or similar fee in respect to the
transactions between Buyer and Seller as described in this Agreement. The Seller
agrees to indemnify and hold the Buyer harmless from and against any claims,
liabilities, damages or costs (including reasonable attorney fees)
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<PAGE> 10
relating to any broker, agent or finder or other person, who shall claim to have
dealt on behalf of the Seller in connection with the transactions contemplated
by this Agreement.
26. Seller agrees that for the time period of 36 months beginning from
the applicable settlement date, not to take any action to solicit Borrowers
individually in order to effect the refinancing of any Loans previously
purchased by Buyer from Seller. In the event a Borrower elects to refinance with
Seller a Loan purchased by Buyer from Seller, and such Loan is currently owned
or serviced by Buyer or Buyer otherwise retains a financial interest in the
Loan, Buyer will have the right of first refusal on the purchase of the
refinancing.
VI. BREACH OF REPRESENTATION AND WARRANTIES
(A) REMEDY FOR BREACH. In addition to any rights or remedies the Buyer
has at law or in equity, if at any time there is a breach of any representation
or warranty set forth herein by Seller, the Seller shall upon demand of the
Buyer and at the sole option and absolute discretion of Buyer: (1) repurchase
the Loan affected for the Buy-Back Price within ten (10) days of notification;
or (2) if the Loan(s) has been sold by Buyer or the Subject Property has been
liquidated or sold by Buyer, the Seller shall, within ten (10) days of
notification, pay the Buyer the amount of loss, (as defined in Article VI(D)
below).
(B) REASSIGNMENTS. Upon receipt of the Buy Back Price, in full, in
immediately available funds, the Buyer shall reassign the Loan affected and
any right it may have in the relevant Subject Property to the Seller free and
clear of all liens, encumbrances, claims, or interest of any person or entity
claiming by, through, or under the Buyer without recourse and shall execute and
deliver to the Seller in recordable form an assignment of the Buyer's
beneficial interest in the affected Mortgage, as well as other documents
necessary to reflect the reassignment of any title protection and insurance
policies.
(C) "BUY-BACK PRICE". The term "Buy-Back Price" shall mean the sum
total of: (1) the outstanding principal balance of the Loan, with accrued
interest thereon through the date the Loan is repurchased by Seller; (2) all
advances made by Buyer and all charges due from the Borrower; (3) the total
amount, including accrued interest and other expenses paid by the Buyer to any
senior lienholders, if any, to secure a priority lien position; (4) all
reasonable and necessary expenses, losses and damages paid or incurred by the
Buyer in connection with the Loan or an investigation of said Loan and/or the
related collateral, including, but not limited to, property taxes, maintenance
costs, interest expense, insurance, appraisals, advertising, sales commissions,
reasonable attorney fees, expenses and costs, fines and penalties; and (5)
rebate of premium due Buyer, if applicable.
(D) DEFINITION OF "LOSS": The term "Loss" shall mean the negative
result, if any, of the following calculations: (a) the sum total of: (i) the
outstanding principal balance of the Loan, with accrued interest thereon through
the date the Loan is sold or date the collateral is liquidated; (ii) all
advances by Buyer and all charges due from the Borrower; (iii) the total amount
paid by the Buyer to any senior lienholders, if any, to secure a first lien
position; (iv) accrued interest on all Mortgage Loans purchased from senior
lienholders from the date such Mortgage Loans were purchased through the date
the Loan is sold or the date the collateral is liquidated; and (v) all other
reasonable and necessary expenses, losses and damages incurred by and/or paid by
the Buyer in connection with the Loan or an investigation of said Loan or the
sale or liquidation of the Loan and/or the related collateral, including, but
not limited to, reasonable attorney fees, expenses and costs, property taxes,
maintenance costs, insurance, appraisals, advertising, sales commissions, fines
and penalties; less the (b) net proceeds from the sale of the Loan or the sale
or liquidation of the Subject Property or the collateral.
(E) REMEDY FOR NON-DELIVERY OF DOCUMENTS. However, anything to the
contrary notwithstanding, in the event that the Seller is required to deliver to
the Buyer any documents related to a purchased Loan and the Seller fails to
deliver such document in the proper form on the date or within the time period
specified by the controlling section of this Agreement, Buyer shall notify the
Seller of the breach, and the Seller shall have thirty (30) days from the date
of notice to cure the breach. If the Seller has not cured the breach within the
thirty (30) day cure period, the Seller shall immediately repurchase the Loan
upon Buyer's demand. The Buy-Back Price shall be determined in accordance with
Article VIC). Any Loan returned by the Buyer pursuant to this paragraph shall be
without recourse, representation or warranty.
(F) REMEDY FOR FIRST PAYMENT DEFAULT. However, anything to the contrary
notwithstanding, in the event the Borrower fails to make the first payment due
to the Buyer within thirty (30) days of the payment due date, regardless of
whether such payment is subsequently paid by the Borrower, the Buyer, at its
sole and absolute discretion, shall have the right to have Seller repurchase
said Loan(s) at the Buy-Back Price.
(G) REMEDY TO INSURE ACCURACY OF REAL ESTATE APPRAISALS. Buyer may, at
its own expense, in order to verify the accuracy of real property appraisals
prepared for Seller, order a reappraisal of the property secured by a Mortgage.
If the reappraisal obtained by Buyer indicates a fair market value which is more
than eight (8%) percent less than the original appraisal value, then upon
receipt by Seller from Buyer of a signed copy of the reappraisal, Seller shall
repurchase the Loan at the Buy-Back Price (as defined in Article VIC), above)
and reimburse Buyer for the cost of the appraisal subject to the following: If
Seller disputes the validity of the reappraisal prepared by Buyer's appraiser,
Seller may, at its own expense, request Buyer to obtain a third
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appraisal, and only if such third appraisal is also more than eight (8%) percent
less than the original appraisal value shall the Seller be required to
repurchase the Loan at the Buy-Back Price. Buyer shall choose the appraiser for
the third appraisal with Seller's approval, which shall not be unreasonably
withheld, but such appraiser must possess the minimum qualifications specified
in Buyer's Underwriting Guidelines. The appraisal must be performed in
accordance with industry standards for the appraising industry in the area in
which the property is located, and the appraiser must be independent with
respect to both parties unless otherwise agreed to by the parties. In
determining the appropriate appraisal value, the review appraiser must determine
the appraised value as of the original appraisal date using comparable sales
that were available as of the date of the original appraisal.
However, anything to the contrary notwithstanding, the Buyer reserves
the sole right not to request the Seller to repurchase the Loan should the
reappraisal cause the combined loan-to-value not to exceed the maximum allowable
combined loan-to-value of the loan class under which the loan was purchased.
VII. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
(A) The Buyer is an organization as set forth in the introductory
paragraphs and is duly organized, validly existing and in good standing under
laws applicable to its organization's existence.
(B) The execution and delivery of this Agreement by the Buyer and the
performance by the Buyer of the obligations by it to be performed hereunder
have been duly authorized by all necessary corporate resolutions.
(C) The execution and delivery of this Agreement by the Buyer and the
performance by the Buyer of the obligations by it to be performed hereunder do
not, and will not, violate any provision of any law, rule, regulations, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to the Buyer or to the charter or bylaws of the Buyer.
(D) The execution and delivery of this Agreement by the Buyer and the
performance by the Buyer of the obligations by it to be performed hereunder do
not and will not result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Buyer is a party or by which it or its properties may be
bound or affected.
(E) This Agreement constitutes, when duly executed and delivered by the
Buyer, a legal, valid and binding obligation of the Buyer enforceable against
the Buyer according to its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws
affecting creditors' rights in general, including equitable remedies.
(F) There are no actions, suits or proceedings pending or, to the
knowledge of the Buyer, threatened against or affecting the Buyer or the
properties of the Buyer before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to the Buyer, would have a material adverse effect on the
financial condition, properties or operation of the Buyer.
(G) Buyer has the authority and legal right to make, deliver and
perform this Agreement and all transactions contemplated hereunder. No consent
of any other party and no consent, license, approval or authorization of, or
registration, or declaration with, any governmental authority, bureau or agency
is required in connection with the execution, delivery, validity or
enforceability of this Agreement or purchase of any Loan, which consent,
license, approval, authorization, registration or declaration has not been
obtained. Buyer shall make available to Seller copies of any required license
upon Seller's request.
VIII. INDEMNIFICATION
(A) Seller agrees to protect, indemnify, and hold Buyer and its
employees, officers, and directors, harmless against, and in respect of, any and
all losses, liabilities, costs and expenses (including reasonable attorney's
fees), judgments, damages, claims, counterclaims, demands, actions or
proceedings, by whomsoever asserted, including but not limited to, the
Borrowers, against any person or persons who prosecute or defend any actions or
proceedings as representatives of or on behalf of a class or interested group,
or any governmental instrumentality, body, agency, department or commission, or
any administrative body or agency having jurisdiction pursuant to any applicable
statute, rule, regulation, order or decree, or the settlement or compromise of
any of the foregoing, providing, however, any of the foregoing arises out of, is
connected with or results from any breach of representations, covenants or
warranties made by Seller in relation to the Loans sold to Buyer hereunder.
(B) The waiver of any breach, term, provision or condition of this
Agreement shall not be construed to be a waiver of any other or subsequent
breach, term, provision or condition. All remedies afforded by this Agreement
for a breach hereof shall be cumulative; that is, in addition to all other
remedies provided for herein or at law or in equity.
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(C) Provided further, in the event of any legal action, including
counterclaims, wherein the claim is based upon alleged facts that would
constitute a breach of any one or more of the warranties, covenants, and
representations made or assumed by Seller under the terms hereof, Seller shall
thereupon, at Buyer's option, repurchase without recourse such Loan at the
Buy-Back Price.
(D) The indemnification contained in (A) and (B) above is applicable to
any servicing of the Loans purchased hereunder which is performed by the Seller.
IX. RELATIONSHIP OF THE PARTIES
It is agreed that the Seller and the Buyer are not partners or joint
venturers and that the Seller is not to act as an agent for the Buyer in
originating, administering or collecting any Loan, but shall have the status of
and shall act in all matters hereunder as an independent contractor.
X. OPINION OF COUNSEL
The Seller shall deliver to the Buyer in form and substance
satisfactory to the Buyer and its counsel on or before the first Settlement Date
hereunder, an opinion of the Seller's independent outside counsel pursuant to
EXHIBIT "G," attached hereto and made a part hereof, opining on the provisions
of Articles V(A)1 through V(A)6, inclusive and the Opinion of Counsel will
cover all Loans purchased by Buyer under this Agreement unless the opinion is
rescinded or revoked by the Law Firm rendering the Opinion.
XI. CLOSING DOCUMENTS
The Seller shall have delivered to Buyer an officer's certificate,
attested to by the Secretary of the Seller, stating the names and showing the
facsimile signatures of the officers of Seller authorized to execute and deliver
this Agreement, endorse Note(s), Mortgage(s), and Assignment(s); and authorize
the bank accounts for Buyer to utilize for funding Loans (EXHIBIT "H"). Seller
shall deliver to Buyer a good standing certificate for its State of
Incorporation. It is within Buyer's discretion to periodically request good
standing certificates for all states in which Seller is registered to do
business. In addition, Seller shall provide Buyer copies of all applicable
lending licenses.
XII. MISCELLANEOUS
(A) ADDITIONAL COVENANTS.
1. Each party shall, from time to time, execute and deliver or
cause to be executed and delivered, such additional instruments, assignments,
endorsements, papers and documents as the other party may at any time
reasonably request for the purpose of carrying out of this Agreement and the
transfers provided for herein.
2. The Seller shall, upon request of the Buyer, sign a letter, in
form to be approved by the Buyer and in conformity with the terms and conditions
hereof, addressed to all the Borrowers on the Loans, announcing the sale
evidenced hereby and instructing such Borrowers to recognize the Buyer as the
Seller's successor in interest to such Loans.
3. After any Settlement Date hereunder, the Seller will hold in
trust for the Buyer all sums received by the Seller from Borrower(s) on any Loan
purchased pursuant to this Agreement and pay them to the Buyer within three (3)
business days of the receipt of those sums.
4. Any and all decisions made by Buyer in good faith to take
action or to not take action relative to a Loan, including, but not limited to,
the sale or liquidation of a Loan, Subject Property or collateral shall be final
and conclusively binding upon Seller in the event Seller does not repurchase a
Loan within ten (10) days of notification by Buyer pursuant to Section VI of
this Agreement.
5. In order to enforce Buyer's rights under this Agreement, Seller
shall, upon the request of Buyer or its assigns, do and perform or cause to be
done and performed, every reasonable act and thing necessary or advisable to put
Buyer or its assigns in position to enforce the payment of the Loans and to
carry out the intent of this Agreement, including the execution of and, if
necessary, the recordation of additional documents including separate
endorsements and assignments upon request of Buyer. In addition, Seller hereby
irrevocably appoints any officer or employee of Buyer or its assigns its true
and lawful attorney to do and perform every act necessary, requisite, proper, or
advisable to be done to put Buyer or its assigns in position to enforce the
payment of the Loans. (Said Power of Attorney is set forth as EXHIBIT "I")
(B) SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES;
SUCCESSORS AND ASSIGNS. All warranties, representations and covenants made by
either party in this Agreement or in any other instrument delivered by either
party to the other, including those made by third parties for the benefit of
either party, shall be considered to have been relied upon by the other party
(unless otherwise agreed in writing by the
-9-
<PAGE> 13
parties) and shall survive the termination of this Agreement. The Buyer reserves
the right to proceed against third parties to enforce any representations,
warranties and covenants made by them for the benefit of the Seller.
(C) SEVERABILITY. If any provision, or part thereof, of this Agreement
is invalid or unenforceable under any law, such provision, or part thereof, is
and will be totally ineffective to that extent, but the remaining provisions, or
part thereof, will be unaffected.
(D) ATTORNEYS' FEES. However, anything to the contrary notwithstanding,
in the event of any action at law, in equity, arbitration or otherwise between
the parties in relation to this Agreement or any Loan or other instrument or
agreement required or purchased or sold hereunder, the non-prevailing party, in
addition to any other sums which such party shall be required to pay pursuant to
the terms and conditions of this Agreement, at law, in equity, arbitration or
otherwise shall also be required to pay to the prevailing party all costs and
expenses of such litigation, including reasonable attorney fees.
(E) WAIVERS. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as a further or continuing waiver of any such
term, provision or condition, or of any other term, provision or condition of
this Agreement.
(F) NOTICE. Any notice or other communication in this Agreement
provided or permitted to be given by one party to the other must be in writing
and given by personal delivery or by depositing the same in the United States
mail (certified mail, return receipt requested), addressed to the other party to
be notified, postage prepaid. For purposes of notice, the addresses of the
parties shall be as follows:
BUYER: CONTIMORTGAGE CORPORATION
338 South Warminster Road
Hatboro, PA 19040
ATTENTION: Jerry Schiano, Senior Vice President, Sales
SELLER: AUSTIN FUNDING CORPORATION
823 Congress Avenue
Suite 707
Austin, TX 78701
ATTENTION: Glenn LaPointe, President
The above address may be changed from time to time by written notice
from one party to the other.
(G) INSURANCE PREPAYMENT. Insurance refund or credits of any kind
whatsoever shall be the sole responsibility of the Seller in the event of
prepayment of any Loan, cancellation of insurance or any other event requiring
refunding or crediting of unearned insurance premiums. Upon the Buyer's demand,
Seller shall pay to the Buyer, from the Seller's own funds, any required
insurance premium rebate resulting from the prepayment, cancellation,
refinancing or other termination of any Mortgage Loan. Upon such payment, Buyer
shall assign in writing any rights it had to require that the insurer reimburse
Buyer for any rebate made to Borrower.
(H) ASSIGNMENT. The Seller shall not, without the prior written consent
of the Buyer, assign any of its rights or obligations hereunder.
(I) CAPTIONS. Paragraph or other headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(J) ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto,
and the documents referred to herein or executed concurrently herewith
constitute the entire agreement between the parties hereto with regard to the
subject matter hereof, and there are no prior agreements, understandings,
restrictions, warranties or representations between the parties with respect
thereto.
(K) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania. The provisions of
this paragraph shall not affect the provisions of any Note, Mortgage or Related
Assets which cause the laws of the United States or any other state to be
applicable. This Agreement shall be interpreted fairly in accordance with its
provisions and without regard to which party drafted it.
(L) TERMINATION. This Agreement is terminable by either the Buyer or
Seller upon ninety (90) days' written notice of termination to the
non-terminating party. Upon such termination, Buyer must honor any outstanding
commitments or Approval Advices issued to Seller and purchase all Loans subject
to such commitment or Approval Advice in accordance with the terms of this
Agreement and the terms of the commitment or Approval Advice. Notwithstanding
the foregoing, Buyer has the option of terminating this Agreement immediately
upon notice to the Seller upon the Seller's breach of any of the Representations
and Warranties contained in Article V of this Agreement, and Buyer shall have no
obligation to honor any commitment or Approval Advice after such termination.
Seller may terminate this Agreement immediately upon written notice to the Buyer
upon the breach of any of Buyer's representations and warranties contained in
Article VII of this Agreement.
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<PAGE> 14
(M) ARBITRATION, JURISDICTION AND VENUE.
With respect to any controversy, argument or claim arising out of or
relating to this Agreement, or any breach thereof (including, but not limited
to, a request for emergency relief), the parties hereby consent to the exclusive
jurisdiction of the Court of Common Pleas of Montgomery County, Pennsylvania or
the Federal District Court for the Eastern District of Pennsylvania and waive
personal service of any and all process upon them and consent that all such
service of process made by registered or certified mail directed to them at the
address stated herein and service so made shall be deemed to be completed five
(5) days after mailing. The parties waive trial by jury and waive any objection
to jurisdiction and venue of any action instituted hereunder, agree not to
assert any defense based on lack of jurisdiction or venue and consent to the
granting of such legal or equitable relief as is deemed appropriate by the
court, including, but not limited to, any emergency relief, injunctive or
otherwise.
However, anything to the contrary notwithstanding, except with respect
to emergency relief, Buyer shall have the sole and exclusive option and
discretion to have any controversy, argument or claim arising out of or relating
to this Agreement, or any breach thereof, settled in Philadelphia, Pennsylvania
in accordance with the Rules of the American Arbitration Association (as
modified below), and judgment upon the award may be entered in any Court having
jurisdiction thereof.
The arbitration panel shall be made up of three members which shall be
appointed: one by Buyer, one by Seller and the third by the first two
arbitrators. Each arbitrator shall be a lawyer experienced in matters relating
to real estate and mortgage banking. Discovery shall be permitted in connection
with the arbitration proceeding within the reasonable discretion of the
arbitration panel. The decision (award) shall be in writing and shall set
forth the rationale and legal basis therefor, and such decision may be appealed
by either party if the party believes that the written decision (award) is based
upon an error of law. The facts determined by the original panel will be final
and no appeal of such findings may be made. Such appeal shall be taken to a
three-member arbitration panel, the members of which shall be selected in
accordance with the above-described procedures, and the panel's review shall be
limited to the application of the statutory and decisional law of the
Commonwealth of Pennsylvania (as modified by Paragraph XII(K) above) to the
facts of the dispute as determined in writing by the original arbitration panel.
(N) ENDORSEMENTS.
In the event that the remedies or other terms outlined in this
Agreement conflict with the terms of any endorsement by the Seller of any Note
evidencing a loan purchased by the Buyer from the Seller, including, but not
limited to, an endorsement stating that the assignment of the Note is without
recourse, the remedies and terms of this Agreement shall govern and control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written:
BUYER: CONTIMORTGAGE CORPORATION
BY:
--------------------------------
JERRY SCHIANO
TITLE: Senior Vice President, Sales
SELLER: AUSTIN FUNDING CORPORATION
BY: /s/ GLENN LAPOINTE
--------------------------------
GLENN LAPOINTE
TITLE: President
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<PAGE> 15
EXHIBIT A
Essential Mortgage File Documents
The following documents must be included in the package when submitted by the
Seller to the Buyer for purchase:
1. Original Note.
2. Executed Endorsement or Assignment of the Note.
3. Disclosure Statement, Federal and State; i.e., Good Faith
Estimate, Servicing Transfer Letter, Information Booklet,
Preliminary Truth-in-Lending.
4. Note and Disclosure Riders, when applicable, i.e., Balloon Rider.
5. Certified or True Copy of the Mortgage or Deed of Trust.
6. Original, Recordable Assignment of the Mortgage.
7. Truth-in-Lending, Itemization of Amount Financed, and HUD-1.
8. Rescission Documents.
9. Loan Application (FNMA 1012 or 1003).
10. Fair Lending and Equal Credit Notices, Federal and State.
11. Verification of Employment and Income as expressed in the
"Product Descriptions."
12. Credit Reports as expressed in the "Product Descriptions."
13. Appraisal Report as expressed in Exhibit C and the "Product
Descriptions."
14. Preliminary Title Report and evidence that an ALTA policy has
been ordered.
15. Evidence of Hazard Insurance and documentation showing proper
coverage and loss payable endorsement has been ordered.
16. Evidence of Flood Insurance with loss payable endorsement in
effect or ordered. (Only if the Subject Property is in Flood Zone
"A.")
17. Authorization to Release Information.
18. If there is a prepayment penalty, Seller shall write "PPP" in
bold letters on outside front cover of the loan file.
<PAGE> 16
EXHIBIT B
Purchase Schedule
Sample unavailable at the present time.
<PAGE> 17
EXHIBIT C
General Underwriting Guidelines and Product Descriptions
The following pages contain:
General Credit Guidelines
Product Descriptions:
o A-1 Loan
o A-2 Loan
o B Loan
o C Loan
o D Loan
<PAGE> 1
EXHIBIT 6(f)
BULK CONTINUING LOAN PURCHASE AGREEMENT
BY AND BETWEEN
HOUSEHOLD FINANCIAL SERVICES, INC. and
JV MORTGAGE CAPITAL, L.P.
AND
AUSTIN FUNDING CORPORATION
--------------------------------------------
DATED AS OF 6/28/, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
SECTION I DEFINITIONS
Section 1.1 Defined Terms ..........................................................................................1
Section 1.2 Other Terms.............................................................................................6
SECTION 2 PURCHASE OF LOANS AND TRANSFER OF SERVICING
Section 2.1 Offer to Sell ..........................................................................................6
Section 2.2 Buyer's Response and Seller's Acceptance ...............................................................6
Section 2.3 Purchase of Loans and Servicing Rights .................................................................7
Section 2.4 Purchase Price .........................................................................................7
Section 2.5 Premium Rebate .........................................................................................7
Section 2.6 Transfer of Servicing ..................................................................................8
SECTION 3 SETTLEMENT
Section 3.1 Place and Time of Settlement ...........................................................................8
Section 3.2 Seller's Deliveries at Settlement ......................................................................8
Section 3.3 Buyer's Deliveries at Settlement .......................................................................8
SECTION 4 REPRESENTATIONS AND WARRANTIES
Section 4.1 General Representations and Warranties of Seller .......................................................9
Section 4.2 Representations and Warranties of Seller Regarding the Offered Loans ..................................11
Section 4.3 Representations and Warranties of Seller Regarding the Loans ..........................................12
Section 4.4 General Representations and Warranties of Buyer .......................................................20
SECTION 5 PRE-SETTLEMENT COVENANTS
Section 5.1 Continued Servicing ...................................................................................21
Section 5.2 Preparation of Assignments ............................................................................21
Section 5.3 IRS Reporting .........................................................................................21
Section 5.4 Compliance with Law ...................................................................................22
Section 5.5 No Sale of Assets .....................................................................................22
Section 5.6 Private Mortgage Insurance ............................................................................22
SECTION 6 POST-SETTLEMENT COVENANTS
Section 6.1 Notice of Servicing Transfer ..........................................................................22
Section 6.2 IRS Examination .......................................................................................22
Section 6.3 Tax on Sale ...........................................................................................23
Section 6.4 Books and Records .....................................................................................23
Section 6.5 On Site Audits ........................................................................................23
Section 6.6 Financial Statements ..................................................................................23
Section 6.7 Post-Sale Loan Payments ...............................................................................23
Section 6.8 Transfer of Servicing Rights ..........................................................................23
Section 6.9 Delivery of Mortgage Loan Documents ...................................................................23
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 7 CONDITIONS TO SETTLEMENT
Section 7.1 Conditions to Buyer's Obligations .....................................................................24
Section 7.2 Opinion of Counsel ....................................................................................25
Section 7.3 Conditions to Seller's Obligations ....................................................................25
SECTION 8 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES; REPURCHASE OBLIGATION OF SELLER........................26
SECTION 9 POST-SETTLEMENT AND ADJUSTMENTS
Section 9.1 Repurchase Obligations ................................................................................27
Section 9.2 Repurchase Price ......................................................................................27
Section 9.3 Remedy to Insure Accuracy of Real Estate Appraisals ...................................................28
Section 9.4 Post-Settlement Adjustment to Purchase Price ..........................................................28
SECTION 10 INDEMNIFICATION
Section 10.1 Seller's Indemnification .............................................................................28
Section 10.2 Buyer's Indemnification ..............................................................................29
Section 10.3 Indemnification Procedures ...........................................................................29
SECTION 11 TERMINATION
Section 11.1 Termination by Either Party ..........................................................................30
Section 11.2 Termination by Buyer .................................................................................31
Section 11.3 Effect of Termination ................................................................................31
SECTION 12 MISCELLANEOUS
Section 12.1 No Waiver ............................................................................................32
Section 12.2 Amendment and Modification ...........................................................................32
Section 12.3 Notices ..............................................................................................32
Section 12.4 Expenses .............................................................................................33
Section 12.5 No Remedy Exclusive ..................................................................................34
Section 12.6 Independent Contractor ...............................................................................34
Section 12.7 Severability .........................................................................................34
Section 12.8 Entire Agreement .....................................................................................34
Section 12.9 Assignment ...........................................................................................34
Section 12.10 Captions ............................................................................................34
Section 12.11 Governing Law .......................................................................................34
Section 12.12 Counterparts ........................................................................................35
Section 12.13 Drafting ............................................................................................35
Section 12.14 Choice of Forum .....................................................................................35
Section 12.15 WAIVER OF JURY TRIAL ................................................................................35
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
EXHIBITS
Exhibit A - Contents of Legal File ....................................................................................E-1
Exhibit B - Contents of Credit File ...................................................................................E-3
SCHEDULES
Schedule 1 - Information to be Included in Offered Loan Schedule ......................................................S-1
Schedule 2 - Seller's Underwriting Standards for Mortgage Loans .......................................................S-3
</TABLE>
<PAGE> 5
BULK CONTINUING LOAN PURCHASE AGREEMENT
THIS BULK CONTINUING LOAN PURCHASE AGREEMENT is made and entered into
this 28 day of June, 1999 by and between HOUSEHOLD FINANCIAL SERVICES, INC., a
Delaware corporation, and its affiliates, or JV MORTGAGE CAPITAL, L.P., a
Delaware limited partnership (respectively or collectively, "Buyer"), and
Austin Funding Corp., a Texas corporation ("Seller").
WHEREAS, Seller is engaged in the business of originating, acquiring
and servicing fixed and adjustable rate mortgage loans, and has proposed to
offer to sell portfolios of such loans to Buyer from time to time subject to
Buyer's review and acceptance of all or any part of each such portfolio; and
WHEREAS, Seller desires from time to time to sell to Buyer, and Buyer
desires from time to time to purchase from Seller certain loans due and to
become due thereunder.
NOW THEREFORE, in consideration of the promises and other covenants
contained herein, Buyer and Seller agree as follows:
SECTION 1 DEFINITIONS
Section 1.1 Defined Terms
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the Person specified.
"Acceptance" means an acknowledgment that Seller has executed,
indicating Seller's acceptance of Buyer's proposal to purchase a portfolio of
Loans pursuant to the terms set forth in the Response.
"Accepted Servicing Practices" means with respect to any Loan, those
mortgage servicing practices of prudent mortgage lending institutions that
service mortgage loans of the same type as such Loan in the jurisdiction where
the related Mortgaged Property is located.
"Appraised Value" means the amount set forth in an appraisal in
connection with the origination of each Loan as the value of the Mortgaged
Property.
"Assignment of Mortgage" means an assignment of the Mortgage, notice
of transfer or equivalent instrument, in recordable form, which when recorded is
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect of record the sale of the Mortgage to the Buyer,
or its assignee.
<PAGE> 6
"Bid Percentage" means a percentage of the Pool Balance, determined by
Buyer in its sole discretion, on which the Purchase Price is based.
"Business Day" means any day other than (a) Saturday or Sunday, or (b)
a day on which financial institutions in the States of Delaware or Illinois are
authorized or required by law, executive order or governmental decree to be
closed.
"Buyer" means, respectively or collectively, Household Financial
Services, Inc. a Delaware corporation, and its affiliates, or JV Mortgage
Capital, L.P., a Delaware limited partnership.
"Credit File" means with respect to any Loan, the file containing
those items listed in Exhibit B annexed hereto, and any additional documents
required to be added thereto pursuant to this Agreement.
"Cut-off Date" means, with respect to each Offer, the date as of which
the Principal Balance and the Pool Balance are determined.
"Due Date" means the day of the month on which each Monthly Payment is
due on a Loan, exclusive of any days of grace.
"Due Diligence Period" means the period as agreed to by Buyer and
Seller and ending when Buyer submits a Response unless otherwise agreed to in
writing. During such period Seller shall make the Loan Documents and any
information, records and files pertaining to the Offered Loans available to
Buyer at its offices located in _______, _______ or at any other location
mutually agreed upon by Buyer and Seller.
"ECOA" means the Equal Credit Opportunity Act, 15 U.S.C. Section 1601.
"Escrow Payment" means with respect to any Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Obligor with the mortgagee pursuant to the Mortgage or any other document.
"Excluded Loans" means the Offered Loans owned by Seller and
offered for sale to Buyer pursuant to an Offer, which Offered Loans Buyer
elects not to purchase, and which Offered Loans shall be listed in Schedule
A to the Response.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"First Mortgage Loan" means with respect to each Offer those Loans
secured by a valid Mortgage that represents a first lien.
2
<PAGE> 7
"GNMA" means the Governmental National Mortgage Association.
"Interest Rate Adjustment Date" means the date on which the Mortgage
Interest Rate is adjusted with respect to each Loan. The first Interest Rate
Adjustment Date is the date set forth on the Loan Schedule.
"IRS" means the Internal Revenue Service.
"Legal Fee" shall mean with respect to any indemnified party, any and
all fees, costs, and expenses of any kind reasonably incurred by such party or
its counsel investigating, preparing for, defending against, or providing
evidence, producing documents, or taking other action with respect to, any
threatened or asserted claim.
"Legal File" means with respect to any Mortgage Loan, the file
containing those items listed in Exhibit A annexed hereto, and any additional
documents required to be added thereto pursuant to this Agreement.
"Loan" means each loan selected by Buyer to purchase from the Offered
Loans owned by Seller and offered to Buyer pursuant to each Offer, which Loans
collectively, shall be listed in the Offered Loan Schedule.
"Loan Documents" means all of Seller's original agreements with any
Obligor of a Loan, and all of the following in the original (except as
other-wise noted) to the extent they exist in Seller's loan files, for any Loan
that Buyer proposes to buy pursuant to its Response: all loan applications,
correspondence, general credit information, file maintenance information,
payment histories, credit information files, records, executed notes (which may
be copies), documents, disclosures, receipts, drafts, instruments, notices,
acknowledgments, mortgages (which may be copies), deeds of trust (which may be
copies), security deeds (which may be copies), title insurance policies, title
opinions, property appraisals, property surveys, insurance policies, property
insurance policies, mortgage insurance policies, flood insurance policies,
guarantees, and any like and other information relating to the Loans that is
maintained in individual loan files or on a loan-by-loan basis, including such
data stored on microfilm, microfiche, magnetic tape, computer disc, or in any
other form.
"Loan Schedule" means the list of Loans, consisting of the Offered
Loans less any Excluded Loans.
"Loan-To-Value Ratio" or "LTV means" with respect to any Loan, the
ratio of the outstanding principal amount of the Loan and, if the Loan purchased
hereunder is secured by a second lien, any lien on the Mortgaged Property senior
to the lien of the Loan as of the origination date to the lesser of (a) the
Appraised Value of the Mortgaged Property and (b) if the Loan was made to
finance the acquisition of the related Mortgaged Property, the purchase price of
the Mortgaged Property, expressed as a percentage.
3
<PAGE> 8
"Monthly Payment" means the scheduled monthly payment of principal
and interest on a Loan.
"Mortgage" means, with respect to a Loan, any mortgage, deed of trust,
security deed, or other similar instrument creating a lien on residential real
property to secure repayment of such Loan, or a true and correct copy thereof.
"Mortgage File" means collectively, the Credit File and the Legal File
for any Loan.
"Mortgage Interest Rate" means the annual rate of interest borne on a
Note, net of any primary mortgage guaranty insurance premium.
"Mortgaged Property" means, with respect to each Mortgage, the
property subject to such Mortgage.
"Note" means, with respect to a Loan, the original promissory note
executed by the respective Obligor to evidence such Obligor's indebtedness under
such Loan.
"Obligor" means, with respect to an Offered Loan, any person obligated
for payment of such Offered Loan or who has transferred or assigned any property
Interest to Seller to secure payment of such Offered Loan.
"Offer" means each offer from Seller to Buyer to sell a portfolio of
Offered Loans and the right to service each such Offered Loan pursuant to the
procedures set forth in Section 2.1, which Offer shall include an Offered Loan
Schedule.
"Offer Date" means, with respect to each Offer, the date on which
Seller sends such Offer to Buyer.
"Offered Loan" means any mortgage loan that is secured by a first or
second position lien on completed, one-to-four family residential real estate,
and that Seller owns and offers to Buyer to purchase pursuant to an Offer.
"Offered Loan Schedule" means the schedule of Offered Loans attached
to the Offer, which lists to the extent and as available the mapping document
information relating to each Offered Loan required to be included in each Offer,
as set forth in Schedule I to this Agreement, and which shall be in electronic
format and, if requested by Buyer, hard copy.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool Balance" means, with respect to each Offer and each portfolio of
Loans to be purchased pursuant to this Agreement, the aggregate outstanding
Principal Balance of the Loans in such portfolio as of the Cut-off Date.
4
<PAGE> 9
"Premium" means the product of the Principal Balance times the Bid
Percentage, minus the Principal Balance.
"Principal Balance" means, with respect to a Loan and a particular
Offer, the unpaid principal balance of such Loan as of the Cut-off Date, as
shown on the books and records of Seller, provided that the Principal Balance
shall not include any accrued but unpaid fees or charges.
"Purchase Price" means, the price paid by Buyer for the Loans acquired
pursuant to the Response, which shall be calculated according to the following
formula:
(a) the product of
(i) the Bid Percentage and
(ii) the Pool Balance minus the aggregate amount, if any, of all
payments of principal made to and retained by Seller on the
Loans acquired from the Cut-off Date up to, but not
including, the Settlement Date
(b) plus
(i) accrued but unpaid interest on each of the Loans at the
applicable per annum interest rate, as set forth on the Loan
Schedule from the paid-to-date of interest up to, but not
including the Settlement Date.
"RESPA" means the Real Estate Settlement Procedures Act, 12 U.S.C.
Section 2601 et seq.
"Response" means the letter from Buyer to Seller setting forth the Bid
Percentage and attaching as Schedule A, a list of any Excluded Loans.
"Second Mortgage Loan" means with respect to each Offer those Loans
secured by a Mortgage which represents a second lien.
"Seller" means Austin Funding, a Texas corporation.
"Service Transfer Date" means, unless otherwise agreed by the parties,
the date which is 15 days after the date on which Seller sends its notices
pursuant to Section 6.1 and on which Seller transfers to Buyer or Buyer's
designee all servicing responsibilities relating to all the Loans sold on the
corresponding Settlement Date pursuant to Section 2.6.
"Settlement" means, with respect to each portfolio of Loans to be sold
pursuant to this Agreement, the satisfaction of the conditions set forth in
Section 7, and the sale and purchase of, such portfolio of Loans.
5
<PAGE> 10
[PAGE MISSING]
6
<PAGE> 11
(c) By executing the Response, Seller agrees to sell the Loans, or
cause the Loans to be sold to Buyer pursuant to and in accordance with the terms
of the Response and this Agreement.
Section 2.3 Purchase of Loans and Servicing Rights.
(a) Subject to the terms and conditions set forth in this Agreement,
(i) Seller shall sell, transfer, assign, and convey to Buyer,
without recourse, but subject to the terms of this Agreement, and
Buyer shall purchase and take on the Settlement Date, all of Seller's
right, title, and interest in and to the Loans listed in the Response;
(ii) Seller shall sell, transfer, assign, and convey to Buyer,
and Buyer shall purchase and take on the Settlement Date, all of
Seller's right, title, and interest in and to all escrow deposits held
in connection with the Loans listed in the Response; and
(iii) Seller shall also irrevocably assign to Buyer, and Buyer
shall take on the Settlement Date, Seller's right to service each Loan
sold pursuant to the Response and to collect any servicing fee in
connection with such Loan.
Section 2.4 Purchase Price. The Purchase Price for the Loans purchased at
each Settlement shall be based on the Bid Percentage set forth in the Response
and shall be calculated according to the formula set forth in the definition of
the term Purchase Price.
Section 2.5 Premium Rebate. In the event that a Premium is paid by the
Buyer to the Seller on a Loan and such Loan is prepaid in full by the Borrower,
other than by a refinancing by the Buyer or any of its subsidiaries or
affiliates, within twelve (12) months of Settlement Date, the Seller shall, upon
demand by the Buyer, refund to the Buyer the Premium paid by the Buyer to the
Seller as follows: if prepayment in full is within one (1) month of the
Settlement Date, 12/12ths of the Premium shall be refunded; if prepayment in
full is between one (1) and two (2) months of the Settlement Date, 11/12ths of
the Premium shall be refunded; if prepayment in full is between two (2) and
three (3) months of the Settlement Date, 10/12ths of the Premium shall be
refunded; if prepayment in full is between three (3) and four (4) months of the
Settlement Date, 9/12ths of the Premium shall be refunded; if prepayment in full
is between four (4) and five (5) months of the Settlement Date, 8/12ths of the
Premium shall be refunded; if prepayment in full is between five (5) and six
(6) months of the Settlement Date, 7/12ths of the Premium shall be refunded; if
prepayment in full is between six (6) and seven (7) months of the Settlement
Date, 6/12ths of the Premium shall be refunded; if prepayment in full is
between seven (7) and eight (8) months of the Settlement Date, 5/12ths of the
Premium shall be refunded; if prepayment in full is between eight (8) and
nine (9) months of the Settlement Date, 4/12ths of the Premium shall be
refunded; if prepayment in full is between nine (9) and ten (10) months of the
Settlement Date, 3/12ths of the Premium shall be refunded; if prepayment in full
is between ten (10) and eleven (11) months of the Settlement Date, 2/12ths of
the Premium shall be refunded; if prepayment in full is between eleven (11) and
twelve (12) months of the Settlement Date, 1/12th of the Premium shall be
refunded. In the event any Loan
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is prepaid in full later than twelve (12) months from the Settlement Date of
such Loan, no refund shall be due. In the event the Note carries a prepayment
penalty, the Buyer agrees to recapture the Premium rebate from the proceeds of
the prepayment penalty and then from Seller, if there is any deficient balance
according to the refund calculation specified above.
Section 2.6 Transfer of Servicing. As of each Settlement Date, Seller shall
transfer to Buyer any and all rights to service the Loans sold on the related
Settlement Date, including but not limited to Seller's right to receive all
payments and receivables with respect to the Loans, ownership of Escrow
Payments, and all servicing rights as owner and holder of the Loans.
Notwithstanding the foregoing, Seller shall continue to service the Loans for
Buyer following the Settlement Date and until the corresponding Service Transfer
Date as set forth in Section 5.1, and Buyer shall assume responsibility for
servicing the Loans on and after such Service Transfer Date. Seller shall ensure
that all escrow balances are received by Buyer within three (3) days of the
Service Transfer Date. If such balances are not received by Buyer within three
(3) days, Seller shall remit to Buyer in immediately available funds, an amount
equal to said balances.
SECTION 3 SETTLEMENT
Section 3.1 Place and Time of Settlement. Each Settlement shall take place
via facsimile and wire transfer with original documents delivered via overnight
courier on the Settlement Date, which shall be within 2 Business Days of the
satisfaction of all conditions to Settlement, as set forth herein, or on such
other day as mutually agreed to by the parties.
Section 3.2 Seller's Deliveries at Settlement. On or before each
Settlement, Seller shall deliver the following to Buyer:
(a) the form of notice of servicing transfer, to be sent by Seller
pursuant to Section 6.1 for each Loan as required by RESPA, which form shall
indicate the date on which it shall be sent by Seller;
(b) the Mortgage File with respect to each Loan sold at such
Settlement, the contents of which are subject to the approval of Buyer and its
legal counsel as to proper form and execution provided, however, to the extent
Seller continues to service the Loans after Settlement, the Credit File shall be
retained by Seller and delivered to Buyer ten (10) days prior to the Service
Transfer Date, and
(c) all other documents, instruments and writings required to be
delivered by Seller prior to or at such Settlement pursuant to Section 7.1 of
this Agreement or as reasonably requested by Buyer.
Section 3.3 Buyer's Deliveries at Settlement. At each Settlement, Buyer
shall deliver the following to Seller:
(a) the Purchase Price for the Loans sold at such Settlement by wire
transfer of immediately available funds in U.S. dollars to the account
designated by Seller.
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SECTION 4 REPRESENTATIONS AND WARRANTIES
Section 4.1 General Representations and Warranties of Seller. As of the
date hereof, and as of each Settlement Date, Seller represents and warrants as
follows:
(a) Organization. Seller is a corporation, duly organized, validly
existing, and in good standing under the laws of the State of Texas, and is
qualified and authorized to transact business in, and is in good standing under
the laws of, each jurisdiction in which any Mortgaged Property is located or is
otherwise exempt under applicable law from such qualification. Seller has the
requisite corporate power and authority to own and operate its properties, to
carry on its business as it is now being conducted, and to consummate the
transactions contemplated by this Agreement.
(b) Authorization of this Agreement. Seller has the requisite
corporate power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Seller are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller and constitutes a legal, valid, and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except that such
enforcement may be affected by bankruptcy, by other insolvency laws, or by
general principles of equity.
(c) Ordinary Course of Business. The consummation of the transactions
contemplated by this Agreement are in the ordinary course of business of Seller,
and the transfer, assignment and conveyance of the Notes and the Mortgages by
Seller pursuant to this Agreement are not subject to the bulk transfer or any
similar statutory provisions in effect in any applicable jurisdiction.
(d) No Conflict or Violation. The execution and delivery of this
Agreement by Seller does not, and the performance of this Agreement by Seller
will not, (i) result in a violation of or conflict with any provisions of the
charter or by-laws or equivalent governing instruments of Seller, (ii) violate
any law, rule, regulation, code, ordinance, judgment, injunction, order, writ,
decree, or ruling applicable to Seller, or (iii) conflict with or violate any
agreement, permit, concession, grant, franchise, license, or other governmental
authorization or approval necessary for sale of the Loans by Seller. No
regulatory approvals or consents are required with respect to Seller's
consummation of the transactions contemplated by this Agreement.
(e) Litigation. No action, suit, proceeding, or governmental
investigation or inquiry is currently pending, or to the knowledge of Seller,
threatened against Seller which, if adversely determined, would have a material
adverse effect on the business, combined assets or financial condition of Seller
or on the Loans or would prevent the consummation of the transactions
contemplated by this Agreement.
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(f) Financial Condition. Seller has previously furnished Buyer with
Seller's most recent audited financial statements, together with the respective
reports thereon of the Seller's independent public accountants, and Seller's
most recent unaudited financial statements, each of which has been prepared in
accordance with generally accepted accounting principles. Each of the balance
sheets included in the financial statements sets forth Seller's financial
condition as of the date thereof, and there have been no material adverse
changes in Seller's business or financial condition since that date.
(g) Accuracy of Statement. Neither this Agreement, nor any statement,
report, or other document furnished or to be furnished pursuant to this
Agreement, or in connection with the transaction contemplated hereby, contains
any untrue statement of fact by Seller, or omits to state a fact, necessary to
make the statements of Seller contained therein not misleading.
(h) Fidelity Bond. Upon request Seller will deliver to Buyer a true
and correct copy of Seller's Fidelity bond and Seller's errors and omissions
policy, as currently in effect, the amounts and coverages of both of which will
be acceptable to Buyer. Seller shall, at its own expense, maintain a fidelity
bond and an errors and omissions policy, in amounts at least as great as, and
with the coverages at least as broad as, those currently in effect. Seller shall
upon request furnish proof of such coverage at or before the first Settlement
and, upon request, annually thereafter.
(i) Ability to Perform: Solvency. Seller 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. Seller is solvent and sale of the Mortgage
Loans will not cause Seller to become insolvent. The sale of the Loans is not
undertaken with the intent to hinder, delay or defraud any of the Seller's
creditors.
(j) No Consent Required. No consent, approval, authorization or order
of any court or governmental agency or body is required for the execution,
delivery and performance by Seller of or compliance by Seller with this
Agreement or the Loans, or the sale of the Loans to the Buyer or the
consummation of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to each Settlement Date.
(k) Selection Process. The Loans were not intentionally selected in a
manner so as to adversely affect the interests of the Buyer.
(1) Commissions to Third Parties. Seller has not dealt with any broker
or agent or other Person who might be entitled to a fee, commission or
compensation in connection with this transaction other than the Buyer except as
Seller has previously disclosed to Buyer in writing.
(m) Fair Consideration. The consideration received by Seller upon the
sale of the Loans under this Agreement constitutes fair consideration and
reasonably equivalent value for the Loans,
(n) No Personal Solicitation. For a period of three (3) years from and
after each Settlement Date, Seller agrees that it will not take any action or
permit or cause any action to be
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taken by any of its agents and Affiliates, or by any independent contractors or
independent mortgage brokerage companies on Seller's behalf, to personally, by
telephone or mail, solicit the borrower or Obligor under any Loan for any
purpose whatsoever, including to refinance a Loan, in whole or in part, without
the prior written consent of the Buyer. It is understood and agreed that all
rights and benefits relating to the solicitation of any Obligors and the
attendant rights, title and interest in and to the list of such Obligors and
data relating to their mortgages (including insurance renewal dates) shall be
transferred to the Buyer pursuant hereto on each Settlement Date and Seller
shall take no action to undermine these rights and benefits. Notwithstanding the
foregoing, it is understood and agreed that promotions undertaken by Seller or
any affiliate of Seller which are directed to the general public at large,
including, without limitation, mass mailing based on commercially acquired
mailings lists, newspaper, radio and television advertisements shall not
constitute solicitation under this paragraph.
Section 4.2 Representations and Warranties of Seller Regarding the Offered
Loans. With respect to each Offer, Seller represents and warrants to, and
covenants with Buyer that, as of the corresponding Offer Date:
(a) Accuracy of Statements. The information contained in the Offered
Loan Schedule and all information provided regarding delinquencies in the
Offered Loans are true and correct in all respects, Neither the Offered Loan
Schedule nor the Loan Documents nor any other document furnished in connection
with the Offer contains any untrue statement of fact by Seller, or omits to
state a fact, necessary to make the statements of Seller contained therein not
materially misleading.
(b) Origination. Each of Offered Loans meets the underwriting
standards of Seller, which standards are set forth in Schedule 2 to this
Agreement, and were underwritten in strict accordance therewith. Each Loan was
originated by a mortgagee approved by the Secretary of Housing and Urban
Development pursuant to Section 203 and 211 of the National Housing Act or a
savings and Loan association, a savings bank, a commercial bank, a credit union,
an insurance company, or similar institution which is supervised and examined by
a Federal or State authority. The Note, the Mortgage and all other documents
contained in the Legal Files are on FNMA or FHLMC uniform instruments or are on
forms acceptable to FNMA or FHLMC. The documents, instruments and agreements
submitted for loan underwriting were not falsified and contain no untrue
statement of material fact and do not omit to state a material fact required to
be stated therein or necessary to make the information and statements therein
not misleading. Seller has not made any representations to the Obligor that are
inconsistent with the mortgage instruments used.
(c) Genuineness of Signature. All Loan Documents are genuine and
contain genuine signatures. The Loan Documents that Buyer requires to be
original documents are original documents. All certified copies of original
documents are true copies and meet the applicable requirements and
specifications of this Agreement and any other requirements that Buyer has
reasonably made of Seller.
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Section 4.3 Representations and Warranties of Seller Regarding the Loans.
With respect to each Loan, Seller represents and warrants to, and covenants with
Buyer that, as of the Settlement Date on which such Loan is sold:
(a) Title to Loans. Seller has good title to and is the sole owner of
record and holder of the Loan and the indebtedness evidenced by each Note.
Unless otherwise disclosed in the Loan Documents or the Offered Loan Schedule,
Seller is the original mortgagee or assignee of the Mortgage, and there has been
no more than one prior assignment and no sale, or hypothecation by Seller of the
Loan. The Loan is not assigned or pledged, and Seller has good, indefeasible and
marketable title thereto, and has full right to transfer and sell the Loan to
the Buyer free and clear of any encumbrance, equity interest, participation
interest, lien, pledge, charge, claim or security interest, and has full right
and authority subject to no interest or participation of, or agreement with, any
other party, to sell and assign each Loan pursuant to this Agreement and
following the sale of each Loan, Buyer will own such Loan free and clear of any
encumbrance, equity interest, participation interest, lien, pledge, charge,
claim or security interest.
(b) Accuracy of the Offered Loan Schedule. The Loan is as described
in the Offered Loan Schedule delivered by Seller to Buyer, and the information
contained in the Offered Loan Schedule is true and correct as of the Settlement
Date.
(c) Payment. As of the Settlement Date, no loan is 30 or more days
delinquent (determined on a contractual basis), no Loan will have been 30 or
more days delinquent (determined on a contractual basis) more than once during
the 12 months preceding the Settlement Date and the borrower has made, or shall
make, as the case may be, the first monthly payment with respect to the Loan on
its Due Date.
(d) No Outstanding Charge. There are no defaults in complying with the
terms of the Mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground rents
which previously became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and payable.
Seller has not advanced funds, or induced or solicited or knowingly received any
advance of funds by a party other than the Obligor, direct or indirectly, for
the payment of any amount required under the Loan, except for interest accruing
from the date of the Note or date of disbursement of the Loan proceeds,
whichever occurred later, to the day which precedes by one month the Due Date of
the first Monthly Payment.
(e) Original Terms Unmodified. The terms of the Note and Mortgage have
not been impaired, waived, altered or modified in any respect, except by a
written instrument which has been recorded, if necessary to protect the
interests of the Buyer. The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the policy, and its terms are reflected on the Loan Schedule. No Obligor has
been released, in whole or in part, except in connection with an assumption
agreement approved by the title insurer, to the extent required by the policy,
and which assumption agreement is part of the Legal File.
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(f) Absence of Defenses. The Mortgage and the Note are not subject to
any right of rescission, set-off, counterclaim, or defense (including the
defense of usury), based on the invalidity or unenforceability of the Note
and/or Mortgage or on any conduct of Seller or any of its officers, employees,
representatives, or Affiliates in originating or servicing the Loan prior to the
Settlement Date. Nor will the operation of any of the terms of the Loan or Note,
or the exercise of any right thereunder, render the Loan or Note unenforceable,
in whole or in part, or subject to any right of rescission, set-off,
counterclaim, or defense (including the defense of usury) based on any such
invalidity, unenforceability or conduct. No right of rescission, set-off,
counterclaim, or defense with respect thereto has been asserted to Seller or, to
Seller's knowledge, has been asserted to any other person.
(g) Hazard insurance. Pursuant to the terms of the Mortgage, all
improvements upon the Mortgaged Property are insured by an insurer acceptable to
FNMA against loss by fire and such other risks (excluding mud slides and
earthquakes) as are usually insured against in the broad form of extended
coverage hazard insurance from time to time available, including flood hazards
if upon origination of the Loan, the Mortgaged Property was in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards (and if flood insurance was required by federal
regulation and such flood insurance has been made available). All such insurance
policies (collectively, the "hazard insurance policy") meet the requirements of
the current guidelines of the Federal Insurance Administration, conform to the
requirements of the FNMA Sellers' Guide and the FNMA Servicers' Guide, and are a
standard policy of insurance for the locale where the Mortgaged Property is
located. The amount of the insurance is at least in the amount of the full
insurable value of the Mortgaged Property on a replacement cost basis or the
unpaid balance of the Mortgage Loan, whichever is less. The hazard insurance
policy names (and will name) the Obligor as the insured and contains a standard
mortgagee loss payable clause in favor of Seller (or Seller's servicer) and its
successors and assigns. The Mortgage obligates the Obligor thereunder to
maintain the hazard insurance policy at the Obligor's cost and expense, and on
the Obligor's failure to do so, authorizes the holder of the Mortgage to obtain
and maintain such insurance at such Obligor's cost and expense, and to seek
reimbursement therefor from the Obligor. Where required by state law or
regulation, the Obligor has been given an opportunity to choose the carrier of
the required hazard insurance, provided the policy is not a "master" or
"blanket" hazard insurance policy covering a condominium, or any hazard
insurance policy covering the common facilities of a planned unit development.
The hazard insurance policy is the valid and binding obligation of the insurer,
is in full force and effect, and will be in full force and effect and inure to
the benefit of the Buyer upon the consummation of the transactions contemplated
by this Agreement. Seller has not engaged in, and has no knowledge of the
Obligor's or any subservicer's having engaged in, any act or omission which
would impair the coverage of any such policy, the benefits of the endorsement
provided for therein, or the validity and binding effect of either. In
connection with the issuance of the hazard insurance policy, no unlawful fee,
commission, kickback or other unlawful compensation or value of any kind has
been or will be received, retained or realized by any attorney, firm or other
person or entity, and no such unlawful items have been received, retained or
realized by Seller.
(h) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures,
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consumer credit protection, equal credit opportunity or disclosure laws
applicable to the Loan have been complied with by Seller and, if Seller is not
the originator of any such Loan, by the originator of such Loan, and the
consummation of the transactions contemplated hereby will not involve the
violation of any such laws or regulations.
(i) No Satisfaction of Mortgage or Note. Neither the Mortgage nor the
Note has been satisfied, cancelled, subordinated or rescinded, in whole or in
part, 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. Seller has
not waived the performance by the Obligor of any action, if the Obligor's
failure to perform such action would cause the Mortgage Loan to be in default,
nor has Seller waived any default resulting from any action or inaction by the
Obligor.
(j) Location and Type of Mortgaged Property. The Mortgaged Property
consists of a parcel of real property with a single family residence erected
thereon, or a two to four-family dwelling, or an individual condominium unit in
a low-rise or high-rise condominium project, or an individual unit in a planned
unit development. The Mortgaged Property is either a fee simple estate or a
long-term residential lease. If the Loan is secured by a long-term residential
lease, (A) the terms of such lease expressly permit the mortgaging of the
leasehold estate, the assignment of the lease without the lessor's consent (or
the lessor's consent has been obtained and such consent is in the Mortgage File)
and the acquisition by the holder of the Mortgage of the rights of the lessee
upon foreclosure or assignment in lieu of foreclosure or provide the holder of
the Mortgage with substantially similar protection; (B) the terms of such lease
do not (i) allow the termination thereof upon the lessee's default without the
holder of the Mortgage being entitled to receive written notice of, and
opportunity to cure, such default, (ii) allow the termination of a lease in the
event of damage or destruction as long as the Mortgage is in existence or (iii)
prohibit the holder of the Mortgage from being insured under the hazard
insurance policy relating to the Mortgaged Property; (C) the original term of
such lease is not less than 15 years; (D) the term of such lease does not
terminate earlier than five years after the maturity date of the Note; and (E)
the Mortgaged Property is located in a jurisdiction in which the use of
leasehold estates for residential properties is a widely-accepted practice.
(k) Valid Lien. The Mortgage for any First Mortgage Loan creates a
valid, subsisting, enforceable and perfected first lien on the Mortgaged
Property, and the Mortgage for any Second Mortgage Loan creates a valid,
subsisting, enforceable and perfected second lien on the Mortgaged Property, and
in each case includes all buildings on the Mortgaged Property and all
installations and mechanical, electrical, plumbing, heating and air conditioning
systems located in or annexed to such buildings, and all additions, alterations
and replacements made at any time with respect to the foregoing. The lien of the
Mortgage is subject only to "Permitted Exceptions," which consist of the
following:
(1) the lien of current real property taxes and assessments not yet
due and payable;
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(2) covenants, conditions and restrictions, rights of way, easements
and other matters of the public record as of the date of recording
acceptable to prudent mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy delivered
to the originator of the Loan and referred to or otherwise considered in
the appraisal made for the originator of the Loan;
(3) 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; and
(4) a valid first lien in the case of Loans in a Second Mortgage Loan.
Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with a First Mortgage Loan establishes and creates a
valid, subsisting, enforceable and perfected first lien and first priority
security interest on the property described therein, and with respect to a
Second Mortgage Loan, a second priority security interest, and Seller has full
right to sell and assign the same to the Buyer. Except as noted on the Loan
Schedule, for any First Mortgage Loan the Mortgaged Property was not, as of the
respective date of origination of said First Mortgage Loan, subject to a
mortgage, deed of trust, deed to secure debt or other security instrument
creating a lien, subordinate to the lien of the Mortgage.
(1) Validity of Mortgage Documents. The Note and the Mortgage and
every other agreement, if any, executed and delivered by the Obligor in
connection with the Loan are genuine, and each is the legal, valid and binding
obligation of the maker thereof enforceable in accordance with its terms. All
parties to the Note, the Mortgage and each other such related agreement had
legal capacity to enter into the Loan and to execute and deliver the Note, the
Mortgage and each other such related agreement, and the Note, the Mortgage and
each other such related agreement have been duly and properly executed by the
respective Obligors. Seller has reviewed all of the documents constituting the
Mortgage File and has made such inquiries as it deems necessary to make and
confirm the accuracy of the representations set forth herein.
(m) Full Disbursement of Proceeds. The Loan has been closed, and in
the case of a First Mortgage Loan the proceeds of the 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 improvement and
as to disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making or closing the Loan and the
recording of the Mortgage were paid, and the Obligor is not entitled to any
refund of any amounts paid or due under the Note or Mortgage.
(n) Doing Business. All parties which have had an interest in the
Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the
period in which they held and disposed of such interest, were) (1) in compliance
with any and all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located, and (2) (a) organized under the laws
of such state, or (b) qualified to do business in such state, or (c) federal
savings and loan
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associations, savings banks, or national banks having principal offices in such
state, or (d) not doing business in such state.
(o) LTV. The initial principal balance of each Loan was less than or
equal to 100% of the lesser of the Appraised Value of the Mortgaged Property at
the time the Loan was originated or the sales price of the Mortgaged Property.
(p) Title Insurance. The Loan is covered by either (a) an attorney's
opinion of title and abstract of title the form and substance of which is
acceptable to FNMA or (b) an ALTA lender's title insurance policy or other
generally acceptable form of policy of insurance issued by a title insurer
qualified to do business in the jurisdiction where the Mortgaged Property is
located, insuring Seller, its successors and assigns, as to the first priority
lien of the Mortgage in the original principal amount of the First Mortgage
Loan, and as to the second priority lien on the Mortgage in the original
principal amount of the Second Mortgage Loan, subject only to the Permitted
Exceptions and against any loss by reason of the invalidity or unenforceability
of the lien resulting from the provisions of the Mortgage providing for
adjustment in the Mortgage Interest Rate and Monthly Payment. 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. Where required by state law or regulation, the Obligor has been given
the opportunity to choose the carrier of such lender's title insurance policy.
Seller, its successors and assigns are the sole insureds of such lender's title
Insurance policy, and such lender's title insurance policy is valid and remains
In full force and effect and will be in full force and effect upon the sale of
the Loan to the Buyer. No claims have been made under such lender's title
insurance policy, and no prior holder of the mortgage, including Seller, has
done, by act or omission, anything which would impair the coverage of such
lender's title Insurance policy. In connection with the issuance of such
lender's title insurance policy, no unlawful fee, commission, kickback or other
unlawful compensation or value of any kind has been or will be received,
retained or realized by any attorney, firm or other person or entity, and no
such unlawful items have been received, retained or realized by Seller.
(q) No Defaults. There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Note or related documents and
no event which, with the passage of time or with notice and the expiration of
any applicable grace or cure period, would constitute a default, breach,
violation or event of acceleration, and neither Seller nor its predecessors have
waived any default, breach, violation or event of acceleration.
(r) No Mechanics' Liens. 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 the law could give rise to such liens) affecting the
related Mortgaged Property which are or may be liens prior to, or equal or
coordinate with, the lien of the related Mortgage.
(s) Location of Improvements; No Encroachments. All improvements which
were considered in determining the Appraised Value of the 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; provided,
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that in no event shall a legal non-conforming use of the Mortgaged Property be
considered a violation of any such zoning law or regulation,
(t) Payment Terms. For fixed-rate Loans, the Note is payable in equal
monthly installments (other than the last payment) of principal and interest.
For adjustable-rate Loans, the Mortgage Interest Rate is adjusted in accordance
with the terms of tile Note and the Note is payable each month and, during an
adjustment period or initial period, in equal monthly installments of principal
and interest. All required notices of interest rate and payment amount
adjustments have been sent to the Obligor on a timely basis and the computations
of such adjustments were properly calculated. Installments of interest are
subject to change due to the adjustments to the Mortgage Interest Rate of each
Interest Rate Adjustment, 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. All Mortgage interest rate adjustments have been made in strict
compliance with state and federal law and the terms of the related Note. Any
interest required to be paid pursuant to state and local law has been properly
paid and credited.
(u) Customary Provisions. 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, (1) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure. Upon default by an Obligor on a Loan and foreclosure on,
or trustee's sale of, the Mortgaged Property pursuant to the proper procedures
the holder of the Loan will be able to deliver good and merchantable title to
the Mortgaged Property. There is no homestead or other exemption available to
the Obligor which would interfere with the right to sell the Mortgaged Property
at a trustee's sale or the right to foreclose the Mortgage subject to applicable
federal and state laws and judicial precedent with respect to bankruptcy and
right of redemption.
(v) Occupancy of the Mortgaged Property. All inspections, licenses and
certificates required to be made or issued with respect to all occupied portions
of the Mortgaged Property and with respect to the use and occupancy of the same,
including but not limited to certificates of occupancy and fire underwriting
certificates, have been made or obtained from the appropriate authorities.
(w) No Additional Collateral. The Note is not and has not been secured
by any collateral except the lien of the corresponding Mortgage and the security
interest of any applicable security agreement or chattel mortgage referred to in
the "Valid Lien" representation above.
(x) Deeds of Trust. In the event the Mortgage constitutes a deed of
trust, a trustee, authorized and 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 Buyer to the
trustee under the deed of trust, except in connection with a trustee's sale
after default by the Obligor.
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(y) Due on Sale. The Mortgage for a First Mortgage Loan contains a
provision for the acceleration of the payment of the unpaid principal balance of
the Loan in the event that the Mortgaged Property is sold or transferred without
the prior written consent of the mortgagee thereunder, at the option of the
mortgagee. This provision provides that the mortgagee cannot exercise its option
if either (a) the exercise of such option is prohibited by federal law or (b)(i)
the Obligor causes to be submitted to the mortgagee information required by the
mortgagee to evaluate the intended transferee as if a new loan were being made
to such transferee and (ii) the mortgagee reasonably determines that the
mortgagee's security will not be impaired by the assumption of such Loan by the
transferee and that the risk of breach of any covenant or agreement in the Loan
documents is acceptable to the mortgagee. To the best of Seller's knowledge,
such provision is enforceable.
(z) Transfer of Loans. Each of the Mortgage and 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.
(aa) No Buydown Provisions; No Graduated Payments or Contingent
Interests. The Loan does not contain provisions pursuant to which Monthly
Payments are paid or partially paid with funds deposited in any separate account
established by Seller, the Obligor or anyone on behalf of the Obligor, or paid
by any source other than the Obligor nor does it contain any other similar
provisions currently in effect which may constitute a "buydown" provision. The
Loan is not a graduated payment mortgage loan and the Loan does not have a
shared appreciation or other contingent interest feature.
(bb) Consolidation of Future Advances. Any future advances made to the
Obligor prior to the Offer Date 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 lien
of the Mortgage securing the consolidated principal amount is expressly insured
as having first lien priority, if a First Mortgage Loan, or as having a second
lien priority, if a Second Mortgage Loan, by a title insurance policy, an
endorsement to the policy insuring the mortgagee's consolidated interest or by
other title evidence acceptable to the Buyer. The consolidated principal amount
does not exceed the original principal amount of the Mortgage Loan.
(cc) Mortgaged Property Undamaged; No Condemnation Proceedings. There
is no proceeding pending or, to the best of Seller's knowledge upon reasonable
due inquiry and investigation, threatened for the total or partial condemnation
of the Mortgaged Property. The Mortgaged Property is 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 Loan
or the use for which the premises were intended and each Mortgaged Property is
in good repair. There have not been any condemnation proceedings with respect to
the Mortgaged Property and Seller has no knowledge of any such proceedings in
the future.
(dd) Collection Practices, Escrow Deposits. The origination, servicing
and collection practices used by Seller with respect to the Loan have been in
accordance with Accepted Servicing Practices and are in all respects in
compliance with all applicable laws and regulations, With respect
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to escrow deposits and Escrow Payments, all such payments are in possession of
Seller or the servicer of such Loan and there exist no deficiencies in
connection therewith for which customary arrangements for repayment thereof have
not been made. All Escrow Payments have been collected in full compliance with
state and federal law. Unless prohibited by applicable law, an escrow of funds
has been established in an amount sufficient to pay for every item which remains
unpaid and which has been assessed but is not yet due and payable. No escrow
deposits or Escrow Payments or other charges or payments due Seller have been
capitalized under the Mortgage or the Note.
(ee) Appraisals. Seller has delivered to Buyer an appraisal of the
Mortgaged Property signed prior to the approval of the Mortgage application by a
qualified appraiser, who (i) is licensed in the state where the Mortgaged
Property is located, (ii) is acceptable to Buyer, (iii) has no interest, direct
or indirect, in the Mortgaged Property or in any loan on the security thereof,
and (iv) does not receive compensation that is affected by the approval or
disapproval of the Loan. The appraisal shall be completed in compliance with the
Uniform Standards of Professional Appraisal Practice, and all applicable federal
and state laws and regulations.
(ff) Soldiers' and Sailors' Relief Act. The Obligor has not notified
the Seller and the Seller has no knowledge of any relief requested or allowed
to, the Obligor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(gg) Environmental Matters. To the best of the Seller's knowledge,
there exists no violation of any local, state or federal environmental law, rule
or regulation in respect of the Mortgaged Property which violation has or could
have a material adverse effect on the market value of such Mortgaged Property,
Seller has no knowledge of any pending action or proceeding directly involving
the related Mortgaged Property in which compliance with any environmental law,
rule or regulation is in issue, and, to the best of Seller's knowledge, nothing
further remains to be done to satisfy in full all requirements of each such law,
rule or regulation constituting a prerequisite to the use and enjoyment of such
Mortgaged Property.
(hh) Obligor Acknowledgment. The Obligor has executed a statement to
the effect that the Obligor has received all disclosure materials required by
applicable law with respect to the making of adjustable rate mortgage loans.
Seller shall maintain or cause to be maintained such statement in the Credit
File.
(ii) No Construction Loans. The Loan was not made in connection with
(a) the construction or rehabilitation of a Mortgaged Property or (b)
facilitating the trade-in or exchange of a Mortgaged Property, EXCEPT AS
DISCLOSED TO BUYER.
(jj) Selection. The Loans were not selected for inclusion under this
Agreement from among the Seller's mortgage loan portfolio on any basis which
would have an adverse affect on the interests of the Buyer.
(kk) Circumstances Affecting, Value, Marketability or Prepayment.
Except as otherwise disclosed to the Buyer, Seller has no knowledge of any
circumstances or conditions with respect to the Mortgage, the Mortgaged
Property, the Obligor, or the Obligor's credit standing that
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could reasonably be expected to adversely affect the value or the marketability
of any Mortgaged Property or Loan, subject to the economic and geological
conditions generally and specifically to the area in which the Mortgaged
Property is located.
Section 4.4 General Representations and Warranties of Buyer. As of the date
hereof, and as of each Settlement Date, Buyer represents and warrants as
follows:
(a) Organization. Buyer is a corporation, duly organized, validly
existing, and in good standing under the laws of the state of its incorporation,
and is qualified and authorized to transact business in, and is in good standing
under the laws of, each jurisdiction in which any Mortgaged Property is located
or is otherwise exempt under applicable law from such qualification. Buyer has
the requisite corporate power and authority to own and operate its properties,
to carry on its business as it is now being conducted, and to consummate the
transactions contemplated by this Agreement.
(b) Authorization of this Agreement. Buyer has the requisite corporate
power and authority to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporation action, and no
other corporate proceedings on the part of Buyer are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Buyer and constitutes a legal, valid,
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms, except that such enforcement may be affected by bankruptcy, by other
insolvency laws, or by general principles of equity.
(c) No Conflict or Violation. The execution and delivery of this
Agreement by Buyer does not, and the performance of this Agreement by Buyer will
not, (i) result in a violation of or conflict with any provisions of the charter
or by-laws or equivalent governing instruments of Buyer, (ii) violate any law,
rule, regulation, code, ordinance, judgment, injunction, order, writ, decree, or
ruling applicable to Buyer, or (iii) conflict with or violate any agreement,
permit, concession, grant, franchise, license, or other governmental
authorization or approval necessary for purchase of the Loans by Buyer. No
regulatory approvals or consents are required with respect to Buyer's
consummation of the transactions contemplated by this Agreement.
(d) Litigation. No action, suit, proceeding, or governmental
investigation or inquiry is currently pending, or to the knowledge of Buyer,
threatened against Buyer which, if adversely determined, would have a material
adverse effect on the business, combined assets or financial condition of Buyer
or on the Loans or would prevent the consummation of the transactions
contemplated by this Agreement.
(e) Financial Condition. Buyer has previously furnished Seller with
Buyer's most recent audited financial statements, together with the respective
reports thereon of the Buyer's independent public accountants, and Buyer's most
recent unaudited financial statements, each of which has been prepared in
accordance with generally accepted accounting principles. Each of the balance
sheets included in the financial statements set forth Buyer's financial
condition as of the date
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thereof, and there have been no material adverse changes in Buyer's business or
financial condition since that date.
(f) Accuracy of Statements. Neither this Agreement, nor any statement,
report, or other document furnished or to be furnished pursuant to this
Agreement, or in connection with the transaction contemplated hereby, contains
any untrue statement of fact by Buyer or omits to state a fact necessary to make
the statements of Buyer contained therein not misleading.
(g) Ability to Perform; Solvency. Buyer 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. Buyer is solvent and the purchase of the
Mortgage Loans will not cause Buyer to become insolvent.
(h) No Consent Required. No consent, approval, authorization or order
of any court or governmental agency or body is required for the execution,
delivery and performance by Buyer of or compliance by Buyer with this Agreement
or the Loans, or the purchase of the Loans by Buyer or the consummation of the
transactions contemplated by this Agreement, or if required, such approval has
been obtained prior to each Settlement Date.
(i) No Commissions to Third Parties. Buyer has not dealt with any
broker or agent or other Person who might be entitled to a fee, commission, or
compensation in connection with this transaction other than the Seller.
SECTION 5 PRE-SETTLEMENT COVENANTS
Seller covenants and agrees that:
Section 5.1 Continued Servicing. Seller shall continue servicing the Loans
to be sold on each Settlement Date, until the related Service Transfer Date,
unless otherwise agreed to in writing by the parties, on Seller's system in
conformance with all of the requirements of the Loan Documents and applicable
law and in accordance with Accepted Servicing Practices. Seller shall send out
at its expense the notice required to be provided to Obligors for any Interest
Rate Adjustment scheduled to occur up to 10 days after the Service Transfer
Date.
Section 5.2 Preparation of Assignments. Prior to each Settlement Date,
Seller shall, at its sole expense, prepare and deliver an Assignment of Mortgage
in form and substance acceptable to Buyer and its counsel and any other security
documents corresponding to each Loan to be sold on such Settlement Date. Each
such assignment shall be sufficient to perfect the transfer of Seller's security
interest in the corresponding Mortgaged Property.
Section 5.3 IRS Reporting. To the extent required by law, Seller shall
report to the IRS and each Obligor the amount of interest paid (including
without limitation, the obligations with respect to Forms 1098 and 1099 and back
up withholding with respect to same, if required) by such Obligor on the Loan on
which he is the Obligor from the date of the advance made by Seller to such
Obligor
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through and including the Service Transfer Date, and Buyer shall thereafter
report to the IRS and each Obligor the amount of interest paid by such Obligor
on the Loan on which he is the Obligor.
Section 5.4 Compliance with Law. From the date of this Agreement to each
Settlement Date, Seller shall comply with and use its best efforts to cause each
Obligor to comply with all applicable state and Federal rules and regulations
including those requiring the giving of notices, and where applicable, Seller
warrants that it will comply with the National Housing Act of 1934, as from time
to time amended, the Servicemen's Readjustment Act of 1944, as amended, and with
all rules and regulations issued under said either such act.
Section 5.5 No Sale of Assets. Without the prior written consent of Buyer,
Seller shall not sell, lease, assign, transfer, encumber or permit the
encumbrance of, or otherwise dispose of:
(a) any of the Offered Loans from the date of the Offer until the
earlier of (i) the day on which Seller receives Buyer's Response or (ii) the
close of business on the day after which the Due Diligence Period expires; and
(b) any of the Loans included in the Loan Schedule to Buyer's Response
from the date on which such Response is received until the Settlement Date.
Section 5.6 Private Mortgage Insurance. Seller shall provide any
notification to private mortgage insurance companies necessary to ensure
continuation of such insurance upon transfer of the Loans to Buyer.
SECTION 6 POST-SETTLEMENT COVENANTS
Section 6.1 Notice of Servicing Transfer. Seller and Buyer shall each
comply with, and Seller shall assist Buyer in complying with, the notice
requirements of the Cranston Gonzalez National Affordable Housing Act of 1990.
Such compliance by each party shall include, without limitation, sending its own
notices of the transfer of servicing from Seller to Buyer, at its sole expense.
For each Loan, Seller shall deposit such notice in the United States mail within
five (5) business days after the Settlement Date on which such Loan is sold.
Seller's notice to each Obligor shall state that any payments due from such
Obligor that are due 15 or more days after the date on which Seller sends such
notice shall be made to Buyer. Seller's assistance to Buyer shall include
providing Buyer with any information that Seller has or has access to and that
Buyer reasonably requires to complete its notices. Buyer shall approve any such
notices sent by Seller, and Seller shall have the right to approve any such
notices sent by Buyer, prior to the date mailed. To enable the parties to
determine the Service Transfer Date, Seller shall, with respect to all Loans
sold on each Settlement Date, send all notices pursuant to this Section 6.1 on
the same day, and shall, upon sending such notices, inform Buyer of the date on
which such notices are sent. Within 10 days of each Settlement Date, Seller
shall deliver to Buyer a copy of the notice sent with respect to each Loan sold
on such Settlement Date.
Section 6.2 IRS Examination. Buyer and Seller shall cooperate fully with
each other in connection with any examination conducted by any tax authority
after each Settlement Date,
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provided that nothing herein shall be construed as obligating Buyer or Seller to
disclose or furnish any tax information not related to the transfer of the
Loans. Buyer and Seller shall inform each other promptly of any material
developments in the course of any such examination, the results of any such
examination, and any proceeding related thereto.
Section 6.3 Tax on Sale. Each party shall promptly pay in full and when due
any tax or other governmental charge or fee imposed upon it under applicable law
on the sale of the Loans from Seller to Buyer pursuant to this Agreement.
Section 6.4 Books and Records. Seller agrees to keep and maintain such
books and records so as to meet and comply with all applicable laws, and the
requirements or recommendations of ECOA and TILA. The same shall be available to
Buyer at any time, upon reasonable notice, during business hours, for
examination and audit to the extent required to determine compliance with such
laws. Such records shall include a loan register documenting all loan
applications taken by Seller.
Section 6.5 On Site Reviews. Seller agrees, upon reasonable notice and
during regular business hours, to Meet with Buyer from time to time to discuss
Seller's business activities related to this Agreement.
Section 6.6 Financial Statements. Each party shall furnish to the other for
as long as this Agreement is in effect, (i) as soon as available, and in any
event within 90 days after the end of each fiscal year, audited or certified
financial statements consisting of a balance sheet as of the end of such fiscal
year, together with related statements of income or loss and reinvested earnings
and changes in financial position for such fiscal year, prepared by independent
certified public accountants in accordance with generally accepted accounting
principles, and (ii) if available, within 10 days after the end of each
quarterly period unaudited financial statements which may be satisfied by
furnishing a copy of the quarterly report filed with the Securities and Exchange
Commission. In addition, each party shall provide the other, from time to time,
upon reasonable request (which shall include a written statement describing the
reason therefor) and 60 days' notice, any other financial reports or statements
reasonably required by the requesting party.
Section 6.7 Post-Sale Loan Payments. Seller agrees that it will remit to
Buyer, within 48 hours after receipt, any payment on a Loan including, without
limitation, all payments of principal and interest, late charges, and bad check
charges received from an Obligor on or after the Settlement Date at the
following address: 961 Weigel Drive, Elmhurst, Illinois, 60126, Attn: CPI Cash,
Director of Wholesale Processing, or such other address as Buyer may designate.
Seller shall remit such payment via an overnight delivery service.
Section 6.8 Transfer of Servicing Rights and PMI. Seller shall use all
efforts to assist Buyer in the transfer from Seller to Buyer of servicing rights
for each Loan, including assisting Buyer with any notices to private mortgage
insurance companies.
Section 6.9 Delivery of Mortgage Loan Documents. With respect to each Loan,
the Seller shall cause by no later than sixty (60) days after the Settlement
Date, the original recorded Mortgage
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and, if applicable, the prior Assignment of Mortgage to be delivered to Buyer if
they have not yet been returned from the County Records Office. The Seller shall
pay the out-of-pocket costs incurred in connection with such acts.
SECTION 7 CONDITIONS TO SETTLEMENT
Section 7.1 Conditions to Buyer's Obligations. The obligations of Buyer to
purchase the Loans at each Settlement are subject to the satisfaction at or
prior to such Settlement, of each of the following conditions (any or all of
which may be waived by Buyer):
(a) Representations and Warranties Correct. Each of the
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects in accordance with their terms as of
the date of this Agreement, and on and as of such Settlement Date with the same
force and effect as though made on and as of such Settlement Date, and Seller
shall have delivered to Buyer a certificate to such effect signed on Seller's
behalf by its President or another appropriate officer.
(b) Compliance with Covenants. Seller shall have performed and be in
compliance with, in all material respects, all of its respective covenants,
acts, and obligations to be performed under this Agreement and Seller shall have
delivered to Buyer a certificate to such effect signed on Seller's behalf by its
President or another appropriate officer.
(c) Settlement Documents. Seller shall have executed and delivered
this Agreement and the Agreement shall not have been terminated, Seller shall
have delivered the Mortgage Files and in connection with the Loans to be
purchased on such Settlement Date, and executed all documents required to
transfer the Loans in accordance with the terms of this Agreement.
(d) Corporate Documents. On or before the Settlement Date, if Buyer so
requests, Seller shall have delivered to Buyer:
(i) a certificate of its jurisdiction of incorporation dated not
earlier than the date of the tenth day preceding the Settlement Date,
to the effect that Seller is a corporation validly existing and in
good standing (if applicable) under the laws of such jurisdiction as
of such date;
(ii) a certificate of the Secretary or Assistant Secretary of
Seller attaching (A) evidence of such corporate action or
authorization as is necessary to approve of this Agreement and the
authorization of the officers of Seller to sign this Agreement, which
action or authorization shall continue to be in force as of the
Settlement Date, and (B) specimen signatures of the officers of Seller
authorized to sign this Agreement;
(iii) a copy, certified as true by the Secretary or Assistant
Secretary of Seller, of the charter and the by-laws of Seller; and
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(iv) all other documents, instruments, and writing required to be
delivered by Seller pursuant to this Agreement.
(e) Corporate Actions. All corporate and other acts necessary to
authorize the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereunder shall have been taken by
Seller.
(f) Access to Information; Due Diligence. Buyer and its
representatives shall have had access to such information and records of Seller
as Buyer shall have reasonably requested to ascertain Seller's compliance with
the Agreement, and all such information and records shall be satisfactory to
Buyer and its representatives in accordance with the terms of this Agreement.
(g) No Pending Litigation. There shall not be pending or threatened
any suit, action, injunction, investigation, inquiry, or other proceeding
against either of the parties before any court or government agency, which, in
Buyer's good faith judgment, has resulted or is reasonably likely to result in
an order staying or judgment restraining or prohibiting the transactions
contemplated hereby or subjecting a party to material liability on the grounds
that it has breached any law or regulation or otherwise acted improperly in
connection with the transactions contemplated hereby.
Section 7.2 Opinion of Counsel. The obligations of Buyer to purchase the
Loans at the first Settlement following execution of this Agreement are subject
to Buyer having received an opinion of Seller's legal counsel in form and
substance satisfactory to Buyer, as to such matters concerning this Agreement or
the Settlement as are reasonably requested by Buyer. Thereafter, at each
Settlement Seller's counsel may furnish a reliance letter relating to the
original opinion or may provide a new opinion.
Section 7.3 Conditions to Seller's Obligations. The obligations of Seller
to sell the Loans at each Settlement are subject to the satisfaction at or prior
to such Settlement, of each of the following conditions (any or all of which may
be waived by Seller):
(a) Purchase Price. The Purchase Price shall have been delivered to
Seller pursuant to Seller's reasonable instructions in accordance with Section
3.3.
(b) Representations and Warranties Correct. Each of the
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects in accordance with their terms as of
the date of this Agreement, and on and as of such Settlement Date with the same
force and effect as though made on and as of such Settlement Date, and if Seller
so requests, Buyer shall have delivered to Seller a certificate to such effect
signed on Buyer's behalf by its President or another appropriate officer.
(c) Compliance with Covenants. Buyer shall have performed and be in
compliance with, in all material respects, all of its respective covenants,
acts, and obligations to be performed under this Agreement, and if Seller so
requests, Buyer shall have delivered to Seller a certificate to such effect
signed on Buyer's behalf by its President or another appropriate officer.
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(d) Corporate Documents. On or before the Settlement Date, if Seller
so requests, Buyer shall have delivered to Seller:
(i) a certificate of its jurisdiction of incorporation dated not
earlier than the date of the tenth day preceding the Settlement Date,
to the effect that Buyer is a corporation validly existing and in good
standing (if applicable) under the laws of such Jurisdiction as of
such date;
(ii) a certificate of the Secretary or Assistant Secretary of
Seller attaching (A) evidence of such corporate action or
authorization as is necessary to approve this Agreement and the
authorization of the officers of Buyer to sign this Agreement, which
action or authorization shall continue to be in force as of the
Settlement Date, and (B) specimen signatures of the officers of Buyer
authorized to sign this Agreement,
(iii) a copy, certified as true by the Secretary or Assistant
Secretary of Buyer, of the charter and the by-laws of Buyer; and
(iv) all other documents, instruments and writings required to be
delivered by Buyer pursuant to this Agreement.
(e) Corporate Actions, All corporate and other acts necessary to
authorize the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereunder shall have been taken by
Buyer.
(f) No Pending Litigation. There shall not be pending or, to the best
of Buyer's knowledge upon reasonable due inquiry and investigation, threatened
any suit, action, injunction, investigation, inquiry, or other proceeding
against either of the parties before any court or government agency, which, in
Seller's good faith judgment, has resulted or is reasonably likely to result in
an order staying or judgment restraining or prohibiting the transactions
contemplated hereby or subjecting a party to material liability on the grounds
that it has breached any law or regulation or otherwise acted improperly in
connection with the transactions contemplated hereby.
SECTION 8 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES; REPURCHASE
OBLIGATION OF SELLER.
It is understood and agreed that the covenants, representations and
warranties set forth in this Agreement shall survive delivery and release of the
Offered Loan Documents to Buyer for a period of ten (10) years from the date on
which such covenant, representation, or warranty is made. It is further
understood that the covenants, representations and warranties set forth in this
Agreement shall inure to the benefit of Buyer, or any holder of any endorsement
of any Note or any examination of the Offered Loan Documents.
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SECTION 9 POST-SETTLEMENT REPURCHASE AND ADJUSTMENTS
Section 9.1 Repurchase Obligations.
(a) In the event that
(i) Seller has failed to deliver to Buyer any document required
hereunder with respect to any Loan sold on a Settlement Date within
the applicable time period for delivery therefor and such failure has
materially and adversely affected Buyer's ability to service or obtain
payment on such Loan,
(ii) Seller has, with respect to any Loan, breached any warranty,
representation, or agreement contained in this Agreement, other than
those described in Section 9.1(a)(i) or,
(iii) Seller or any of Seller's representatives has acted
fraudulently, negligently, or with willful misconduct in the
origination or closing of any Loan.
Buyer shall give Seller notice of, and shall request that Seller cure, such
failure, breach, or action within 30 days of Seller's receipt of such notice.
With respect to 9.1(a)(i), failure to deliver the documents required by Section
6.9 shall be deemed to materially and adversely affect Buyer's ability to
service or obtain payment on a Loan.
(b) If Seller fails to cure such failure, breach or action within such
30-day period, Seller shall, not later than 30 days after its receipt of notice
thereof, repurchase such Loan at the Repurchase Price set forth in Section 9.2.
Section 9.2 Repurchase Price. In the event Seller repurchases a Loan from
Buyer pursuant to Section 9.1 above, the Repurchase Price shall be an amount
equal to
(a) the product of
(i) the Bid Percentage and
(ii) the Principal Balance of such Loan,
(b) minus the aggregate amount of principal paid to Buyer on such Loan
from the Settlement Date up to, but not including, the date of repurchase,
(c) plus accrued but unpaid interest up to and including the date of
repurchase,
(d) plus any reasonable and customary out-of-pocket expenses paid to
third parties relating to such Loan (the "Repurchase Price").
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Upon payment of the Repurchase Price as set forth herein, Buyer shall deliver
the Loan Documents relating to such repurchased Loan and shall execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest in Seller title to such repurchased Loan
on a servicing released basis. Seller shall pay all out-of-pocket costs incurred
in delivering the Mortgage File to the Seller. Except for the negligence or
willful misconduct of Buyer or Buyer's representative, the Buyer shall have no
liability for the failure by the courier to deliver the Mortgage File to the
Seller for any reason whatsoever.
Section 9.3 Remedy to Insure Accuracy of Real Estate Appraisals. Buyer may,
at its own expense, in order to verify the accuracy of real property appraisals
prepared for Seller, order a reappraisal of the property secured by a Mortgage
within 100 days of the applicable Settlement Date. If the reappraisal obtained
by Buyer indicates a fair market value of more than twelve (12%) percent less
than the original Appraisal Value, then upon receipt by Seller of a signed copy
of the reappraisal from Buyer, Seller shall repurchase the Loan at the
Repurchase Price and reimburse Buyer for the cost of the appraisal subject to
the following: if Seller disputes the validity of the reappraisal prepared by
Buyer's appraiser, Seller may at its own expense, request Buyer to obtain a
third appraisal, and only if such third appraisal is also more than twelve (12%)
percent less than the original Appraisal Value shall the Seller be required to
repurchase the Loan at the Repurchase Price and pay for the second appraisal.
Buyer shall choose the review appraiser with Seller's approval, which shall not
be unreasonably withheld, but such appraiser must possess the minimum
qualifications specified in the HFS Seller's Guide. The appraisal must be
performed in accordance with the standards of the appraising industry where the
property is located, by an independent appraiser unless otherwise agreed to by
the parties. In determining the appropriate appraisal value, the review
appraiser must determine the appraised value as of the original appraisal date
using comparable sales that were available as of the date of the original
appraisal.
Section 9.4 Post-Settlement Adjustments to Purchase Price. Within 60 days
after each Settlement Date, the first party shall notify the other party in
writing of any miscalculations, misapplied payments, unapplied payments or other
accounting errors (each, a "Discrepancy") which the first party has discovered
and which affects the Principal Balance of any of the Loans purchased on such
Settlement Date or the Purchase Price for the Loans purchased on such Settlement
Date. Notice to the other party under this Section 9.4 shall include copies of
documents sufficient to describe each Discrepancy. Buyer shall pay Seller or
Seller shall pay Buyer, as the case may be, an amount sufficient to correct such
Discrepancy, with all such adjustments calculated using the Premium. Any amounts
due hereunder shall be paid within 10 days of notice by the first party to the
other party.
SECTION 10 INDEMNIFICATION
Section 10.1 Seller's Indemnification.
(a) Seller agrees to indemnify and hold Buyer, its Affiliates,
officers, directors, employees, agents, successors, and assigns, and related
entities from and to reimburse them for, any loss, cost, expense, damage,
liability, or claim (including, without limitation, all Legal Fees) relating to,
arising out of, based upon, or resulting from:
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(i) Seller's ownership of or actions with respect to the Loans;
(ii) Seller's breach of any of its representations and warranties
contained in this Agreement; or
(iii) Seller's breach of or failure to perform any of its
covenants or agreements contained in or made pursuant to this
Agreement.
(b) The obligations of Seller under this Section shall survive the
transfer and delivery of the Loans to Buyer and the termination of this
Agreement.
(c) Notwithstanding the foregoing, Seller shall not have any liability
in respect of the representations or warranties on the part of Seller herein
contained to the extent such liability would not have arisen but for Buyer's own
willful misconduct or negligence.
Section 10.2 Buyer's Indemnification.
(a) Buyer agrees to indemnify and hold Seller, its Affiliates,
officers, directors, employees, agents, successors, and assigns, and related
entities from, and to reimburse them for, any loss, cost, expense, damage,
liability, or claim (including without limitation, all Legal Fees) relating to,
arising out of, based upon, or resulting from:
(i) Buyer's ownership of or actions with respect to the Loans;
(ii) Buyer's breach of any of its representations and warranties
contained in this Agreement; or
(iii) Buyer's breach of or failure to perform any of its
covenants or agreements contained in or made pursuant to this
Agreement.
(b) The obligations of Buyer under this Section shall survive the
transfer and delivery of the Loans to Buyer or the termination of this
Agreement.
(c) Notwithstanding the foregoing, Buyer shall not have any liability
in respect of the representations or warranties on the part of Buyer herein
contained to the extent such liability would not have arisen but for Seller's
own willful misconduct or negligence.
Section 10.3 Indemnification Procedures.
(a) Within 10 days after receipt by a party of a third party claim,
the indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under this Agreement, deliver a claim notice to the
indemnifying party; provided, however, that the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that the indemnifying party may have to the indemnified party otherwise than
under this subsection. In the
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<PAGE> 34
event that any third party claim is made against the indemnified party and the
indemnified party notifies the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to the indemnified party (who shall not, except with the consent of
the indemnified party, be counsel to the indemnifying party), which consent
shall not be unreasonably withheld. The indemnified party shall have the right
to employ separate counsel in any action or claim and to participate in the
defense thereof at the expense of the indemnifying party, if the retention of
such counsel has been specifically authorized by the indemnifying party, if such
counsel is retained because the indemnifying party does not notify the
indemnified party within 20 days after receipt of a claim notice that it elects
to undertake the defense thereof, or if there is a reasonable basis on which the
indemnified party's interests may differ from those of the indemnifying party.
(b) The indemnifying party shall remit payment for the amount of a
valid and substantiated claim for indemnification hereunder within 15 business
days of the receipt of a claim notice therefor. Upon the payment in full of any
claim hereunder, the indemnifying party shall be subrogated to the rights of the
indemnified party against any person with respect to the subject matter of such
claim. In the event of a dispute, the parties shall proceed in good faith to
negotiate a resolution of such dispute.
(c) The indemnified party shall have the right to reject any
settlement approved by the indemnifying party if the Indemnified party waives
its right to indemnification hereunder. The indemnified party shall have the
right to settle any third party claim over the objection of the indemnifying
party; provided, however, that if the indemnifying party is contesting such
claim in good faith and has assumed the defense of such claim from the
indemnified party, the indemnified party waives any right to indemnity therefor.
(d) In the event that the indemnifying party reimburses the
indemnified party with respect to any third party claim and the indemnified
party subsequently receives reimbursement from another person with respect to
that third party claim, then the indemnified party shall remit such
reimbursement from such other person to the indemnifying party within 30 days of
receipt thereof.
SECTION 11 TERMINATION
Section 11.1 Termination by Either Party.
(a) This Agreement may be terminated with or without cause by either
party upon 30 days' written notice to the other party, provided that the
delivery requirements and other terms of this Agreement have been fully complied
with as to prior Settlements.
(b) After termination pursuant to Section 11.1(a), the provisions of
this Agreement shall continue to apply to any Loans previously transferred from
Seller to Buyer pursuant to this Agreement.
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<PAGE> 35
Section 11.2 Termination by Buyer. This Agreement may be immediately
terminated by Buyer, at Buyer's sole option, upon notice to Seller upon the
occurrence of any of the following events ("Termination Events"):
(a) Seller breaches or fails to comply with any term or condition of
this Agreement and falls to cure such breach or failure within 60 days of
receipt of notice thereof from Buyer;
(b) Any of Seller's representations or warranties in Section 4.1, 4.2,
or 4.3 of this Agreement is untrue in any material respect and is not cured by
Seller within 60 days of receipt of notice thereof from Buyer;
(c) Notwithstanding Section 11.2(a), Seller does not deliver the Loans
or any Loan Document relating to such Loans within the time periods stated in
this Agreement;
(d) Notwithstanding Sections 11.2(a) and 11.2(b), any document or
paper delivered hereunder is incorrect in any material respect or otherwise does
not comply with the terms and provisions of this Agreement;
(e) Any material reduction in Seller's net worth occurs, as determined
solely by Buyer;
(f) A petition for involuntary bankruptcy is filed against Seller, or
Seller is adjudged bankrupt or insolvent by a court of competent jurisdiction or
a regulatory agency, or a court of competent jurisdiction or a regulatory agency
appoints a receiver, liquidator, conservator, or trustee for Seller or all or
substantially all of its assets, or approves any petition filed against Seller
for its reorganization;
(g) Seller institutes proceedings for voluntary bankruptcy, files a
petition seeking reorganization under the Federal Bankruptcy Code, files under
any law for the relief of debtors, consents to the appointment of a receiver of
all or substantially all of its property, makes a general assignment for the
benefit of its creditors, or admits in writing its inability to pay its debts
generally as they become due;
(h) Seller merges with or consolidates into another corporation, sells
or otherwise disposes of all or substantially all of its property and assets, or
permits any change to occur in the stock ownership of Seller which would
transfer effective voting control from the persons now exercising such control
to others; and
(i) The placement of Seller on probation or restriction of its
activities in any manner by a Federal or state government agency, including
FHLMC, FNMA, or GNMA.
Section 11.3 Effect of Termination. Upon expiration of the 30 day notice
period pursuant to Section 11.1(a) or upon written notice to Seller, pursuant
to Section 11.2 that a Termination Event has occurred, this Agreement shall be
of no force and effect and the parties obligations to each other hereunder shall
cease; provided, however, that each party shall continue to have such
obligations as
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may remain with respect to all Loans acquired by Buyer in Settlements that have
occurred prior to the date on which this Agreement terminates.
SECTION 12 MISCELLANEOUS
Section 12.1 No Waiver. Failure or delay on the part of Buyer to audit any
Loan or to exercise any right provided for herein, shall not act as a waiver
thereof, nor shall any single or partial exercise of any right by Buyer or
Seller preclude any other or further exercise thereof. In no event shall a term
or provision of this Agreement be deemed to have been waived, modified or
amended, unless said waiver, modification or amendment is in writing and signed
by the parties hereto. Notwithstanding any investigation conducted before or
after the purchase of any Loan, and notwithstanding any actual or implied
knowledge or notice of any facts or circumstances which Buyer may have as a
result of such investigation or otherwise, Buyer shall be entitled to rely upon
the warranties, representations, and covenants of Seller in this Agreement, and
the obligations of Seller with respect thereto shall survive the purchase of
said Loans by Buyer and inure to the benefit of all future assignees of said
Loans.
Section 12.2 Amendment and Modification. Subject to applicable law, this
Agreement may not be amended, modified, or supplemented except in writing signed
by both parties. Notwithstanding the foregoing, Seller may unilaterally amend
the underwriting standards set forth in Section 4.2(b) upon the thirty (30)
days written notice to Buyer.
Section 12.3 Notices. All notices, requests, demands, consents, approvals,
agreements, or other communications to or by a party to this Agreement shall:
(a) be in writing addressed to the authorized address of the recipient
set out in Section 12.3(c) of this Agreement or to such other address as such
recipient may have notified the sender;
(b) be signed by an authorized officer of the sender; and
(c) be delivered in person or sent by registered or certified mail
return receipt requested, facsimile transmission, or by overnight courier and be
deemed to be duly given or made:
(i) in the case of delivery in person when delivered to the
recipient at such address;
(ii) in the case of registered or certified mail three days after
the date of mailing;
(iii) in the case of overnight courier two days after shipment or
the date of receipt, whichever is earlier; or
(iv) in the case of facsimile transmission when received in
legible form by the recipient at such address and in the event that
the recipient has been requested to
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acknowledge receipt of the entire facsimile transmission upon the
sending or receiving the acknowledgment of receipt (which
acknowledgment the recipient will promptly give);
but if such delivery or dispatch is later than 5:00 p.m. local time on a day on
which business is generally carried on in the place to which such communication
is sent or occurs on a day on which business is not generally carried on in the
place to which such communication is sent, it will be deemed to have been duly
given or made at the commencement of business on the next day on which business
is generally carried on in that place.
Notices may be sent
<TABLE>
<S> <C>
to Buyer: Household Financial Services, Inc.
2700 Sanders Road
Prospect Heights, IL 60070
Attn: Vice President
Facsimile No.: (847) 559-7196
JV Mortgage Capital, L.P.
2700 Sanders Road
Prospect Heights, IL 60070
Attn: Vice President
Facsimile No.: (847) 559-7196
with a copy to: Household Financial Services, Inc.
2700 Sanders Road
Prospect Heights, IL 60070
Attn: General Counsel
Facsimile No.: (847) 205-7447
To Seller: Austin Funding Corporation
207 Wits End Ln. # 101
Peel, Arkansas 72668
with a copy to: General Counsel
at the above address
</TABLE>
or to such other address as Buyer and Seller shall have specified in writing to
each other.
Section 12.4 Expenses. Each party hereto shall bear its own expenses,
including the fees of any attorneys, accountants, or others engaged by such
party, in connection with this Agreement and the transactions contemplated
hereby, except as otherwise expressly provided herein.
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<PAGE> 38
Section 12.5 No Remedy Exclusive. No remedy under this Agreement is
intended to be exclusive of any other available remedy, but each remedy shall be
cumulative and shall be in addition to other remedies under this Agreement or
existing at law or in equity.
Section 12.6 Independent Contractor. Nothing herein contained shall be
deemed or construed to create a partnership or joint venture between Seller and
Buyer. In the performance of its duties or obligations under this Agreement or
any other contract, commitment, undertaking, or agreement made pursuant to this
Agreement, neither Seller nor Buyer shall be deemed to be, or permit itself to
be, understood to be the employee or agent of the other and shall at all times
take whatever measures as are necessary to insure that its status shall be that
of an independent contractor operating as a separate entity. None of Seller's or
Buyer's employees, agents or servants is entitled to the benefits that are
provided to the employees of the other party. Each party is solely interested in
the results obtained under this contract and therefore the manner and means of
conducting the other party's business affairs are under the sole control of such
other party and such other party shall be solely and entirely responsible for
its acts and for the acts of its agents, employees, and servants.
Section 12.7 Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
hereto waives any provision of law which renders any provision of this Agreement
invalid, illegal, or unenforceable in any respect, unless material to the
purpose of this Agreement.
Section 12.8 Entire Agreement. Seller and Buyer each acknowledges that no
representations, agreements, or promises were made to such party by the other
party or any of its employees other than those representations, agreements, or
promises specifically contained herein. This Agreement and any Schedules and
Exhibits hereto constitute the entire agreement and understanding of the parties
with respect to the matters and transactions contemplated hereby. This Agreement
supersedes any prior agreement and understanding with respect to these matters
and transactions.
Section 12.9 Assignment. Except as set forth in the following sentence,
neither party shall have the right to assign any of its duties, obligations, or
rights under this Agreement without the prior written consent of the other.
Buyer shall have the right to assign its rights under this Agreement to any
Affiliate or to any trust created to effect a securitization involving the
Loans, and in such event no such assignment shall relieve either party of any
liability under this Agreement.
Section 12.10 Captions. The captions in this Agreement are for convenience
only, do not form a part hereof, and do not in any way modify, interpret, or
construe the intentions of the parties hereto.
Section 12.11 Governing Law. This Agreement shall be governed by and be
construed in accordance with the laws of the State of Illinois, without regard
to the conflicts of laws rules thereof.
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<PAGE> 39
Section 12.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which counterparts shall be deemed to be an original, and
all such counterparts shall constitute one and the same instrument.
Section 12.13 Drafting. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement. The Parties therefore
stipulate that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any party against the other.
Section 12.14 Choice of Forum. Any judicial proceeding brought against any
of the parties hereto with respect to this Agreement shall be brought in any
court of competent jurisdiction in Cook County, Illinois or in the Federal
District Court for the Northern District of the State of Illinois irrespective
of where such party may be located at the time of such proceeding, and by
execution and delivery of this Agreement, each of the parties to this Agreement
hereby consents to the exclusive jurisdiction of any such court and waives any
defense or opposition to such jurisdiction.
Section 12.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE> 40
IN WITNESS WHEREOF, Buyer and Seller have caused their respective duly
authorized representatives to execute this Agreement as of the date first above
written.
BUYER:
HOUSEHOLD FINANCIAL SERVICES, INC.
By:
-------------------------------
Name: Michael M. Forester
------------------------------
Title: Vice President
-----------------------------
JV MORTGAGE CAPITAL, L.P.
By:
-------------------------------
Name: Michael M. Forester
------------------------------
Title: Vice President
-----------------------------
SELLER:
Austin Funding Corporation
----------------------------------
By: /s/ GLENN LAPOINTE
-------------------------------
Name: Glenn LaPointe
------------------------------
Title: President
-----------------------------
36
<PAGE> 1
EXHIBIT 6(g)
MORTGAGE LOAN
PURCHASE AND SALE AGREEMENT
LIFE BANK
Purchaser
AUSTIN FUNDING CORP.
--------------------------------
Seller
Dated as of February 22, 1999
----------- -
<PAGE> 2
-----------------------------------------
MORTGAGE LOAN PURCHASE AND SALE AGREEMENT
-----------------------------------------
This MORTGAGE LOAN PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into as of February 22, 1999, by and between LIFE BANK ("Purchaser")
and Austin Funding Corp. ("Seller").
WITNESSETH:
WHEREAS, Seller desires to sell, from time to time to Purchaser, and Purchaser
desires to purchase, from time to time from Seller, mortgage loans on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Seller agree as
follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following capitalized terms have the
respective meanings set forth below.
APPRAISED VALUE: The value set forth in an appraisal made in connection
with the origination of the related Mortgage Loan as the
value of the Mortgaged Property.
ASSIGNMENT
OF MORTGAGE: An assignment of the Mortgage, notice of transfer of
equivalent instrument in recordable form, sufficient
under the laws of the jurisdiction wherein the related
Mortgaged Property is located to reflect the sale of the
Mortgage to Purchaser, which assignment, notice of
transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Mortgage
Loans secured by Mortgaged Properties located in the same
jurisdiction, if permitted by law.
CLOSING DATE: The date or dates on which Purchaser from time to time
shall purchase, and Seller from time to time shall sell,
Mortgage Loans.
CUT-OFF DATE: The first day of the month in which the related Closing
Date occurs.
DUE DATE: The day of the month on which the Monthly Payment is due
on a Mortgage Loan, exclusive of any days of grace.
ESCROW PAYMENTS: With respect to any Mortgage Loan, the amounts
constituting ground rents, taxes, assessments, water
rates, sewer rents, municipal charges, mortgage insurance
premiums, fire and hazard insurance premiums, condominium
charges, and any other payments required to be escrowed
by the Mortgagor (or requested by the Mortgagor) with the
mortgagee pursuant to the Mortgage or any other document.
FDIC: The Federal Deposit Insurance Corporation, or any
successor thereto.
FNMA: The Federal National Mortgage Association, or any
successor thereto.
FNMA GUIDES: The FNMA Seller's Guide and the FNMA Servicer's Guide and
all amendments or additions thereto.
Page 1
<PAGE> 3
MANUAL: Purchaser's Correspondent Seller Guide, as amended from
time to time.
MONTHLY PAYMENT: The scheduled monthly payment of principal and interest
on a Mortgage Loan.
MORTGAGE: The mortgage, deed of trust or other security instrument
securing a Mortgage Note, which creates a valid first or
second lien on an unsubordinated estate in fee simple or
leasehold estate in real property securing the Mortgage
Note.
MORTGAGE FILE: All documents now held, or subsequently acquired by
Seller relating to a Mortgage Loan.
MORTGAGE
INTEREST RATE: The annual rate interest borne on a Mortgage Note, which
shall be adjusted from time to time with respect to
adjustable rate Mortgage Loans.
MORTGAGE LOAN: An individual Mortgage Loan which is the subject of this
Agreement, which Mortgage Loan includes without
limitation the Mortgage File, the Monthly Payments, and
all other rights, benefits, proceeds and obligations
arising from or in connection with such Mortgage Loan,
excluding repurchased mortgage loans.
MORTGAGE NOTE: The note and any modifications or other evidence of the
indebtedness of a Mortgage secured by a Mortgage.
MORTGAGED
PROPERTY: The real property securing repayment of the debt
evidenced by a Mortgage Note.
MORTGAGOR: The obligor on a Mortgage Note.
PMI OR PRIMARY
INSURANCE
POLICY: A policy of primary mortgage guaranty insurance issued by
a Qualified Insurer.
PROGRAM
REQUIREMENTS: Purchaser's requirements (sometimes referred to by
Purchaser as "individual program parameters/guidelines",
as amended from time to time, for each type of loan which
Purchaser is willing to purchase under this Agreement.
PURCHASE PRICE: The price paid on the related Closing Date by Purchaser
to Seller in exchange for the Mortgage Loans purchased on
such Closing Date as calculated in Section 4 of this
Agreement.
QUALIFIED INSURER: An insurance company duly qualified as such under laws of
the state in which the related Mortgage Property is
located, duly authorized and licensed in such state to
transact the applicable insurance business and to write
the insurance provided, as described in the Manual.
REPURCHASE PRICE: With respect to any Mortgage Loan, a price equal to (i)
the greater of (a) the principal portion of the Purchase
Price and (b) the outstanding principal balance of the
Mortgage Loan as of the Cut-Off Date; less (ii) any
payments of principal received by Purchaser; plus (iii)
interest at the Mortgage Interest Rate from the last date
through which interest has been paid to Purchaser to the
date of repurchase; plus (iv) any premium (amount paid
above par) originally paid to Seller by Purchaser; plus
(v) any other expenses incurred by Purchaser with respect
to such Mortgage Loan as a result of a breach of a Seller
representation, warranty or covenant with respect to such
Mortgage Loan.
Page 2
<PAGE> 4
SECTION 2. PURCHASE AND SALE OF MORTGAGE LOANS
From time to time, Seller may sell to Purchaser, and Purchaser may
purchase from Seller, one or more Mortgage Loans in accordance with the
procedures and on the terms and conditions set forth in the Manual, the
related Program Requirements and this Agreement.
SECTION 3. DELIVERY AND REVIEW OF LOAN DOCUMENTATION
With respect to each Mortgage Loan proposed to be sold to Purchaser by
Seller, Seller shall deliver to Purchaser loan documentation in accordance
with the procedures and requirements set forth in the Manual and the
related Program Requirements. Purchaser may, at its option and without
notice to Seller, purchase Mortgage Loans without a partial or complete
review of the loan documentation. Purchaser's review or failure to review
the loan documentation or failure to conduct any partial or complete
review shall not affect Purchaser's right to demand repurchase of a
Mortgage Loan or other relief as provided in this Agreement.
SECTION 4. PURCHASE PRICE
The Purchase Price for each Mortgage Loan shall be (i) the percentage of
par (including any premium) agreed upon by Purchaser and Seller in
accordance with the procedures set forth In the Manual and as shown in the
daily Correspondent Pricing publication, multiplied by the outstanding
principal balance, as of the related Cut-Off Date, of the Mortgage Loan,
after application of scheduled payments of principal due on or before the
related Cut-Off Date whether or not collected; plus (ii) interest on such
principal balance at the related Mortgage Interest Rate from the related
Cut-Off Date to the day prior to the related Closing Date, inclusive.
SECTION 5. PAYMENT COLLECTION TRANSITION PROCEDURES
Purchaser shall be entitled to (i) all scheduled principal due after the
related Cut-Off Date, (ii) all other recoveries of principal collected
after the related Cut-Off Date (provided, however, that all scheduled
payments of principal due on or before the related Cut-Off Date and
collected by Seller after the related Cut-Off Date shall belong to the
Seller), and (iii) all payments of interest on the Mortgage Loans (minus
that portion of any such payment which is allocable to the period prior to
the related Cut-Off Date). The outstanding principal balance of each
Mortgage Loan as of the related Cut-Off Date is determined after
application of payments of principal due on or before the related Cut-Off
Date whether or not collected. Therefore, payments of scheduled principal
and interest prepaid for a due date beyond the related Cut-off Date shall
not be applied to the principal balance as of the related Cut-Off Date.
Such prepaid amounts shall be the property of Purchaser and shall be paid
to Purchaser on the related Closing Date. All payments of principal and
interest due after the related Cut-Off Date and received by Seller shall
be promptly paid to Purchaser.
SECTION 6. CONVEYANCE OF MORTGAGE LOANS
As of each Closing Date, Seller hereby transfers, and assigns and conveys
to Purchaser the related Mortgage Loans, Mortgage Files and all other
rights and interests related hereto. The sale of each Mortgage Loan shall
be reflected on Seller's balance sheet and other financial statements as a
sale of assets by Seller.
Page 3
<PAGE> 5
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER;
REMEDIES FOR BREACH
7.01 REPRESENTATIONS AND WARRANTIES RESPECTING SELLER
Seller represents, warrants and covenants to Purchaser that as of
each Closing Date or as of such date specifically provided herein:
(a) DUE ORGANIZATIONAL AND AUTHORITY
Seller is a corporation duly organized, validly existing and
in good standing under the laws of the state of its
incorporation and has all licenses necessary to carry on its
business as now being conducted and is licensed, qualified and
in good standing in each state wherein it owns or leases any
material properties or where a Mortgaged Property is located,
if the laws of such state require licensing or qualification
in order to conduct business of the type conducted by Seller.
In each case except to the extent the failure to be licensed
or qualified would not materially and adversely affect
Seller's ability to perform in accordance with this Agreement,
and in any event Seller is an compliance with the laws of any
such state to the extent necessary to ensure the
enforceability of the related Mortgage Loans; Seller has full
corporate power, authority and legal right to transfer and
convey the Mortgage Loans and to execute and deliver this
Agreement and to perform in accordance with the terms of this
Agreement; the execution, delivery and performance of this
Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by Seller and the
consummation of the transactions contemplated hereby have been
duly and validly authorized; this Agreement and all
agreements contemplated hereby evidence the valid, legal,
binding and enforceable obligation of Seller, regardless of
whether such enforcement is sought in a proceeding in equity
or at law, and all requisite corporate action has been taken
by Seller to make this Agreement and all agreements
contemplated hereby valid and binding upon the Seller in
accordance with their terms.
(b) ORDINARY COURSE OF BUSINESS
The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of Seller,
and the transfer, assignment and conveyance of the Mortgage
Notes and the Mortgages by Seller pursuant to this Agreement
are not subject to the bulk transfer of any similar statutory
provisions in effect in any applicable jurisdiction.
(c) NO CONFLICTS
Neither the execution and delivery of this Agreement, the
acquisition of the Mortgage Loans by Seller, the sale of the
Mortgage Loans to Purchaser or 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
Seller's charter or bylaws or any legal restriction or any
agreement or instrument to which 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 Seller or its property is subject, or result
in the creation or imposition of any lien, charge or
encumbrance that would have an adverse affect upon any of its
properties pursuant to the terms of any mortgage, contract,
deed or trust or other instrument or impair the ability of
Purchaser to realize on the Mortgage Loans, impair the value
of the Mortgage Loans, or impair the ability of Purchaser to
realize the full benefit of insurance benefits relating to the
Mortgage Loans.
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(d) ABILITY TO SELL/SERVICE
Seller is duly qualified, licensed, registered and otherwise
authorized under all applicable federal, state and local laws
and regulations and is in good standing to endorse, originate,
sell and to service mortgage loans in the jurisdiction where
the Mortgaged Properties are located. Seller warrants no event
has occurred, including but not limited to a change in
insurance coverage which would make Seller unable to comply
with all eligibility requirements.
(e) ABILITY TO PERFORM; SOLVENCY
Seller does not believe, nor does it have any reason to cause
to believe, that it cannot perform each and every covenant
contained in this Agreement. Seller is solvent and the sale of
the Mortgage Loans will not cause Seller to become insolvent.
The sale of the Mortgage Loans is not undertaken with the
intent to hinder, delay or defraud any of Seller's creditors.
(f) NO LITIGATION PENDING
There is no action, suit, proceeding or investigation pending
or threatened against Seller which, either in any one instance
or in the aggregate, may result in any material adverse change
in the business operations, financial condition, properties or
assets of Seller, or in any conducted, or in any material
impairment of the right or ability of Seller to carry on its
business substantially as now conducted, or in any material
liability on the part of Seller, or which would draw into
question the validity of this Agreement or the Mortgage Loans
or of any action taken or to be taken in connection with the
obligations of Seller contemplated herein, or which would be
likely to impair materially the ability of Seller to perform
under the terms of this Agreement.
(g) NO CONSENT REQUIRED
No consent, approval, authorization or order of, or
registration or filing with, or notice to any court or
governmental agency or body is required for the execution,
delivery and performance by Seller of or compliance by Seller
with this Agreement of the sale of the Mortgage Loans or the
consummation of the transactions contemplated by this
Agreement, or if required, such approval has been obtained
prior to the Closing Date.
(h) SELECTION PROCESS
The Mortgage Loans were selected from among the outstanding
one-to-four family mortgage loans in Seller's portfolio as to
which the representations and warranties set forth in
Subsection 7.02 could be made and such selection was not made
in a manner so as to affect adversely the interests of
Purchaser.
(i) NO UNTRUE INFORMATION
Neither this Agreement nor any statement, report, form, or
other document furnished pursuant to this Agreement 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.
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(j) FINANCIAL STATEMENTS
Seller has delivered to Purchaser financial statements as to
its last two complete fiscal years and any later quarter ended
more than 90 days prior to the execution of this Agreement.
All such financial statements fairly present the pertinent
results of operations and changes in financial position for
each of such periods and the financial position at the end of
each such period of Seller and its subsidiaries and have been
prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods
involved, except as set forth in the notes thereto. There has
been no change in the business, operations, financial
conditions, properties or assets of Seller since the date of
Seller's financial statements that would have a material
adverse effect on its ability to perform its obligations under
this Agreement.
(k) SALE TREATMENT
Seller has been advised by its independent certified public
accountants that under generally accepted accounting
principles the transfer of the Mortgage Loans may be treated
as a sale on the books and records of Seller.
(1) REASONABLE PURCHASE PRICE
The consideration received by Seller upon the sale of the
Mortgage Loans under this Agreement constitutes fair
consideration and reasonably equivalent value for the Mortgage
Loans.
7.02 REPRESENTATION AND WARRANTIES REGARDING INDIVIDUAL MORTGAGE LOANS
As to each Mortgage Loan, Seller shall be deemed to make
representations and warranties to Purchaser as of each related
Closing Date as follows:
(a) UNDERWRITING; COMPLIANCE WITH MANUAL
Each Mortgage Loan was originated and underwritten in
accordance with the Manual and related Program Requirements,
and each Mortgage Loan and Mortgage File has been delivered in
accordance with and is in full compliance with the Manual and
related Program Requirements.
(b) PAYMENTS CURRENT
All payments required to be made up to the Closing Date for
the Mortgage Loan under the terms of the Mortgage Note have
been made and credited. No payment required under the Mortgage
Loan is delinquent nor has any payment under the Mortgage Loan
been delinquent at any time since the origination of the
Mortgage Loan, unless disclosed in writing to and approved by
Purchaser prior to Closing Date.
(c) NO OUTSTANDING CHARGES
There are no defaults in complying with the terms of the
Mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold
payments or ground rents which previously became due and owing
have been paid, or, if required by the Mortgage or applicable
law, an escrow of funds has been established in an amount
sufficient to pay for every such item which remains unpaid and
which has been assessed but is not yet due and payable.
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Seller has not advanced funds, or induced, solicited or
knowingly received any advance of funds by a party other than
the Mortgagor, directly or indirectly, for the payment of any
amount required under 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
earlier, to the date which precedes by one month the Due Date
of the first installment of principal and interest.
(d) ORIGINAL TERMS UNMODIFIED; NO DEFENSES
The terms of the Mortgage Loan Note and Mortgage have not been
impaired, altered or modified in any respect, and no Mortgagor
has been released, in whole or in part except as disclosed in
writing to and approved by Purchaser prior to Closing Date.
The Mortgage Loan is not subject to any right of rescission
set-off, counterclaim or defense, including without limitation
the defense of usury, nor will the operation of any of the
terms of the Mortgage Note or the Mortgage, or the exercise of
any right thereunder, render either the Mortgage Note or the
Mortgage unenforceable, in whole or in part, no such right of
rescission, set-off, counterclaim or defense has been asserted
with respect thereto, and no Mortgagor was a debtor, in any
state or federal bankruptcy or insolvency proceeding at the
time the Mortgage Loan was originated.
(e) HAZARD INSURANCE
All buildings or other improvements 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 of the Manual. If upon origination of the
Mortgage Loan, the Mortgage Property was in an area identified
in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood
insurance was required by federal regulation and such flood
insurance has been made available), a flood insurance policy
meeting the requirements of the current guidelines of the
Federal Insurance Administration and the Manual. All
individual insurance policies contain a standard mortgagee
clause naming Seller and its successors and assigns as
mortgagee, and all premiums thereon have been paid. The
Mortgage obligates the Mortgagor thereunder to maintain the
hazard insurance policy at the Mortgagor's cost and expense,
and on the Mortgagor's failure to do so, authorizes the holder
of the Mortgage to obtain and maintain such insurance at such
Mortgagor's cost and expense, and to seek reimbursement
therefor from the Mortgagor. Where required by state law or
regulation, the Mortgagor has been given an opportunity to
choose the carrier of the required hazard insurance, provided
the policy is not a "master" or "blanket" hazard insurance
policy covering the common facilities of a planned unit
development. Each insurance policy required hereunder is the
valid and binding obligation of the insurer, is in full force
and effect, and will be in full force and effect and inure to
the benefit of Purchaser upon the consummation of the
transactions contemplated by this Agreement. Seller has not
engaged in, and has no knowledge of the Mortgagor's having
engaged in, any act or omission which would impair the
coverage of any such policy, the benefits of the endorsement
provided for herein, or the validity and binding effect of
either including, without limitation, no unlawful fee,
commission, kickback or other unlawful compensation or value
of any kind has been or will be received, retained or realized
by any attorney, firm or other person or entity, and no such
unlawful items have been received, retained or realized by
Seller.
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(f) COMPLIANCE WITH APPLICABLE LAWS
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, and Seller shall
maintain in its possession, available for Purchaser's
inspection, and shall deliver to Purchaser in the Mortgage
File, evidence of compliance with all such requirements, to
the extent compliance requires preparation of one or more
documents.
(g) NO SATISFACTION OF MORTGAGE
The Mortgage has not been satisfied, canceled, subordinated or
rescinded, in whole or in part, 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. Seller has not waived the performance by the
Mortgagor of any action, if the Mortgagor's failure to perform
such action would cause the Mortgage Loan to be in default,
nor has Seller waived any default resulting from any action or
inaction by the Mortgagor.
(h) VALID FIRST OR SECOND LIEN.
The Mortgage is a valid, subsisting and enforceable first or
second lien on the Mortgaged Property, including all buildings
on the Mortgaged Property and all installations and
mechanical, electrical, plumbing, heating and air conditioning
systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with
respect to the foregoing. The lien of the Mortgage is subject
to:
(1) the lien of current real property taxes and assessments
not yet due and payable;
(2) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the
date of recording acceptable to prudent mortgage lending
institutions generally and specifically referred to in the
lender's title Insurance policy delivered to the
originator of the Mortgage Loan and (a) referred to or
otherwise considered in the appraisal made for the
originator of the Mortgage Loan or (b) which do not
adversely affect the Appraised Value of the Mortgaged
Property set forth in such appraisal; and
(3) 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 an the property described
therein and Seller has full right to sell and assign the
same to Purchaser.
(i) VALIDITY OF MORTGAGE DOCUMENTS
This Mortgage Note and the Mortgage and any other agreement
executed and delivered by a Mortgagor in connection with a
Mortgage Loan are genuine, and each is the legal, valid and
binding obligation of the maker thereof enforceable in
accordance with its terms.
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All parties to the Mortgage Note, the Mortgage and any other
such related agreement had legal capacity to enter into the
Mortgage Loan and to execute and deliver the Mortgage Note,
the Mortgage and any such agreement. 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. Seller has reviewed all of the documents
constituting the Mortgage File and has made such inquiries as
it deems necessary to make and confirm the accuracy of the
representations set forth herein.
(j) FULL DISBURSEMENT OF PROCEEDS
Except as permitted by the Manual and the related Program
Requirements, 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 or
closing the Mortgage Loan and the recording of the Mortgage
were paid, and the Mortgagor is not entitled to any refunds of
any amounts paid or due under the Mortgage Note or Mortgage.
(k) OWNERSHIP
Seller is the sole owner of record and holder of the Mortgage
Loan. Upon receipt of the Purchase Price therefor, the
Mortgage Loan shall not be assigned or pledged, and Seller has
good, indefeasible and marketable title thereto, and has full
right to transfer and sell the Mortgage Loan to Purchaser free
and clear of any encumbrance, equity, participation interest,
lien, pledge, charge, claim or security interest, and has full
right and authority subject to no interest or participation
of, or agreement with, any other party, to sell and assign
each Mortgage Loan pursuant to this Agreement, and following
the sale of each Mortgage Loan, Purchaser will own such
Mortgage Loans free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or
security interest. Seller intends to relinquish all rights to
possess, control and monitor the Mortgage Loan. After the
Closing Date, Seller will have no right to modify or alter the
terms of sale of the Mortgage Loan and Seller will have no
obligation or right to repurchase the Mortgage Loan, except as
provided in Section 7.03 hereof.
(l) DOING BUSINESS
All parties which have had any interest in the Mortgage Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such
interest, were) (i) in compliance with any and all applicable
licensing requirements of the laws of the state wherein the
Mortgaged Property is located, (ii) organized under the laws
of such state, (iii) qualified to do business in such state,
(iv) federal savings and loan association or national banks
having principal offices in such state, or (v) not doing
business in such state.
(m) PRIVATE MORTGAGE INSURANCE (PMI) POLICY
All provisions of any PMI Policy have been and are being
complied with, such policy is valid and remains in full force
and effect, and all premiums due thereunder have been paid. No
action, inaction, or event has occurred and no state of facts
exists that has, or will result in the exclusion from, denial
of, or defense to coverage.
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If the Mortgage Loan provides for negative amortization the
potential of negative amortization, the PMI Policy insures any
increase in the outstanding principal balance over the
original balance of the Mortgage Note. Any Mortgage Loan
subject to a PMI Policy obligates the Mortgagor thereunder to
maintain the PMI Policy and to pay all premiums and charges in
connection therewith. The Mortgage Interest Rate for each such
Mortgage Loan Is net of any such insurance premium.
(n) TITLE INSURANCE
The Mortgage Loan is covered by either (i) an attorney's
opinion of title and abstract of title, the form and substance
of which is acceptable to prudent mortgage lending
institutions making mortgage loans in the area where the
Mortgaged Property is located or (ii) an ALTA lender's title
insurance policy or other generally acceptable to FNMA, or
(iii) an abbreviated title insurance policy as described in
the Manual and each such title insurance policy is issued by a
title insurer acceptable to FNMA and is qualified to do
business in the jurisdiction where the Mortgaged Property is
located, insuring Seller, its successors and assigns, as to
the first or second priority lien of the Mortgage in the
original principal amount of the Mortgage Loan (or to the
extent a Mortgage Note provides for negative amortization, the
maximum amount of negative amortization in accordance with the
Mortgage), subject only to the exceptions contained in clauses
(1), (2) and (3) of paragraph (h) of this Section 7.02, and,
in the case of adjustable rate Mortgage Loans, against any
loss by reason of the invalidity or unenforceability of the
lien resulting from the provisions of the Mortgage providing
for adjustment to the Mortgage Interest Rate and Monthly
Payment. Where required by state law or regulation, the
Mortgagor has been given the opportunity to choose the carrier
of the required mortgage title insurance. Seller, its
successors and assigns, are the sole insureds of such lender's
title insurance policy, and such lender's title insurance
policy is valid and remains in full force and effect. No
claims have been made under such lender's title insurance
policy, and no prior holder of the Mortgage, including Seller,
has done, by act or omission, anything which would impair the
coverage of such lender's title insurance policy, including
without limitation, no unlawful fee, commission, kickback or
other unlawful compensation or value of any kind has been or
will be received, retained or realized by any attorney, firm
or other person or entity, and no such unlawful items have
been received, retained or realized by Seller.
(o) NO DEFAULTS
There is no default, breach, violation or event of
acceleration existing under 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
neither Seller nor its predecessors have waived any default,
breach, violation or event of acceleration.
(p) NO MECHANICS' LIENS
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 the law could give rise to such liens)
affecting the related Mortgaged Property which are or may be
liens prior to, or equal or coordinate with, the lien of the
related Mortgage.
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(q) LOCATION OF IMPROVEMENTS; NO ENCROACHMENTS
All improvements which were considered in determining the
Appraised Value of (he Mortgage Property lie wholly within the
boundaries and building restrictions lines of (he 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.
(r) ORIGINATION; PAYMENT TERMS
The Mortgage Loan was originated by a mortgagee or by a
savings and loan association, a savings bank, a commercial
bank or similar banking institution or other lender which is
supervised and examined by a federal or state authority. The
Mortgage Note is payable on the first day of each month in
equal monthly installments of principal and interest (which
Installments of interest. with respect to adjustable rate
Mortgage Loans, 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. There is no negative
amortization or balloon payment terms, except as permitted by
the Manual and the related Program Requirements.
(s) CUSTOMARY PROVISIONS
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 (i) in the case of a Mortgage designated as a deed
of trust. by trustee's sale, and (ii) otherwise by judicial
foreclosure. Upon default by a Mortgagor on a Mortgage Loan
and foreclosure on, or trustee's sale of, the Mortgaged
Property pursuant to the proper procedures, (he holder of (he
Mortgage Loan will be able to deliver good and merchantable
title to the Mortgaged Property. There is no homestead or
other exemption available to a Mortgagor which would interfere
with the right to sell the Mortgaged Property at a trustee's
sale or the right to foreclose the Mortgage.
(t) CONFORMANCE WITH PURCHASER STANDARDS
Each Mortgage Loan was underwritten in accordance with the
Manual, and the Mortgage Note and Mortgage are on forms
acceptable to Purchaser, and Seller has not made any
representations to a Mortgagor that are inconsistent with the
mortgage instruments used.
(u) OCCUPANCY AND USE OF THE MORTGAGED PROPERTY
All inspections, licenses and certificates required to be made
or issued with respect to all occupied portions of the
Mortgaged Property and with respect to the use and occupancy
of the same, including but not limited to certificates of
occupancy and fire underwriting certificates, have been made
or obtained from the appropriate authorities. No portion of
the Mortgaged Property is used for commercial purposes.
(v) NO ADDITIONAL COLLATERAL
The Mortgage Note Is not and has not been secured by any
collateral except the lien of the corresponding Mortgage and
(he security Interest of any applicable security agreement or
chattel mortgage referred to in (h) above.
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(w) DEEDS OF TRUST
In the event the Mortgage constitutes a deed of trust, a
trustee. authorized and 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 Purchaser to the trustee under
the deed of trust, except in connection with a trustee's sale
after default by the Mortgagor.
(x) ACCEPTABLE INVESTMENT
Based on prudent underwriting practices, Seller is not aware
of any circumstances or conditions with respect to the
Mortgage, the Mortgaged Property, the Mortgagor or the
Mortgagor's credit standing that can reasonably be expected to
cause private or institutional investors to regard the
Mortgage Loan as an unacceptable investment, cause (he
Mortgage Loan to become delinquent, or adversely affect the
value or marketability of the Mortgage Loan.
(y) DUE-ON-SALE
The Mortgage contains an enforceable provision for (tie
acceleration of the payment of the unpaid principal balance of
the Mortgage Loan in the event that the Mortgaged Property Is
sold or transferred without the prior written consent of the
mortgagee thereunder.
(z) NO BUY DOWN PROVISIONS; NO GRADUATED PAYMENTS OR
CONTINGENT INTERESTS
Except as permitted by the Manual and the related Program
Requirements, the Mortgage Loan does not contain provisions
pursuant to which Monthly Payments are paid or partially paid
with funds deposited in any separate account established by
Seller, the Mortgagor or anyone on behalf of the Mortgagor, or
paid by any source other than the Mortgagor nor does it
contain any other similar provisions which may constitute a
"Buy down" provision. The Mortgage Loan is not a graduated
payment mortgage loan and the Mortgage Loan does not have a
shared appreciation or other contingent interest feature.
(aa) CONSOLIDATION OF FUTURE ADVANCES
Any future advances made prior to the Cut-Off Date 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 lien of the Mortgage securing the
consolidated principal amount is expressly Insured as having
first or second lien priority by a title insurance policy, an
endorsement to the policy insuring the mortgagee's
consolidated interest or by other title evidence acceptable to
FNMA and Purchaser. The consolidated principal amount does not
exceed the original principal amount of the Mortgage Loan.
(bb) MORTGAGE PROPERTY UNDAMAGED
The Mortgage Property is undamaged by waste, fire. earthquake
or earth movement, windstorm, flood, tornado or other casualty
so as to affect adversely the value of the Mortgage Property
as security for the Mortgage Loan or the use for which the
premises were intended and each Mortgaged Property is In good
repair. There have not been any condemnation proceeding with
respect to the Mortgaged Property, and Seller has no knowledge
of any such proceedings In the future.
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(cc) SERVICING; ESCROW DEPOSITS; INTEREST RATE ADJUSTMENTS
The Mortgage Loans have been serviced in accordance with all
applicable state and federal laws and with the FNMA Guides.
With respect to escrow deposits and Escrow Payments, all such
payments have or will be transferred to Purchaser in
accordance with the Manual and there exist no deficiencies in
connection therewith for which customary arrangements for
repayment thereof have not been made. All Escrow Payments
have been collected in full compliance with state and federal
law. If required under the Mortgage and not prohibited by
applicable law, an escrow of funds has been established in an
amount sufficient to pay for every item that remains unpaid
and has been assessed but is not yet due and payable. No
escrow deposits or Escrow Payments or other charges or
payments due Seller have been capitalized under the Mortgage
or the Mortgage Note. 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.
(dd) NO VIOLATION OF ENVIRONMENTAL LAWS
There is no pending action or proceeding directly involving
the Mortgaged Property in which compliance with any
environmental law, rule or regulation is an issue, and nothing
further remains to be done to satisfy in full requirements of
each such law, rule or regulation constituting a prerequisite
to residential use and enjoyment of said property.
(ee) SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
The Mortgagor has not notified Seller and Seller has no
knowledge of any relief requested by the Mortgagor under the
Soldiers' and Sailors' Civil Relief Act of 1990.
(ff) LEASEHOLDS
With respect to any Mortgage Loan secured by a leasehold
estate, the Mortgage Loan satisfies the FNMA requirements for
leasehold mortgages including, without limitation, that the
lease is valid and in good standing, all rents and other
payments that have become due under the lease have been paid
properly, the lessee is not in default under any provision of
the lease, the lease does not provide for its forfeiture or
termination for any reason except the non-payment of lease
rents, and the maturity date of the lease is at least ten
years after the maturity date of the Mortgage.
(gg) NO MISREPRESENTATION
Neither the Mortgagor nor any other party has made any
misrepresentation or committed fraud in connection with the
origination of the Mortgage Loan or the sale of the Mortgage
Loan to Purchaser.
7.03 REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES
(a) REPURCHASE
It is understood and agreed that the representation and
warranties set forth in Sections 7.01 and 7.02 and in the
Manual shall survive the sale of the Mortgage Loans to
Purchaser and shall inure to the benefit of Purchaser,
notwithstanding any restrictive or qualified endorsement on
any Mortgage Note or Assignment of Mortgage or the examination
or failure to examine any Mortgage File. Upon discovery by
either Seller or Purchaser of a breach of any of the foregoing
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representation and warranties which adversely affects the
value of the Mortgage Loans or the interest of the Purchaser
(or which adversely affects the interests of the Purchaser in
the related Mortgage Loan in the case of a representation and
warranty relating to a particular Mortgage Loan), the party
discovering such breach shall give prompt written notice to
the other. Within 30 days of the earlier discovery by or
notice to Seller of any such breach of a representation or
warranty, the Seller shall use its best efforts promptly to
cure such breach in all material respects, and if such breach
cannot be cured, Seller shall, at Purchaser's option,
repurchase the Mortgage Loan adversely affected by such
breach at the Repurchase Price. In the event that a breach
shall involve any representation or warranty set forth in
Section 7.01 and such breach cannot be cured within 30 days
of the earlier of either discovery by or notice to Seller of
such breach, all of the Mortgage Loans adversely affected by
such breach shall, at the Purchaser's option, be repurchased
by Seller at the Repurchase Price. At the time of repurchase
of a Mortgage Loan, Purchaser and Seller shall arrange for
the reassignment of such Mortgage Loan to Seller and the
delivery to Seller of any documents held by Purchaser
relating to such Mortgage Loan.
(b) REMEDY FOR NON-DELIVERY OF DOCUMENTS
In the event the Seller is required to deliver to the
Purchaser any document related to a purchased loan pursuant
hereto and Seller fails to deliver such document in the proper
form, Purchaser shall notify Seller of the breach. and Seller
shall have thirty (30) days from the date of notice to cure
the breach or such longer period as agreed upon by the parties
hereto in writing. If Seller has not cured the breach within
the thirty-day cure period or such longer period as agreed
upon by the parties hereto in writing, Seller shall within ten
(10) business days repurchase the loan upon Purchaser's or its
representatives' demand at the Repurchase Price. Any loan
repurchased from Purchaser pursuant to this Section shall be
without recourse, representation or warranty,
Notwithstanding the above, Seller shall have sixty (60) days
to deliver to Purchaser a final title insurance policy if
Purchaser purchases a loan in reliance on a marked-up title
insurance commitment, title insurance binder or certificate.
If Seller fails to deliver said policy, Seller shall within
ten (10) business days repurchase the loan upon Purchaser's or
its representatives' demand at the repurchase price.
(c) INDEMNIFICATION
In addition to such repurchase obligation, Seller shall
indemnity Purchaser and hold it harmless against any losses,
damages, penalties, fines, forfeitures, reasonable and
necessary 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 representations or warranties contained
in this Agreement. It is understood and agreed that the
obligations of Seller set forth in this Section 7.03 to cure
or repurchase a defective Mortgage Loan and to indemnify
Purchaser as provided in this Section 7.03 constitute the sole
remedies of Purchaser respecting a breach of the foregoing
representations and warranties.
7.04 REMEDY FOR EARLY PAYMENT DELINQUENCY OR DEFAULT
Purchaser shall have the right to demand repurchase, at the
Repurchase Price by the Seller within ten (10) business days, any
Mortgage Loan as to which one of the following conditions apply:
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o Any failure by the Borrower to make any of the first
(1) payment due to the Purchaser or Purchaser's
Servicer in their entirety by the close of business on
the date on which the following payment becomes due;
regardless of whether such payment is subsequently paid
by borrower, such loan shall be considered a "30-Day
delinquent loan."
o Foreclosure proceedings have been initiated based on a
delinquency which began with the second or third
Monthly Payments due to the Purchaser or Purchaser's
Services. Such loan shall be considered an "Early
Payment Default" Notwithstanding the preceding
sentence. Seller shall not be obligated to repurchase a
Mortgage Loan solely because an "Early Payment Default"
exists with respect thereto if such Early Payment
Default" was caused directly by a "Mitigating Cause", A
"Mitigating Cause" is an event or circumstance that (i)
occurred after the Closing Date for such Mortgage Loan,
(ii) was beyond the control of Seller and any other
person or entity involved in the origination of the
Mortgage Loan, and (iii) at the time the Mortgage Loan
was funded, was unforeseeable by Seller, any other
person or entity involved in the origination of the
Mortgage Loan and the related Mortgagor. All three
conditions listed in clauses (i) - (iii) in the
preceding sentence must be satisfied for an event or
circumstance to be a "Mitigating Cause" repurchase of
Early Payment Delinquencies.
SECTION 8. POST SETTLEMENT ADJUSTMENTS
In the event that a premium is paid by the Purchaser to Seller on a
loan and such loan is prepaid in full by the borrower within (12)
twelve months the date of purchase, the Seller, within (ten) 10
business days, refund to Purchaser in Immediately available funds,
the appropriate percentage specified below, the premium paid by the
Purchaser to the Seller:
<TABLE>
<CAPTION>
DAYS FOLLOWING SETTLEMENT. PREMIUM REBATE
--------------------------- --------------
<S> <C>
0-30 days 12/12
31 -60 days 11/12
61-90 days 10/12
91-120 days 9/12
121-150 days 8/12
151-180 days 7/12
181-210 days 6/12
211-240 days 6/12
241-270 days 4/12
271-300 days 3/12
301-330 days 2/12
331-360 days 1/12
</TABLE>
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In the event the borrower prepays a mortgage prior to maturity, and
such mortgage contains a prepayment provision which is enforceable
under all applicable laws, then the premium rebate payable will be
reduced by the amount of the prepayment fee received by purchaser.
Setter agrees to pay purchaser the difference between the
prepayment fee paid by the borrower add the premium rebate if any.
Seller shall not be liable or responsible to Purchaser for
repayment of any premium rebates to any Mortgage Loan which is
refinanced by Purchaser, and subsidiary, affiliate, parent
organization of or successor institution into which Purchaser may
be merged or consolidated.
SECTION 9. CLOSING
The closing for each Mortgage Loan shall take place on the related
Closing Date and shall be subject to each of the following
conditions:
(a) All of the representations and warranties of Seller under this
Agreement shall be true and correct as of the related Closing Date
and no event shall have occurred which, with notice or the passage
of time, would constitute a default under this Agreement; and
(b) All other terms and conditions of this Agreement, the Manual and
the related Program Requirements shall have been complied with.
Subject to the foregoing conditions. Purchaser shall pay to Seller
on the related Closing Date the Purchase Price, by wire transfer of
immediately available funds to the account designated by Seller.
SECTION 10. CLOSING DOCUMENTS
Concurrently with execution of this Agreement, Seller has delivered to
Purchaser a Seller's Officer's Certificate, in the form of Exhibit A
hereto, including all attachments thereto. Seller shall update such
document from time to time as Purchaser may reasonably request.
SECTION 11. COSTS
Purchaser shall pay the legal fees and expenses of its attorneys. All
other costs and expenses incurred in connection with the transfer and
delivery of the Mortgage Loans, including recording fees, fees for title
policy endorsements and continuations and Seller's attorneys fees shall be
paid by Seller.
SECTION 12. TRANSFER OF SERVICING
Seller shall transfer to Purchaser servicing responsibility with respect
to Mortgage Loans purchased by Purchaser in accordance with procedures set
forth in the Manual.
SECTION 13. MERGER OR CONSOLIDATION OF SELLER
Seller will keep in full effect its existence, rights and franchises as a
corporation under the laws of the state of its incorporation except as
permitted herein, and will obtain and preserve its qualification to do
business as a foreign corporation 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 entity into which Seller may
be merged or consolidated, or any corporation resulting from any merger,
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conversion or consolidation to which Seller shall be a party, or any
entity succeeding to the business of Seller, shall be the successor of
Seller 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 entity shall be an institution whose deposits are insured by
FDIC or a company whose business is the origination and servicing of
mortgage loans, unless otherwise consented to by Purchaser, which consent
shall not be unreasonably withheld.
SECTION 14. TERMINATION
Either party may terminate this Agreement with respect to future
transactions effective upon receipt of notice of such termination. Such
termination shall not affect Mortgage Loans which Seller has offered to
sell and Purchaser has agreed to purchase in accordance with the
procedures set forth in the Manual.
SECTION 15. GENERAL PROVISIONS
15.01 NOTICES
All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given when received
by the other party at its address as follows:
(i) if to Purchaser:
LIFE BANK
10540 Magnolia Avenue, Suite B
Riverside, CA 92505-1814
Attn. Joseph R. L. Passerino
(909) 637-4000
(888) 388-5433
(ii) if to Seller
Austin Funding Corp.
P.O. Box 36
Peel, AR. 72668
Attn. Jeffrey Dell
15.02 SEVERABILITY
Any part, provision, representation or warranty of this Agreement
which is prohibited or unenforceable or is held to be void or
unenforceable in any jurisdiction shall be ineffective, as to such
jurisdiction, to the extent of such prohibition or unenforceability
in any jurisdiction without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15.03 COUNTERPARTS
This Agreement may be executed in any number of counterparts. Each
counterpart shall be deemed to be an original, and all such
counterparts shall constitute one and the same instrument.
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15.04 GOVERNING LAW
The agreement shall be construed in Accordance with the laws of the
State of California and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with the State
of California, except to the extent preempted by federal law.
15.05 INTENTION OF THE PARTIES
It is the intention of the parties that Purchaser is purchasing,
and Seller is selling the Mortgage Loans and not a debt instrument
of Seller or another security. Accordingly, the parties hereto each
intend to treat the transaction for federal income tax purposes as
a sale by Seller, and a purchase by Purchaser, of the Mortgage
Loans.
15.06 PLACE OF CONTRACTING
Seller and Purchaser each agree that this Agreement has been
entered into and is to be performed within the State of California
and the County of Riverside.
15.07 ATTORNEYS' FEES AND COSTS
In the event an action, including but not limited to the
commencement of civil litigation, is commenced to enforce any of
the provisions of this Agreement or to obtain declaratory relief in
connection with any of the provisions of this Agreement or the
mortgages that are purchased by Purchaser as a result this
Agreement, the prevailing party shall be entitled to recover
attorneys' fees, costs and expenses incurred therein.
15.09 PLACE OF CONTRACTING
Seller and Purchaser each agree that this Agreement has been
entered into and is to be performed within the State of California
and the County of Riverside.
15.10 SUCCESSORS AND ASSIGNS; ASSIGNMENT OF AGREEMENT
This Agreement shall bind and inure to the benefit of and be
enforceable by Seller and Purchaser and the respective successors
and assigns of Seller and Purchaser. This Agreement shall not be
assigned, pledged or hypothecated by Seller to a third party
without the consent of Purchaser.
15.11 WAIVERS
No term or provision of this Agreement may be waived or modified
unless such waiver or modification is in writing and signed by the
party against whom such waiver or modification is sought to be
enforced.
15.12 BROKERS
Each party shall indemnify, defend and hold harmless the other from
and against any claims for broker's or finder's fees based upon
actions or alleged actions for the indemnifying party.
15.13 AMENDMENT OF MANUAL AND PROGRAM REQUIREMENTS
Purchaser may, from time to time in its sole discretion, amend the
Manual or any Program Requirements, provided that no such amendment
shall affect any Mortgage Loan which Purchaser has, prior to
Seller's receipt of notification of such amendment, agreed to
purchase pursuant to the Manual and Program Requirements in effect
prior to such amendment.
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15.14 FURTHER AGREEMENTS
Seller and Purchaser each agree to execute and deliver to the other
such reasonable and appropriate additional documents, instruments
or agreements as may be necessary or appropriate to effectuate the
purpose of this Agreement.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to
be signed hereto by their respective officers thereunto duly authorized as
of the date first above written.
LIFE BANK
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
(Seller) AUSTIN FUNDING CORPORATION
By: /s/ GLENN LAPOINTE
-------------------------------------------
Name: Glenn LaPointe
-----------------------------------------
Title: President
----------------------------------------
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<PAGE> 1
EXHIBIT 6(h)
IMPAC IMPAC FUNDING CORPORATION
SELLER AGREEMENT
THIS AGREEMENT is made this 7th day of April, 1999, by and between Impac
Funding Corporation (hereinafter referred as "Buyer" or as "IFC") a subsidiary
of Impac Mortgage Holdings, Inc., a Maryland corporation and AUSTIN FUNDING
CORPORATION a Texas, Corporation (hereinafter referred to as "Seller"). This
Agreement shall govern the sale and transfer of mortgage loans by Seller to IFC
and other incidence thereof, and each such mortgage loan shall be subject to the
warranties, representations and agreements contained herein.
In consideration of the mutual promises, covenants and benefits hereinafter
set forth the parties hereto agree as follows:
ARTICLE I
INCORPORATION OF GUIDE
1.1. Upon final approval of Seller's application package, Buyer will issue
to Seller a Seller's Guide (hereinafter referred to as "the Guide"). All
provisions of the Guide are incorporated by reference into this Agreement and
shall be binding upon the parties. Specific references in this Agreement to
particular provisions of the Guide and not to other provisions does not mean
that those provisions of the Guide not specifically cited herein are not
applicable. All terms used herein shall have the same meaning as such terms have
in the Guide unless the context clearly requires otherwise.
ARTICLE II
DEFINITIONS
2.1 As used herein the following terms shall have the following meaning:
"B or C Products" shall mean those mortgage loans characterized by
Buyer (in their sole discretion) as being of B or C quality.
"closing date" shall mean the date each mortgage loan sold hereunder is
funded by Seller.
"mortgage loan" shall mean a promissory note secured by a first and/or
second trust deed or mortgage on residential real property.
"mortgage file" shall mean the documents to be turned over to Buyer on
the sale of any mortgage loan as called for herein, in the Guide.
"mortgaged property" shall mean the residential real property which is
security for each mortgage loan hereunder.
"timely" shall mean prior to the right to impose a late penalty under
the terms of a promissory note sold hereunder.
"transaction date" shall mean the date each mortgage loan is sold to
Buyer hereunder.
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ARTICLE III
PURCHASE OF LOANS
3.1. It is the intention of the parties hereto for IFC to purchase
certain mortgage loans from Seller, which loans qualify under the requirements
set forth by Buyer in the Guide, modifications thereto and in any other
particular programs. It is agreed that Buyer shall purchase loans from Seller
under all available loan programs unless identified herein: _________________
_____________________________________________________________________________
ARTICLE IV
MUTUAL REPRESENTATIONS AND WARRANTIES
4.1. The parties hereto each represent and warrant to each other and their
respective successors in interest and assigns and agree that as of the date of
this Agreement:
A. This Agreement has been duly authorized, executed and delivered by
each party to the other party and constitutes a valid and legally binding
agreement.
B. There is no action, proceeding or investigation pending or
threatened, nor any basis for such action, proceeding or investigation
known to the representing party, that questions the validity or prospective
validity of this Agreement or any essential element upon which this
Agreement depends, or any action that is to be taken by the representing
party pursuant to this Agreement.
C. Each party is duly organized, validly existing and in good standing
under the laws of its jurisdiction and has the requisite power and
authority to enter into this Agreement and any subsequent Agreements to
which both parties are parties and which is contemplated by this Agreement.
D. Each party represents that they have full right to perform all
duties and functions hereunder and they are licensed to do so and that no
obligation under this Agreement is in violation of any provisions, charter,
certificate of incorporation, by-law, mortgage, indenture, indebtedness,
agreement, instrument, judgment, decree, order, statute, rule or regulation
by which the representing party is bound or obligated; and there is no such
provision that adversely affects either parties' capacity to carry out the
obligations hereunder.
ARTICLE V
SELLERS REPRESENTATIONS AND WARRANTIES
5.1. Seller represents and warrants to Buyer, as to each transaction
between the parties that as of the date of each transaction:
A. Seller is duly organized, validly existing and in good standing
under the laws of its jurisdiction and is qualified, if necessary, to do
business in each jurisdiction in which the mortgaged property is located.
Seller has the requisite power and authority to enter into this Agreement
and all other agreements which are contemplated by this Agreement and to
carry out its obligations hereunder and under the Guide.
B. There are no actions or proceedings, threatened or pending, which
would adversely affect Sellers' ability to perform hereunder, or under its
obligations as set forth in the Guide.
C. Any mortgage loan which is sold under this Agreement conforms in
all respects to the requirements of this Agreement and the Guide and the
information set forth in each document delivered by Seller, as required by
the Guide, is complete and accurate.
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D. Seller is the sole owner and holder of each mortgage loan free and
clear of any liens, pledges, charges or security interest of any nature,
and has full right and authority to sell and assign the same pursuant to
this Agreement.
E. There are no restrictions, contractual or governmental, which would
impair the ability of Buyer or Buyer's designees from servicing the
mortgage loan.
F. The mortgage loan is not in default and all monthly payments due
prior to the transaction date and all taxes, assessments, insurance
premiums, leasehold payments or ground rents have been timely paid. Seller
has not advanced funds or induced or solicited any advances or funds by a
party other than a mortgagor directly or indirectly, for the payment of any
amounts required by the mortgage loan.
G. There is no default, breach, violation, anticipated breach or event
of acceleration existing under the mortgage or the related 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.
H. The loan is not subject to any right of rescission, set-off,
counter claim or defense and is not unenforceable under any terms. The
mortgage note and the related mortgage are genuine, legal, valid and
binding obligations of the maker thereof. All parties had legal capacity to
execute the note and all documents have, in fact, been properly executed by
the parties.
I. The mortgage loan, and the funding thereof, meets, or is exempt
from, applicable state and federal laws, regulations and other requirements
pertaining to usury, fees, and expenses incurred in the making of that loan
(this shall include, but not be limited to, RESPA requirements).
J. Any and all requirements of any federal, state or local law which
include, but are not limited to, truth-in-lending, consumer credit
protection and equal credit opportunity have been complied with.
K. The proceeds of the loan have been fully disbursed and there is no
requirement or anticipation of future advances thereunder. All costs, fees
and expenses incurred in making, closing or recording the loan have been
paid.
L. On the closing date of each loan, the property was free and clear
of all mechanics' and materialmans' liens or liens in the nature thereof,
which could be prior to the mortgage loan and no rights are outstanding
that under law could give right to any such lien.
M. All of the improvements which are included for purposes of
determining the appraised value of the mortgaged property lie wholly within
the boundaries and building restriction lines of such property and meet all
building code requirements. No improvements on the adjoining property
encroach upon the mortgaged property.
N. Any and all appraisals prepared for purposes of the loan to verify
and validate the value of the mortgaged property were prepared honestly and
truthfully, by an unbiased third party which is a duly qualified appraiser
and each such appraisal validly represents the true, actual and correct
value of the mortgaged property.
O. On the closing date, no improvement located on or being part of the
mortgaged property was in violation of any applicable zoning law or
regulation.
P. There are no hazardous substances or toxic waste located on or
under said property so as to affect the value of said property.
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Q. There is no proceeding pending for the total or partial
condemnation of the mortgaged property and said property is undamaged by
waste, fire, earthquake, earth movement, subsidence, wind, storm, flood,
water, tornado or other casualty.
R. The mortgage file contains each of the documents and instruments
specified to be included therein as required under the Guide, and each such
document or instrument is in a form acceptable to Buyer.
S. There are no circumstances or conditions with respect to the
mortgage, the mortgaged property, the mortgagor, or the mortgagor's credit
standing that can be reasonably 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.
T. All terms, conditions and requirements of the Guide have been fully
and faithfully carried forth and all documents submitted to the Buyer
pursuant to the requirements of the Guide are correct and all information
contained with those documents is true and correct.
U. For 90 days following the transaction date for any mortgage loan
sold hereunder all payments required by each such mortgage will be made on
a timely basis by the Mortgagor(s). With regards to the sale of B or C
Products the ninety (90) day period specified herein shall be modified to
be the first payment due Buyer following the transaction date.
V. Each mortgage, deed of trust and all other security instruments
securing such a mortgage loan have been duly recorded in the office of the
jurisdiction where the premises are located.
W. With regards to each mortgage loan sold hereunder, a title
insurance policy has been issued in an acceptable form as described in the
Guide and is valid and binding. Each such policy shall be issued by a title
insurer acceptable to Buyer and qualified to do business in the
jurisdiction where the subject is located. Each such policy shall insure
Seller, its successors and assigns to the first priority of the mortgage,
and shall be in the amount of the original principal of the mortgage loan.
Seller warrants that they are the named insured and sole insured of such
title policy and that the assignments to Buyer of Seller's interest in such
title insurance does not require the consent of or notification to the
insurer, and that such insurance policy is and will remain in full force
and effect and will inure to the benefit of Buyer and Buyer's assigns upon
the consummation of the transaction contemplated by this Agreement and any
subsequent assignments by Buyer. Seller warrants that no claims have been
made under such title insurance policy and neither Seller nor any prior
holder of the mortgage has done anything which would impair the coverage of
such title insurance policy and that nothing contemplated in this Agreement
or any transfer to Buyer will impair the coverage of such title insurance
policy.
X. The property, and all improvements thereon, are insured against
loss by fire and other such hazards as are customary in the area where the
mortgage property is located. Such coverage shall contain fire and hazard
insurance policies with extended coverage as called for within this
guideline and the Guide. The coverage under such policy shall be at least
equal to the greater of the outstanding principal of the loan, 80% of the
maximum insurable value of the improvements, or, an amount sufficient to
prevent the mortgagor or loss payee from becoming a co-insurer. Such
insurance as issued must be with an insurer acceptable pursuant to the
Guide. All insurance policies must contain a standard mortgagee clause
naming Seller and its successors and assigns, as mortgagee and loss payee.
Each mortgage obligates the mortgagor thereunder to maintain such insurance
at their costs and expense and allows the mortgagee to obtain and maintain
such insurance at mortgagor's costs and expense, and to seek reimbursement
therefore from the mortgagor should there be any failure by the mortgagor
to maintain such policy. If any flood insurance is required by applicable
law or requirement, then it is obtained and in force and effect. Any
statements made by the mortgagor or the Seller in applications for such
policies were true,
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complete and correct at the time the application was made and there are no
events that have occurred since that policy was issued that would affect the
stated coverage of the policy.
Y. Any trustee named in the mortgage loan is authorized to serve as
such in the applicable jurisdiction. No fees or expenses are currently due
to such Trustee other than any fees or expenses that might be incurred
after a default.
Z. Seller has used no adverse selection procedure in soliciting or
selecting the mortgage loans to be sold to Buyer or in the solicitation of
mortgagors.
AA. No servicing agreement has been entered into with respect to the
mortgage loan, or any such servicing agreement has been terminated or will
be terminated prior to the assignment of any loan to Buyer, and there are
no restrictions, contractual, governmental or otherwise which would impair
the ability of Buyer or Buyer's designee from servicing the mortgage loan.
ARTICLE VI
EFFECT OF BREACH OF REPRESENTATIONS OR WARRANTIES
6.1 It is understood and agreed that the representations and warranties set
forth in Article V shall survive and continue in force for the full remaining
life of each mortgage loan, notwithstanding the restrictive or qualified
enforcement of the mortgage or any restrictive or qualified language contained
in any assignment of mortgage. Upon discovery by either Seller or Buyer of a
breach of any of the foregoing representations and warranties or of a defect
with respect to a mortgage loan, the party discovering such breach or defect has
a duty to give prompt written notice to the other party. Within thirty (30) days
of its discovery, or its receipt of notice of any such breach of a
representation or warranty or of a defect, Seller shall promptly cure such
breach or defect in all material respects or repurchase the affected loan at a
price equal to the outstanding principal balance of the loan plus interest at
the mortgage interest rate from the date to which interest has last been paid
plus the servicing premium plus any other expenses incurred by Buyer or losses
suffered by Buyer. However, notwithstanding anything contained herein to the
contrary, in the event that a defect or default shall involve the mortgagor's
failure to make a timely monthly mortgage installment payment within the first
ninety (90) days, (except as modified for B and C Products in paragraph 5.1U in
which case the ninety (90) day period shall be the first payment due Buyer
following the transaction date) then upon ten (10) days written notice by Buyer,
Seller shall immediately repurchase such mortgage at a price computed as
provided above. If, however, IFC determines, in their sole discretion, that
Seller is unable to cure the breach within thirty (30) days or that the breach
cannot be cured without affecting the resale value of said loan, Seller shall,
within ten (10) days of receipt of notice from IFC repurchase the mortgage on
the terms set forth above.
6.2 The parties hereto each understand and contemplate that Buyer will
resell said loans on the secondary market and it is understood that the right of
repurchase shall further apply to any such purchaser of the loans. If any loan
hereunder is rejected, returned, or a demand is made that it be repurchased from
FNMA, FHLMC or any ultimate secondary market investor, Seller shall immediately,
upon notice from Buyer, repurchase the mortgage loan in accordance with the
provisions hereof.
6.3 In addition to such repurchase obligation, Seller shall indemnify Buyer
and hold it harmless against losses, damages, penalties, forfeitures, legal fees
and related costs, judgments, and other costs and expenses resulting from any
claim, demand, defense, defect or assertion based on, grounded upon, or
resulting from a breach of Seller's representations and warranties contained in
this Agreement.
6.4 In addition to all other amounts set forth herein and under 6.1 the
repurchase price shall be at a price equal to the outstanding principal balance
of the loan plus accrued interest at the mortgage rate from the date to which
interest was last paid plus the servicing premium plus any other expenses
incurred by Buyer.
6.5 If any mortgage loan sold to Buyer hereunder is prepaid by more than
fifty percent (50%) of the original principal balance within sixty (60) days
following the purchase by Buyer, the Buyer has the right to require the Seller
to reimburse Buyer for any premium, inducements, servicing released premium,
including any amount paid by Buyer for the mortgage loan, within ten (10)
business days upon written notice. Commencing on the 61st
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day and continuing until the 180th day after the purchase by Buyer said amounts
shall only be reimbursable to Buyer if the loan was paid off as a result of a
refinance of the property (whether by the original trustor or a subsequent
purchaser) originated or funded through the Seller, through any entity who pays
a fee to Seller or if said early payoff is a result of a solicitation by Seller.
6.6 It is understood that this Agreement creates an ongoing relationship
between the parties. As a result, there may be various payments, charges,
credits and expenses assessed on each sale by Buyer to Seller. If any such
amount due Buyer from Seller remains outstanding more than fifteen (15) days
after it is due, Seller then hereby appoints Buyer as its true and lawful
attorney-in-fact to take all steps necessary to protect amounts due Buyer and to
deduct from any subsequent sales proceeds hereunder such amounts due Buyer.
6.7 It is contemplated that certain loans sold hereunder may be
underwritten by Buyer before Settlement. in those cases only, Seller is relieved
of its duties and obligations regarding the underwriting and any obligation to
repurchase due solely to underwriting errors or improper underwriting decisions
made by Buyer. However, Seller shall still be responsible to insure that all
conditions called for in the underwriting approved by Buyer are satisfied by
Seller and that all information submitted in the loan application is true and
correct.
6.8 By executing this Agreement, Seller is hereby granting to Buyer,
effective upon a breach by Seller of any of the terms or conditions of this
Agreement, a special power of attorney irrevocably making, constituting and
appointing Buyer as Seller's attorney-in-fact, with power and authority to act
in Seller's name and on Seller's behalf to execute, acknowledge and swear to the
execution, acknowledgment and filing of all instruments and documents governing
the funding, transfer or assignment of any Loans hereunder, which shall include,
but is not limited to, Assignments of the Notes, Security Instruments and any
other Loan Documents, or rights thereunder, transferred to Buyer hereunder. This
power of attorney being granted by Seller is a special power of attorney coupled
with an interest, is irrevocable, shall survive the dissolution of Seller and is
limited to those matters herein set forth.
ARTICLE VII
COMMITMENTS
7.1 All transactions between the parties hereto shall be governed by the
terms and conditions of the Guide. No mortgage loan shall be sold to Buyer
unless all requirements of the Guide have been met and then Buyer shall not be
committed to purchase any such loans unless Buyer has provided the commitments
as set forth in the Guide upon Buyer's written commitment to complete the sale
as is set forth in the Guide.
ARTICLE VIII
DOCUMENT DELIVERY
8.1 Seller agrees to complete all acts necessary to perfect title to the
mortgage in Buyer and shall sell, assign and deliver to Buyer, with respect to
the purchase of each such mortgage loan, all of the respective documents
required or necessary to effectuate the transaction. This shall include but not
be limited to obtaining any documents required by or from the original mortgagor
to insure that the mortgage loan complies with the Guide.
ARTICLE IX
TERMINATION
9.1 This Agreement may be terminated by either party upon thirty (30) days
prior written notice to the other party, which notice shall be effective five
(5) days after being placed in a U.S. Mail repository, postage prepaid. However,
if Buyer believes (in its sole discretion) that there is a breach of any
representation or warranties herein with reference to any mortgage loan sold
hereunder or of any other obligations of Seller herein, then Buyer may terminate
this Agreement (which termination is effective immediately upon giving the oral
notice) forthwith upon oral notification to Seller by Buyer, which oral
notification is followed by written notice as called for herein.
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ARTICLE X
General Provisions
10.1 All notices, requests, demands or other communications that are to be
given under this contract (except those pursuant to 10.3) shall be in writing,
addressed to the appropriate parties and sent postage prepaid to the address
below:
If to Buyer: Impac Funding Corporation
1401 Dove Street, Suite 100
Newport Beach, CA 92660
ATTN: Seller Administration
If to Seller: Austin Funding Corporation
P.O. Box 36
Peel, AR. 72668
Attn: Jeffrey Dell
10.2 This Agreement supersedes any prior agreement or understanding between
the parties concerning the subject matter hereof and cannot be modified in any
respect except by an amendment in writing signed by both parties, provided
however, that this Agreement shall not supersede the right of Buyer to modify
the Guide and have such modifications be binding on Seller, as set forth in
paragraph 10.3.
10.3 Buyer and Seller agree that Buyer may modify the Guide, and that
Seller shall be bound by the terms of any such modification, as long as Buyer
mails any such modifications to Seller, and such modifications shall be
effective upon the earlier of receipt by Seller or ten (10) days after such
modification is mailed to Seller, postage prepaid.
10.4 This Agreement shall be construed in accordance with the laws of the
State of California.
10.5 Seller agrees to provide Buyer its most recent fiscal year financial
statement audited by a Certified Public Accountant, on a yearly basis, and
shall, from time to time at Buyer's request, provide additional documentation
regarding Seller's, organization and personnel to maintain the Seller's approved
standing with Buyer. Failure by Seller to provide requested documentation may
result in Buyer's refusal to issue new loan commitments. Such refusal will take
the form of written notification and shall be effective ten (10) days after such
notification is mailed to Seller, postage prepaid. Continued failure by the
Seller to provide requested documentation may further result in the termination
of the Agreement. Such termination will take the form more fully described in
Article IX
10.6 Any controversy, claim or dispute among the parties arising out of
this contract, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association in Orange County, California and judgment upon the award rendered by
the Arbitrator may be entered in any court having jurisdiction, including the
Superior Court of California, County of Orange.
10.7 If any party to this Agreement resorts to any legal action or
arbitration, to enforce any provision of this Agreement, the prevailing party
shall be entitled to recover its attorneys' fees in addition to any other relief
to which it may be entitled.
10.8 Seller warrants it will not solicit or encourage the refinancing of
any property that is encumbered by a mortgage loan and sold hereunder for a
period of one year after the loan is purchased by Buyer. Seller agrees not to
disclose any such names or information to third parties to encourage or aid them
to refinance such properties during that one year period. This restriction shall
not apply to any mortgage loan which has been deemed accelerated by Buyer, or
its assignee.
10.9 Seller acknowledges that nothing herein, or in the Guide, shall be
construed to create an agency relationship, partnership, joint venture or
employment relationship between Buyer and Seller. Seller shall not hold itself
out as such, or make any such or similar representations.
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<PAGE> 8
ARTICLE XI
ADDENDUM
11.1 If identified herein the attached Addendum shall also be deemed to be
added provisions of this Agreement:
BUYER: IMPAC FUNDING CORPORATION
Dated: 199 By: /s/ JAMES W. DICKINSON
----- - ------------------------------------------
James W. Dickinson
Its: Vice President
------------------------------------------
SELLER: AUSTIN FUNDING CORPORATION
Dated: April 7, 1999, 199 By: [ILLEGIBLE]
- ------------------------------------------
Its: President/CEO
------------------------------------------
Page 8
<PAGE> 1
EXHIBIT 6(i)
COMMERCIAL LOAN
AND SERVICING AGREEMENT
(SECURED LINE OF CREDIT)
This Agreement is made as of December 22, 1998, between:
First National of North America, LLC
a Michigan Limited Liability Company
241 E. Saginaw Highway
P.O. Box 4549
East Lansing, Michigan 48826 ("LENDER")
and
Austin Funding Corporation
823 Congress #515
Austin, TX 78701 ("BORROWER")
and
Glenn A. LaPointe
11624 Jollyville Rd. #628
Austin, TX 78759 ("GUARANTOR")
Terry G. Hartnett
6000 Shepherd Mountain Cove, #106
Austin, TX 78730 ("GUARANTOR")
Lender agrees to loan to Borrower up to the amount of Five Hundred
Thousand Dollars ($500,000) on a revolving line of credit basis, which
Borrower agrees to repay with interest and other fees and expenses, all on
the following terms and conditions ("Loan"):
1. Purpose of Loan. The purpose of the Loan is to provide working
capital to Borrower for its purchase of real estate notes (collectively
referred to as the "Notes" and individually as the "Note"). The proceeds of
the Loan shall be used only for this purpose. It is anticipated that
Borrower will be engaging in two (2) types of purchases: a "Whole Purchase"
whereby Borrower purchases all remaining payments due on the Note at the
time of purchase and a "Partial Purchase" whereby Borrower purchases less
than all remaining payments due on the Note at the time of purchase. The
undersigned hereby swears that the proceeds of the loan will only be used
for the business purposes set forth in this paragraph.
2. Term of Loan. The term of the Loan is for the period commencing this
date through January 1, 2000. Borrower agrees to repay all accrued interest
and other fees and expenses, if any, due Lender under the terms and
conditions of this Agreement by that date. Prepayment of any amount or all
of the principal may be made without penalty. Notwithstanding the preceding
provisions of this paragraph to the contrary, Lender reserves the right, at
any time, for any reason, in its sole discretion, to terminate this
Agreement and demand full payment of all principal, interest and other fees
and expenses due Lender under this Agreement and Borrower agrees to pay
these amounts in full on demand, subject to the provisions of paragraph 13.
3. Rate and Accrual of Interest. Interest shall accrue and be based on
the weighted average daily borrowings made by Borrower against the line of
credit at the weighted average per annum rate of interest determined by
assigning from attached Schedule A the appropriate interest rate to each
Note in the Collateral Base, but in no case more than the maximum per annum
rate of interest lawfully chargeable by Lender to Borrower under the laws of
Michigan. The weighted average interest rate shall be determined by
weighting each note's interest rate as assigned on Schedule A by such note's
equivalent balance. For purposes of this paragraph, Borrower will be deemed
to have borrowed each amount deposited by Lender in the checking account
described in paragraph 9, as of the date of deposit of such amount to the
checking account by Lender. If there is no Note in the Collateral Base from
which to calculate a weighted average per annum rate of interest, then the
rate shall be equal to the AAA rate from Schedule A hereto.
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4. Default Rate of Interest. If default in any term or condition of the
Loan exists for more than thirty (30) days, the per annum rate of interest
for the period of default shall be the interest rate determined under the
provisions of paragraph 3, plus two percentage points (2.0%) but in no case
more than the maximum per annum rate of interest lawfully chargeable by
Lender to Borrower under the laws of Michigan.
5. Payment of Interest and Fees. Interest shall be paid monthly, in
arrears, beginning January 1, 1999, and on the same day of each month
thereafter during the term of the Loan. The interest, as well as other fees
and expenses, it any, due from Borrower, shall be paid from the Payment
Account (as defined in paragraph 11). If the amounts in the Payment Account
at any time are insufficient to pay the interest (or any other amount which
is to be paid from Payment Account as described in paragraph 11), Borrower
shall pay the amounts due within three (3) business days of receipt of
written notice from Lender. Any amount not paid when due shall be added to
and become a part of the principal balance of the Loan, itself to accrue
interest at the rate stated above until paid. Nothing in the preceding
sentence shall be construed as a waiver of Borrower's obligation to
immediately pay any delinquent amount.
6. Notes as Security. As security for Borrower's performance under this
Agreement, Borrower will deposit Notes with Lender in such quantity as
Borrower chooses from time to time. Such Notes will be cared for and
safeguarded with the same care that Lender extends to its own Notes,
including the use of fire-proof files for storage, etc. Borrower shall
submit with the deposit of each Note such information as Lender may require
to permit Lender to adequately evaluate the strength of the Note as security
for the Loan. Lender is under no obligation to accept any Note, at all times
reserving the right, for whatever reason determined by Lender in its
discretion, to reject a Note as inadequate security. However, once a Note
has been accepted, it will not subsequently be rejected unless it becomes
delinquent. Some, although not all, of the criteria used by Lender in making
its determination will be:
A. The Note must be a first lien obligation of the buyer of an
interest in real estate.
B. The Note must not be secured by property actually or
potentially contaminated by hazardous waste materials.
Borrower agrees to and hereby does indemnify and hold Lender harmless from
any and all liabilities (including but not limited to any environmental,
hazard or regulatory concerns, statutes, regulations, laws, litigation,
mediations or other adjudications) of any type arising out of the Lender
holding an interest in any Note.
7. Limitation on Amount of Outstanding Principal. Subject to the Five
Hundred Thousand Dollar ($500,000) limitation stated above, at no time shall
the amount of principal borrowed by Borrower and unpaid under the Loan
exceed the weighted average Advance Rate as a percentage of the Unpaid
Principal Balance of the Notes on deposit with Lender as provided in
paragraph 6 (the "Loan Ratio"). The Advance Rate for any given Note shall be
determined as shown on Schedule A. Provided, however, that in no case will a
note be eligible for an advance in excess of the amount that would amortize
through the monthly principal and interest payments on the Note without
giving effect to any balloon. The weighted average Advance Rate shall be
calculated by revising, where applicable, the then applicable maximum
Advance Rate from Schedule A to any applicable percentages or any applicable
amount as listed in Paragraph 7(A), 7(B), 7(C), 7(D) of this agreement, and
then calculating a weighted average advance rate by dividing (a) the Sum of
all Advance Rates multiplied by the Unpaid Principal Balance applicable to
such Advance Rate by (b) the Sum of all Unpaid Principal Balances. The
following will be considered in calculating the Loan Ratio:
In the case of all notes:
A. any Note which Lender has accepted which is 150 days or more
delinquent will not be included in the Loan Ratio
calculation;
B. that part of the Unpaid Principal Balance of any Note in
excess of $75,000 will not be included in the Loan Ratio
calculation;
C. only 40% of the Unpaid Principal Balance of any Note more
than 90 but less than 150 days or more delinquent will be
included in the Loan Ratio calculation provided, however,
that if Lender is not reasonably assured that collection
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efforts are being made and that the original balance due on
the Note is recoverable through collection efforts or
foreclosure 0% of the Unpaid Principal Balance of such Note
shall be included in the Loan Ratio calculation;
D. only 70% on any note originated by Borrower with less than
six months seasoning, and 75% on notes originated by
Borrower with more than six months of seasoning;
E. no more than 20% of line in vacant subdivision paper; and
F. no more than 25% of line in non-residential paper. For
purposes of this requirement residential paper includes
owner occupied, rental or vacant property as long as it is
being or is intended for use as residential as opposed to
commercial property.
For purposes of this paragraph the term "Unpaid Principal Balance" means
the actual unpaid principal balance of a Whole Purchase Note and the
Equivalent Balance for a Partial Purchase Note. The term "Equivalent
Balance" means the calculated loan amount which would amortize over the
number of months remaining on the portion of the Note purchased at the
interest rate and monthly payment stated in the Note without regard to
balloon payments.
8. Retention and Return of Notes. As to each Note rejected by Lender,
Lender shall return to Borrower at Borrower's request the Note and all
documents and other information provided by Borrower in furtherance of
Lender's review of the Note. As to each Note accepted by Lender, the Note
and the documents and other information provided by Borrower shall remain
in Lender's possession, until:
A. the Note is paid -
at which time Lender is authorized to mark any Note in its
possession "PAID" on behalf of Borrower and deliver it to
the Note obligor or the Escrow Agent (as defined in
paragraph 10.1 below), and return to Borrower or the Escrow
Agent all of the documents and other information provided by
Borrower to Lender concerning the Note; or
B. Borrower requests, in writing, that the Note be redelivered
to Borrower, and Lender consents, in writing, to the
redelivery-
at which time Lender shall return to Borrower the Note and
all of the documents and other information provided by
Borrower to Lender concerning the Note, PROVIDED, however,
that Lender is not obligated to redeliver the Note if
redelivery will cause the unpaid principal balance on the
Loan to exceed the Loan Ratio; or
C. all moneys owed Lender by Borrower are paid in full-
at which time the Notes and the other documents and
information relating to the Notes shall be returned by
Lender to Borrower.
Once a Note has been returned to Borrower it shall not be taken into
consideration for purposes of determining the Loan Ratio. All Notes
returned by Lender which have been endorsed or assigned to the order of
Lender shall be re-endorsed or reassigned by Lender to the order
of Borrower.
9. Funding of Line of Credit. Lender will establish a commercial
checking account in Borrower's name, to which all advances on the line of
credit will be deposited by Lender ("Deposit Account"). Deposits to the
Deposit Account will be made at the time and in the amount requested by
Borrower provided the request meets all of the requirements of this
Agreement. Same day fundings for not to exceed 5 files in any one day for
Borrower will be made on any day in which nationally chartered banks are
open for business, upon request of Borrower, if the request is received by
11:00 a.m. Eastern time provided that either: (1) there are funds available
from Borrower's existing Loan Ratio or (2) the necessary documents have
been received by the Lender for adding, to the Loan Ratio calculations the
additional Collateral for which funds are requested. The Lender shall be
obligated to make a deposit only if the requested advance meets the Loan
Ratio requirements
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and only if Borrower is not in default under this Agreement. Borrower is
entitled, by check, to draw against the Deposit Account at an time. However,
withdrawals of moneys representing advances on the line of credit shall be
used only for Borrower's business purposes as stated in paragraph 1. Should
Borrower at any time be in default on any obligation to Lender which
requires the payment of money by Borrower to Lender, Lender may offset
moneys in the Deposit Account against such obligations. Borrower shall be
notified in writing of any offset but hereby waives the right to any such
notification.
10. Servicing of Notes Held By the Lender. Certain Notes accepted by
Lender will be serviced by Lender or other party designated by Lender
("Servicing Agent"). These Notes will be serviced on the following terms and
conditions:
A. Servicing Agent shall notify each obligor, in writing, that
the Note is being serviced by Servicing Agent, and provide
the Note obligor with the address to which payments are to be
made.
B. Servicing Agent will establish and maintain an account for
the receipt of the Note payments.
C. Borrower will pay Servicing Agent a fee of $6 per payment
received on each Note to be paid on the first day of each
month for payments received during the preceding month.
D. If requested to do so, Servicing Agent will provide Borrower
with daily servicing reports on all Notes held by Lender.
E. Servicing Agent shall not be obligated to undertake any
collection efforts to collect any payments on any Note and
shall, upon request of Borrower, return the Note to Borrower
together with records and information maintained by Servicing
Agent relating to the servicing of the Note subject to
paragraph 7 above.
F. Servicing Agent shall use its customary efforts in servicing
(but not in collecting payments upon) the Notes. As used in
the preceding sentence, the term "customary efforts" means,
the efforts customarily employed by Servicing Agent in its
normal course of business in servicing notes which it owns,
or notes which it does not own but are being serviced for
another, but does not include any collections, letters, phone
calls, or any obligation to commence any collection efforts
or litigation or pursue any security given by the Note
obligor for the Note.
G. Borrower warrants the property taxes and insurance are
current at all times for property placed in the collateral
pool. Lender is not responsible for monitoring or enforcing
property tax status or insurance coverage.
H. Borrower agrees to repay all expenses incurred by Lender on
Borrower's behalf in regard to servicing of Notes or in
regard to putting Notes on or taking Notes off the Revolving
line including but not limited to legal fees, NSF charges,
forced place insurance charges, wiring fees, and overnight
mail charges.
1. Borrower will execute and record in the appropriate real
estate records a Collateral Assignment for each Note to
Lender on a form acceptable to Lender. (A copy of this
Collateral Assignment will be forwarded by Borrower to Lender
and Lender shall be entitled to retain the original
Collateral Assignment in its files to be released upon
payment in full of the Note.)
Borrower will execute, when requested by Servicing Agent, a notice to each
Note obligor that the Note is being serviced by Servicing Agent, with
instructions to the obligor concerning future payments and an instruction
that no further payments are
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<PAGE> 5
to be made to Borrower without the prior written consent of Lender. Lender
agrees to give that written consent as to any Note redelivered to Borrower.
If Borrower is in default under this Agreement and Lender, while Borrower is
in default, services any Note 90 days or more delinquent, Borrower shall
reimburse Lender for all of Lender's costs and expenses incurred in
servicing the Note during the period of Borrower's default. The costs and
expenses include, but are in no manner limited to actual legal fees and
court costs. These costs and expenses will be immediately due from Borrower
to Lender when paid by Lender. Nothing in this paragraph will be deemed to
obligate Lender to make active collection efforts with regard to any Note.
10.1 Servicing of Notes Held by Escrow Agent. Notes accepted by Lender
that are not serviced in accordance With paragraph 10 above will be serviced
by State-approved and licensed escrow companies, banks or title companies
(the "Escrow Agent"). These Notes will be serviced on the following terms
and conditions:
A. Borrower will provide a Letter of Instruction to Escrow Agent
in a form acceptable to Lender instructing Escrow Agent to
direct all future payments due from the Note obligor to be
sent to Lender. (A copy of this letter Will be forwarded by
Borrower to Lender.)
B. Borrower will verify that Escrow Agent has in its possession
all necessary original documents pertaining to each Note and
that they are both complete and accurate.
C. Borrower will execute and record in the appropriate real
estate records a Collateral Assignment for each Note to Lender
in a form acceptable to Lender. (A copy of this Collateral
Assignment will be forwarded by Borrower to Escrow Agent.)
Lender Will retain the original Collateral Assignment in its
files to be released to Escrow Agent upon payment in full of
any Note.
D. Borrower will pay Servicing Agent (Lender) a fee of $6 per
payment received on each Note (regardless of whether the Note
is used to determine the Loan Ratio), to be paid on the first
day of each month for payments received during the preceding
month.
E. If requested to do so, every two weeks Servicing Agent
(Lender) will provide Borrower with servicing reports on all
Notes held by Lender.
F. Borrower warrants the property taxes and insurance are current
at all times for property placed in the collateral pool.
Lender is not responsible for monitoring or enforcing property
tax status or insurance coverage.
G. Borrower agrees to repay all expenses incurred by Lender on
Borrower's behalf in regard to servicing of Notes or in regard
to putting Notes on or taking Notes off the revolving line
including but not limited to legal fees, NSF charges, forced
place insurance charges, wiring fees, and overnight mail
charges.
Borrower will execute, if requested by Escrow Agent, a notice to each Note
obligor that the Note is being serviced by Escrow Agent, with instructions
to the obligor concerning future payments and an instruction that no further
payments are to be made to Borrower without the prior written consent of
Lender. Lender agrees to give that written consent as to any Note
redelivered to Borrower. If Borrower is in default under this Agreement and
Lender, while Borrower is in default, begins collection efforts or otherwise
services any Note 90 days or more delinquent, Borrower shall reimburse
Lender for all of Lender's costs and expenses incurred in servicing the Note
during the period of Borrower's default. The costs and expenses include, but
are in no manner limited to, actual legal fees and court costs. These costs
and expenses will be immediately due from Borrower to Lender when paid by
Lender. Nothing in this paragraph will be deemed to obligate Lender to make
active collection efforts with regard to any Note.
11. Payments from the Notes. All payments received by Lender on the
Notes will be accounted for, as received, and deposited by Lender in an
account established by Lender ("Payment Account"). On the first business day
of
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each month the moneys in the Payment Account shall be used to pay the
following items in the order stated for the preceding month: servicing fees
under paragraph 10 or 10.1, fees owed by Borrower to Lender under paragraph
20, interest on the Loan and any other fees or expenses, if any, owed by
Borrower to Lender under this Agreement or any other agreement between the
parties. If not required to maintain the Loan Ratio, the balance of the
moneys in the Payment Account will be deposited by Lender in the Deposit
Account, to be used as provided for in paragraph 9.
12. Default. Any failure of Borrower to pay any interest, principal, or
fee when due; any breach or default of any term, condition or warranty of
this Agreement or any other agreement between Borrower and Lender; any
appointment of a receiver, trustee, or assignment for the benefit of
creditors; any voluntary or involuntary insolvency proceeding; any
assessment for taxes (other than real property taxes) levied by any
government entity; or any lien, attachment, or garnishment by a creditor of
Borrower shall constitute a default hereof, and Lender may, at its sole and
absolute option, declare all sums due from Borrower immediately due and
payable regardless of the terms of any evidence of indebtedness between
Borrower and Lender. Nothing in this paragraph will be deemed to impair the
demand nature of the Loan.
13. Termination of Line of Credit. If the Loan is terminated or not
renewed by Lender, for any reason other than Borrower's default, Borrower
shall be entitled to pay the then-unpaid portion of the Loan in
installments, amortized over 30 months. The initial rate of interest shall
be that specified in paragraph 3 with an interest rate redetermination made
each three (3) months thereafter at the prime rate of interest as published
in the Wall Street Journal (or other comparable index selected by Lender if
the Wall Street Journal ceases publication of its prime rate of interest)
plus 3.75% provided, however, that such rate shall not be less than twelve
percent (12%) per annum nor more than the maximum per annum rate of
interest lawfully chargeable by Lender to Borrower under the laws of
Michigan. At the date of redetermination, the monthly payment will be
adjusted for the three (3) month period to reflect this change in the
interest rate. All amounts unpaid under this Agreement shall be paid in full
at the conclusion of the 36 month period. The monthly payments of principal
and interest shall be paid from the Payment Account. If the amounts in the
Payment Account at any time are insufficient, Borrower shall pay the amount
of insufficiency within three (3) business days of receipt of written
notice from Lender. At any time during the first seven months of the
original Term of this Agreement, Borrower may choose to terminate this
agreement and receive a refund of all origination points. If Borrower
terminates this agreement during the first seven months, Borrower must pay
the entire outstanding balance (including all principal and accrued
interest, together with any other fees and expenses then owing to Lender)
within such seven month period and then Lender will refund the entire of the
principal portion of the origination fees and cancel this Agreement.
14. Additional Security. As additional security, repayment of all
moneys due under this Agreement will be personally guaranteed by Glenn A.
LaPointe ("Guarantor") and Terry G. Hartnett ("Guarantor"). The form of the
guaranty will be that specified by Lender's attorneys.
15. Financial Statements. Both at the time of origination and by May 15
of each year (for the Borrower's year ending the previous December 31) while
this Agreement is in effect, Borrower shall submit to Lender a profit and
loss statement and balance sheet of Borrower for the prior calendar year,
as well as the balance sheet of Guarantor for the same period. The financial
statements need not be audited or CPA prepared, but must be signed by
Borrower and Guarantor, respectively, and certified by them to be accurate.
Borrower shall also supply for Lender such interim and additional financial
statements or reports as Lender shall from time to time request.
16. Documentation of Loan. The Loan shall be evidenced by this
Agreement and such other documents as Lender and its lawyers determine
necessary and appropriate. Borrower agrees to execute and deliver such
documents as a condition of and at the time of the establishment of the line
of credit and at other times during the term of the Loan as determined by
Lender.
17. Renewals. If this Loan is renewed by mutual agreement of the
parties hereto Borrower will be required to execute such documents as
required by Lender, and pay points equal to one percent (1%) of the maximum
amount that may be advanced under the credit line as renewed.
18. Endorsement or Assignment of Notes. Borrower will endorse or assign
each Note in an endorsement form to the reasonable satisfaction of Lender.
Borrower also hereby grants Lender a power of attorney to endorse all Notes
to Lender in the event Borrower fails to endorse such Notes.
19. Cross-Collateralization and Default. All collateral security given
to secure the Loan shall also secure all of
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the other obligations of Borrower to Lender of whatsoever nature, past,
present, or future. All collateral security given for other obligations of
Borrower to Lender, together with any debt from Lender to Borrower,
(including, but not limited to checking, deposit accounts, certificates of
deposit, savings accounts, and the like) shall, likewise, secure the Loan.
It is the expressed intent to cross-collateralize all of the borrowings or
other indebtedness of Borrower to Lender. The breach of the terms of any
note, security agreement, mortgage, pledge, or loan agreement of whatsoever
nature between Borrower and Lender shall constitute a default and breach of
all such agreements, including this Agreement.
20. Set-Up Fee and Points. Borrower shall pay an initial set-up fee of
$100 when a Note is added to the Collateral Base and an additional release
fee of $100 when a Note is removed from the Collateral Base. This fee shall
be paid on the first business day of each month for Notes accepted in the
prior month. Additionally, origination points of 2% ($10,000) is owed by
Borrower from the time of executing this Agreement, the payment of which
may be in cash or may, at Borrower's option be added to the indebtedness on
the line of credit. If the origination points are added to the indebtedness,
such amount shall not initially be included as indebtedness for purposes of
the borrowing base calculation but shall in such case be added together with
any interest thereon to the indebtedness for borrowing base purposes on a
per diem basis beginning 30 days after the date of execution of this
agreement. Such fees shall be secured by all collateral delivered to Lender
even if not included in the borrowing base calculation. Increases in the
existing line of credit may be granted subject to conditions determined by
Lender and points equal to two percent (2%) of the amount of the increase
in the credit line. A standby fee of one quarter of one percent (.25%) per
annum of the difference between the maximum loan amount as stated in
paragraph one and the daily balance on the Loan during the prior month,
shall accrue on a daily basis (without compounding) beginning six (6)
months from the inception of this agreement or upon the first time that
borrowings on the line exceed $375,000, whichever comes sooner and shall
be paid by Borrower to Lender on the first business day of each month for
the prior month. Upon termination, should termination occur, the standby
fee accrued to that date shall be immediately paid. Provided, however, that
the unused fee shall be waived in its entirety for the entire original term
of this Agreement if at any point during such term, the Borrower has an
unpaid secured balance in excess of 80% of the original maximum principal
amount of this Agreement.
21. Right of First Refusal. Borrower is obligated to offer Lender the
right to purchase all or any part of any Note offered for sale by Borrower
to a third party. Lender has three (3) business days to respond to Borrower
after the terms of any written offer by a third party to Borrower has been
presented in writing to Lender.
22. Relationship Between the Parties. Borrower acknowledges that the
relationship between lender and borrower is the relationship of debtor and
creditor only. Lender is, and at all times will remain, an independent
lender. Lender, its officers, directors, partners, servants, employees,
assignees, and other representatives shall not, under any circumstances, be
deemed to be partners, venturers, co-owners, or promoters of borrower for
any purpose whatsoever unless other agreements establish such a
relationship. Nothing in this agreement shall establish the relationship of
a partnership, joint venture, or other form of business relationship in
which fiduciary duties with respect to participants in such an organization
or association could arise between lender and borrower.
23. Representations and Warranties of Borrower. Borrower represents and
warrants to Lender, now, and at all times during the term of this Agreement,
that:
A. All representations and statements of whatever nature made or
delivered to Lender at any time prior to, contemporaneous
with, or subsequent to this Agreement have been, are, or
shall be true in all respects.
B. Borrower is a C. corporation, in good standing in the State
of Texas and is properly authorized and licensed to do
business in every state in which it does business where
authorization or licensure is required as a condition of
doing business. As evidence of this fact, Borrower will
provide the Lender a certificate of good standing at
origination of this agreement. If a certificate is not
provided by Borrower at or before the time this Agreement is
executed, Lender may obtain the certificate and charge
Borrower a fee of $50 plus cost for the acquisition of the
certificate.
C. If the business activities of Borrower described in paragraph
1 of this Agreement require Borrower to be licensed, all
licenses have been obtained and are not
7
<PAGE> 8
subject, for any reason, to being revoked or suspended.
D. Borrower has full and unencumbered title to all property
relied upon by Lender as security and to all assets set forth
in any financial statement, unless otherwise indicated in such
statement.
E. Borrower will keep its books and records in accordance with
generally accepted accounting principles.
F. Borrower will maintain management personnel satisfactory to
Lender and will conduct its affairs in a manner consistent
with sound business practices as measured by the nature of
Borrower's business.
G. No indulgence or failure of Lender to enforce any rights under
this Agreement or under any other agreement between Borrower
and Lender shall constitute a waiver of those terms by Lender.
H. Borrower will promptly inform Lender of any fact or act which
materially affects Borrower's financial condition.
I. No provision, warranty or promise made by Borrower in any
document related to this transaction causes any conflict
whatsoever with the terms of any document related to any other
transaction Borrower may be involved with, with any other
person or entity.
J. The business of Borrower shall be continued in its present
form and at the address as shown on page one, and Borrower
will not enter into a consolidation, merger, or permit a
majority of its common stock to be transferred, or grant
options which could result in such actions unless Lender is
first notified and consents in writing to any such change.
24. Governing Law. This Agreement shall be construed under the laws of
Michigan.
25. Time of Essence. Time is of the essence in the performance of this
Agreement by Borrower.
26. Modifications of Agreement. This Agreement may be modified only in
writing.
27. Entire Agreement. This Agreement constitutes the entire agreement
between the parties relative to the Loan.
28. Assignment. Borrower's rights and obligations under this Agreement
are not assignable or otherwise transferable. Lender may freely assign or
otherwise transfer this Agreement.
29. Tax Liens. Lender shall at no time be obligated to make an advance
on the Line of Credit to Borrower if a federal tax lien has been filed
against Borrower or Guarantor and Borrower and Guarantor agree to give
Lender immediate notice with respect to any federal or state tax lien filing
affecting the Borrower or Guarantor or any of the Property of Borrower or
Guarantor in any way.
8
<PAGE> 9
Lender:
FIRST NATIONAL OF NORTH AMERICA, LLC
a Michigan Limited Liability Company
By:
---------------------------------
Its
---------------------------------
Date:
-------------------------------
Borrower:
Austin Funding Corp.
a Texas corporation
By: /s/ GLENN A. LAPOINTE
---------------------------------
Its President
---------------------------------
Date: 12/29/98
-------------------------------
Guarantor:
/s/ GLENN A. LAPOINTE
------------------------------------
Glenn A. LaPointe
Date: 12/29/98
-------------------------------
Guarantor:
/s/ TERRY G. HARTNETT
------------------------------------
Terry G. Hartnett
Date: 12/29/98
-------------------------------
9
<PAGE> 1
EXHIBIT 6(j)
RESIDENTIAL MORTGAGE SERVICES
================================================================================
of Texas
October 14, 1998
Austin Funding Corporation
823 Congress Avenue, Ste 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 2(a) for additional defined terms.)
<TABLE>
<S> <C>
COMPANY Austin Funding Corporation
KEY PRINCIPALS Glenn A. LaPointe, Terry G. Hartnett & L.H. "Rick" Hardy,
Jr.
PURCHASE LIMIT Two Million Dollars, ($2,000,000.00)
SECOND LIEN SUB-LIMIT N/A
AGENCY RATE N/A
NON-AGENCY RATE Prime + 2%
DEFAULT RATE Prime + 3 (Non-Agency Rate)
LOAN SET UP FEE Fifty Dollars; $50.
BULK PURCHASE SUB-LIMIT Two Million Dollars, ($2,000,000.00)
BULK MORTGAGE TAKEOUT Two Hundred Thousand ($200,000.00) Certificate of Deposit
PROTECTION AMOUNT
</TABLE>
(a) CERTAIN DEFINITIONS. The following terms shall have the meaning set
forth below in this Agreement:
(b) AFFECTED MORTGAGE. The term "AFFECTED MORTGAGE" is defined in
Section 22 and Section 25.
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MORTGAGES PURCHASE AGREEMENT PAGE 1
<PAGE> 2
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) BANK. The term "BANK" is defined in Section 18.
(h) BANKING BUSINESS DAY. The term "BANKING BUSINESS DAY" is defined in
the RMST Procedures.
(i) BULK MORTGAGE TAKEOUT PROTECTION ACCOUNT. The term "BULK MORTGAGE
TAKEOUT PROTECTION ACCOUNT" is defined in Section 32.
(j) BULK PURCHASE MORTGAGE TAKEOUT DATE. The term " BULK PURCHASE
MORTGAGE TAKEOUT DATE" is defined in Section 8.
(k) BULK PURCHASE MORTGAGE. A "BULK PURCHASE MORTGAGE" is an Eligible
Mortgage that meets RMST's criteria for funding without a Commitment.
(l) CLOSER. The term "CLOSER" is defined in Section 11.
(m) 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.
(n) DEBTOR LAWS. The term "DEBTOR LAWS" is defined in Section 43.
(o) DEFAULT. The term "DEFAULT" is defined in Section 43.
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MORTGAGES PURCHASE AGREEMENT PAGE 2
<PAGE> 3
(p) 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.
(q) DOCUMENT FILE. The term "DOCUMENT FILE" is defined in Section 8.
(r) 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.
(s) ENCLOSURES. The term "ENCLOSURES" is defined in Section 8.
(t) FAILURE DATE. The term "FAILURE DATE" is defined in Section 21.
(u) GUIDE. The term "GUIDE" is defined in Section 33.
(v) 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."
(w) INVESTOR. An "INVESTOR" is a person issuing a Commitment to the
Company or otherwise agreeing to purchase a Mortgage from the Warehouse
Purchasers.
(x) LOST COMMITMENT MORTGAGES. The term "LOST COMMITMENT MORTGAGES" is
defined in Section 19.
(y) MAKE WHOLE PAYMENT. The term "MAKE WHOLE PAYMENT" is defined in
Section 29.
(z) MINIMUM NET SHARE. The term "MINIMUM NET SHARE" is defined in
Section 16.
(aa) MORTGAGE DEFAULT DATE. The "MORTGAGE DEFAULT DATE" is defined in
Section 19, Section 21 and Section 23.
(bb) MORTGAGE PURCHASE COST. The term "MORTGAGE PURCHASE COST" is
defined in Section 16.
(cc) MORTGAGE. A "MORTGAGE" is a mortgage loan secured by residential
real property.
(dd) OFFER. The term "OFFER" is defined in Section 8.
(ee) PERIOD HELD. The term "PERIOD HELD" is defined in Section 16.
(ff) PROCEEDS ACCOUNT. The term "PROCEEDS ACCOUNT" is defined in
Section 18.
(gg) QUALIFIED SUBSTITUTE TAKEOUT. The term "QUALIFIED SUBSTITUTE
TAKEOUT" is defined in Section 19.
(hh) RMST ADVANCE. The term "RMST ADVANCE" is defined in Section 12.
(ii) 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.
(jj) SALE PROCEEDS. The term "SALES PROCEEDS" is defined in Section 16.
(kk) 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.
(ll) SETTLEMENT ACCOUNT. The term "SETTLEMENT ACCOUNT" is defined in
Section 18.
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MORTGAGES PURCHASE AGREEMENT PAGE 3
<PAGE> 4
(mm) SHORTFALL AMOUNT. The term "SHORTFALL AMOUNT" is defined in
Section 24.
(nn) SUBSTITUTE MORTGAGE. The term "SUBSTITUTE MORTGAGE" is defined in
Section 23.
(oo) WAREHOUSE FACILITY. The facility described in Section 1 as it may
be amended, supplemented, modified or replaced is referred to as the "WAREHOUSE
FACILITY."
(pp) 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."
(qq) VALUE REPLACEMENT PAYMENTS. The term "VALUE REPLACEMENT PAYMENTS"
is defined in Section 31.
(rr) YEAR 2000 COMPLIANT. The term "YEAR 2000 COMPLIANT" is defined in
Section 47(aa).
PURCHASE OF ELIGIBLE MORTGAGES
Section 3. 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 4. 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 5. 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 6. 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 7. 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 8. 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 9. 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 10. 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 19, Section 21 or
Section 23.
Section 11. 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 12. 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 38, 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 13. 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 14. 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 15. 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 16. 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 17. 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 18. 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 19. 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 20. 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 21. 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 22. 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 19, or
repurchased the Mortgage in the case of a failure under Section 21, 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 23. 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 RSMT and the Agent in their reasonable discretion.
Section 24. 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 25. EFFECT OF COMPANY'S FAILURE. If by the close of the next
Banking Business Day after notice under Section 23 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 26. EFFECT OF BREACH. Upon the occurrence of a breach under
Section 22 or Section 25, 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 44 shall apply; or (v) do any combination of those things.
Section 27. EFFECT ON VALUE REPLACEMENT OBLIGATIONS. The Company's
breach of this Agreement under Section 22 or Section 25 shall not terminate or
abate the Company's value replacement
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MORTGAGES PURCHASE AGREEMENT PAGE 8
<PAGE> 9
obligations to RMST with regard to the Affected Mortgage, as provided for in
Section 31 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 28. SALE TO THIRD PARTY. If RMST causes the Warehouse
Purchasers to sell any Affected Mortgage to a third party as permitted under
Section 26, 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 31).
Section 29. 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 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 30. 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 31. 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 32. 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 33. 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 34. 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 35. 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 36. NO CHARGE FOR SERVICES. The Company's services under
Section 33 shall be provided without charge.
Section 37. 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 38. 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 39. 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 40. 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 41. 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 42. 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 43. 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 22 or Section 25.
Section 44. REMEDIES. Upon the occurrence of a Default, in addition to
its rights under Section 26, 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 45. 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 46. 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 38; (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 47. 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.
(1) 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 48 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 $250,000.
(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
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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 48. 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.
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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 49. 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 50. ASSIGNMENT PROHIBITED. This Agreement may not be assigned
by the Company.
Section 51. 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:
IF TO THE COMPANY: Terry G. Hartnett, Glenn A. LaPointe & L.H. Hardy, Jr.
Austin Funding Corporation
823 Congress Avenue, Ste 707
Austin, Texas 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
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.
Section 52. 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
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MORTGAGES PURCHASE AGREEMENT PAGE 19
<PAGE> 20
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 53. 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 54. 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 55. 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 56. GOVERNING LAW; VENUE. This Agreement shall be governed by
applicable United States and Texas law with specific venue in Harris County,
Texas.
Section 57. 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 58. 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 59. COUNTERPARTS. This Agreement may be executed in
counterparts each of which shall constitute an original instrument.
Section 60. SEVERABILITY. if any provision of this Agreement is held
invalid, illegal or unenforceable, the remaining provisions shall be enforced
and shall not be affected or impaired thereby.
Section 61. 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 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.
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MORTGAGES PURCHASE AGREEMENT PAGE 20
<PAGE> 21
Section 62. 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: CEO/President Title: Vice-President
Date: 1-15-99 Date: 10-14-98
----------------------------- -----------------------------------
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 21
<PAGE> 22
APPENDIX 1
OFFER TO SELL MORTGAGE
HSA Residential Mortgage Services of
Texas, Inc. (RMST) RMST Loan # __________________________
4550 Post Oak Place Drive, Suite 335 Investor # ___________________________
Houston, Texas 77027 Funding Date: ________________________
ATTN: Lawrence J. Trevino 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
October 14, 1998, 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.
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APPENDIX 1 Page i
<PAGE> 23
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 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: /s/ GLENN LAPOINTE
--------------------------------------
Name: Glenn LaPointe
-----------------------------------
Title: President
----------------------------------
Date: 1-15-99
-----------------------------------
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 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> 24
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> 25
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
October 14, 1998 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
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APPENDIX 3 Page i
<PAGE> 26
Bank of Texas, National Association, the Agent identified in the Mortgages
Purchase Agreement. This 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: CEO/President
Date: 1-15-99
-----------------------------------
State of Texas )
)
County of Travis )
This instrument was acknowledged before me on this 15th day of January,
1999 by Glenn A. LaPointe as CEO/President of Austin Funding Corporation.
/s/ TERRY G. HARTNETT
-----------------------------------------
(Signature of notarial officer)
(Seal, if any)
-----------------------------------------
Title
[SEAL] My Commission Expires:
---------------------------------------
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APPENDIX 3 Page ii
<PAGE> 27
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
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APPENDIX 4 Page i
<PAGE> 28
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-I 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.
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APPENDIX 5 Page i
<PAGE> 29
c. COPY OF ANY APPLICABLE POWER OF ATTORNEY FOR ANY MORTGAGOR OR NOTE
MAKER certified 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> 30
APPENDIX 6
PENDING OR THREATENED LITIGATION
- --------------------------------------------------------------------------------
APPENDIX 6 Page i
<PAGE> 31
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 case 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> 32
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> 33
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> 34
APPENDIX 9
MINIMUM CRITERIA FOR INVESTORS
- --------------------------------------------------------------------------------
APPENDIX 9 PAGE i
<PAGE> 35
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> 36
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> 37
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
- --------------------------------------------------------------------------------
APPENDIX 10 PAGE iii
<PAGE> 38
APPENDIX 11
BAILEE LETTER (FROM RMST)
HSA RESIDENTIAL MORTGAGES 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 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 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> 39
-----------------------------------------------------------
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 MORTGAGES SERVICES OF
TEXAS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Accepted and agreed to:
- -----------------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
- --------------------------------------------------------------------------------
APPENDIX 11 PAGE ii
<PAGE> 1
EXHIBIT 6(k)
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (also known as the Originator Loan
Agreement) is made and entered into as of JUNE 2,1997, by and between BORROWER
("BORROWER" shall mean CAPITAL FIRST MORTGAGE CORPORATION, a Texas Corporation)
and LENDER ("LENDER" shall mean Pioneer Commercial Funding Corp., a New York
Corporation).
RECITALS
A. BORROWER is in the mortgage banking business and engages, among
other things, in the financing, sale and servicing of real estate loans.
B. BORROWER has requested (and LENDER has agreed subject to the terms
hereof) that LENDER make financing available to acquire T/D NOTES and DEEDS OF
TRUST (as hereinafter defined) in connection with its business, pending sale of
said T/D NOTES and DEEDS OF TRUST to INSTITUTIONAL INVESTORS (as hereinafter
defined).
C. It is in the best interests of BORROWER to enter into the financing
arrangements with LENDER on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, the parties hereto agree as follows:
ARTICLE 1 DEFINITIONS.
1.1 ADVANCE means all advances, loans and extensions of credit by
LENDER to or on behalf of BORROWER pursuant to the terms of this AGREEMENT (as
hereinafter defined).
1.2 AGREEMENT means this Loan and Security Agreement, any concurrent or
subsequent rider or exhibit to this Loan and Security Agreement, and any
extensions, supplements, amendments or modifications to this Loan and Security
Agreement and/or to any such rider or exhibit.
1.3 BASE RATE has the meaning set forth in Section 2.3 hereof.
1.4 BUSINESS DAY means any day which is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
1.5 COLLATERAL has the meaning set forth in Section 2.9 hereof.
1.6 COMMITMENT means an existing written agreement (in form and
substance acceptable to LENDER) of an INSTITUTIONAL INVESTOR to purchase one or
more
<PAGE> 2
T/D NOTES and DEEDS OF TRUST subject to no condition which in the reasonably
anticipated course of events cannot (in LENDER'S opinion) be fully satisfied
prior to its expiration, and permits consummation of the loan purchase within
sixty (60) days of LENDER'S ADVANCE.
1.7 COMMITMENT PERCENTAGE means the price or yield for which an
INSTITUTIONAL INVESTOR has contracted to purchase a T/D NOTE expressed as a
percentage of the face amount of the said T/D NOTE.
1.8 ELIGIBLE DEED OF TRUST means a deed of trust or mortgage in form
satisfactory to LENDER (a) which secures a T/D NOTE; (b) which encumbers a
completed, one-to-four unit residence in the United States of America; and (c)
the lien of which constitutes a first or second lien on the real property
described therein subject only to PERMITTED ENCUMBRANCES. ELIGIBLE DEED OF TRUST
or mortgage includes Non-Conforming A- through D Products.
1.9 ELIGIBLE T/D NOTE(S) means, at a particular date, each promissory
note evidencing a mortgage loan made or acquired by BORROWER and in which LENDER
has a validly perfected possessory security interest hereunder, subject to all
of the terms of Article 3 hereof having first been fulfilled and performed, and
provided that: (i) the mortgage loan is secured by an ELIGIBLE DEED OF TRUST;
(ii) the principal amount of such mortgage loan, plus any and all other loans
secured by the said residence, does not exceed ninety-five percent (95%) or as
allowed by FHA and/or VA of the appraised value of the said residence, but in no
case to exceed ninety-six percent (96%) (EXCEPT WITH RESPECT TO THE 125%
MORTGAGE PRODUCT DISCUSSED IN SECTION 1.9.1 BELOW); (iii) the final maturity of
such mortgage loan does not exceed thirty (30) years from the date such mortgage
loan is made; (iv) such mortgage loan is then fully disbursed; (v) such mortgage
loan bears interest, payable monthly, at a rate acceptable to LENDER, but in no
event greater than the highest rate allowed by law; (vi) such mortgage loan is
insured or guaranteed by an instrumentality of the United States of America or
by a private mortgage insurer acceptable to LENDER in its sole discretion, after
proper review of the worthiness of the guarantee of the private mortgage insurer
and the acceptability of the private insurer to LENDER'S creditors, and is
insured or guaranteed to the maximum extent consistent with FNMA/FHLMC standards
allowed by the agency or instrumentality which is then insuring or guaranteeing
such mortgage loan (EXCEPT WHERE ALLOWABLE PURSUANT TO SECTION 1.9.2 BELOW);
(vii) title insurance with respect to such mortgage loan is placed with a title
insurer satisfactory to LENDER, other than a subsidiary or affiliate of
BORROWER; (viii) such mortgage loan is not in default beyond any applicable
grace period; (ix) the obligor under said mortgage loan asserts no defenses,
offsets, counterclaims or other right to avoid or reduce liability, and said
obligor is not insolvent, subject to proceedings under the Bankruptcy Code, any
receivership, assignment for the benefit of creditors, or whose credit standing
is not acceptable to LENDER and LENDER has so notified BORROWER; (x) such
mortgage loan
-2-
<PAGE> 3
has been outstanding for less than sixty (60) days; and (xi) with respect to
such mortgage loan, a Commitment has been issued by an INSTITUTIONAL INVESTOR
with such COMMITMENT being held by BORROWER.
1.9.1 LENDER agrees to allow the maximum principal amount of the
mortgage loan set forth in 1.9(ii) above to exceed the limits
therein solely with respect to the 125% Mortgage Product
subject to INSTITUTIONAL INVESTORS' (as defined in Section
1.12 below) preapproval and COMMITMENT.
1.9.2 LENDER agrees to waive the requirements of 1.9(vi) above where
such requirements are not demanded by the INSTITUTIONAL
INVESTOR.
1.10 INDEBTEDNESS means any and all loans, ADVANCES (including the
ADVANCES), overdrafts, debts, liabilities (including, without limitation, any
and all amounts charged to BORROWER'S account pursuant to any agreement
authorizing LENDER to charge BORROWER'S account), obligations, lease payments,
guaranties, covenants and duties owing by BORROWER to LENDER of any kind and
description (whether advanced pursuant to or evidenced by this AGREEMENT); by
any note or other instrument; or by any other agreement between LENDER and
BORROWER and whether or not for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability of
obligation owing from BORROWER to others which LENDER may have obtained by
assignment or otherwise, and further including, without limitation, all interest
not paid when due and all LENDER expenses (including without limitation those
described in Section 9.3 hereof.
1.11 INSOLVENCY PROCEEDING means any proceeding commenced by or against
a person or entity, under any provision of the federal Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including, without
limitation, assignments for the benefit of creditors, formal or informal
moratoriums, compositions or extensions with some or all creditors.
1.12 INSTITUTIONAL INVESTOR means an investor that has entered into a
Commitment and has been approved by LENDER, and includes, without limitation,
the Federal National Mortgage Association, the Government National Mortgage
Association, and the Federal Home Mortgage Corporation.
1.13 LOAN ACCOUNT has the meaning set forth in Section 2.8 hereof.
1.14 MATURITY DATE means, with respect to a particular ADVANCE, the
earliest of: (1) ninety days from the date the ADVANCE was made (With respect to
ADVANCES under Section 2.1 (a)); (ii) sale of the T/D NOTE and DEED OF TRUST
upon which the ADVANCE was made, as provided in Section 4.1 hereof (with respect
to ADVANCES
-3-
<PAGE> 4
under Section 2.1 (a)); and (iii) the date of termination of this AGREEMENT
(with respect to all ADVANCES).
1.15 OVER ADVANCE has the meaning set forth in Section 2.6(a) hereof.
1.16 PERMITTED ENCUMBRANCES means, with respect to a particular DEED OF
TRUST: (1) liens for taxes, assessments, or similar governmental charges not yet
due and payable or still subject to payment without interest or penalty; (2)
zoning restrictions; (3) mineral reservations, easements, covenants, conditions
and restrictions of record which shall neither defeat nor render invalid such
lien made in good faith, none of which materially impairs the merchantability or
value of such property; and (4) such other liens as may have been approved in
writing by LENDER.
1.17 STALE MORTGAGE and STALE MORTGAGE ADVANCE have the meanings set
forth in Section 2.6(b) hereof.
1.18 T/D NOTE has the meaning set forth in Section 2.8(a) hereof.
ARTICLE 2 ADVANCES
2.1 ADVANCES. Upon the request of BORROWER, made at any time and from
time to time during the term hereof, upon the terms and conditions hereof and so
long as no EVENT OF DEFAULT has occurred hereunder, LENDER agrees to lend to
BORROWER with respect to ELIGIBLE T/D NOTES, up to the lesser of (1) the
COMMITMENT PERCENTAGE of such ELIGIBLE T/D NOTE or 100% of the value of the
ELIGIBLE T/D NOTE, whichever is less; (ii) the principal amount outstanding
under said ELIGIBLE T/D NOTE; (iii) the fair market value of said ELIGIBLE T/D
NOTE, as determined by LENDER in its sole discretion; and (iv) BORROWER'S cost
of acquisition (i.e., the purchase price) of said T/D NOTE; provided, however,
that in no event shall ADVANCES under this Section 2.1 exceed a maximum
aggregate amount of $2,000,000.00. The aggregate set forth in this section can
be amended pursuant to the request of BORROWER or LENDER by mutual consent
memorialized by a written addendum to this AGREEMENT.
2.1.1 AUTOMATIC AGGREGATE Overage. In the event that BORROWER
requests ADVANCES in any given quarter that exceed the maximum
aggregate set forth in section 2.1 above, LENDER agrees that
the aggregate set forth in section 2.1 above will
automatically increase; provided, however that the increase
aggregate will not exceed the lesser of (1) 25% of the maximum
aggregate, or (2) BORROWER'S Debt/GAAP Net Worth not greater
than 10 to 1.
2.1.2 If BORROWER chooses to maintain the automatically increased
aggregate pursuant to section 2.1.1 above as the new aggregate
of section 2.1
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above, beyond the quarter in which the increase has occurred,
BORROWER agrees to increase the CD referenced in section
3.1(v) below commensurate with the increased aggregate.
2.2 Notice and Method of Borrowing. Whenever BORROWER desires to obtain
an ADVANCE hereunder, BORROWER shall notify LENDER in writing, received by
LENDER no later than 10:00 a.m. (California time) two (2) Business Days
preceding the day on which the requested ADVANCE is to be made, specifying (1)
the date of such ADVANCE, which shall be a Business Day; and (ii) the aggregate
amount of the ADVANCE. Each such request for an ADVANCE shall be accompanied by
the documents and instruments required under Section 3.2 hereof. LENDER will
advise BORROWER not later than 5:00 p.m. (California time) on the day preceding
the day on which the requested ADVANCE is to be made whether LENDER has approved
or declined such ADVANCE. LENDER upon approval of such ADVANCE will, not later
than 3:00 p.m. (California time) and as soon as practicable on the date of such
ADVANCE, wire the ADVANCE requested directly to the title or escrow company
listed on the ADVANCE request.
2.3 Interest and Processing Fees. Each ADVANCE shall bear interest at
LENDER's then applicable Base Rate (as hereinafter defined), plus two (2)
percentage points until the Maturity Date, and thereafter the interest rate on
such ADVANCE shall increase by an additional three percent (3%) per annum until
repaid. For purposes of this AGREEMENT, the "Base Rate" ("Floating Prime") shall
be the Bank One Texas Prime Rate at the time of the ADVANCE for a loan secured
by the mortgage loan and the documents upon which the ADVANCE is based.
In the event that the Base Rate is from time to time hereafter changed,
adjustment in the rate of interest payable by BORROWER hereunder shall be made
on the effective date of the change in the Base Rate. The LENDER will give
BORROWER written notice of the change the following Business Day. The rate of
interest, as adjusted, shall apply to all INDEBTEDNESS until the BASE RATE is
changed again. All interest chargeable under this AGREEMENT shall be computed on
the basis of a 360-day year for actual days elapsed.
In addition, a $180.00 per loan processing fee is charged upon funding
of each ADVANCE. Each funding by wire will be charged a ten dollars ($10.00)
fee.
FACILITY FEE. A Facility Fee equal to .375 b.p. shall be charged at the
inception of the line and yearly upon renewal of the line.
2.4 Usage Requirement. No usage requirement is required for the term of
this AGREEMENT.
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2.5 Repayment.
(a) Interest. Interest shall be payable monthly, in arrears, commencing
on the date of the first ADVANCE, and continuing on the first day of each
calendar month thereafter until the INDEBTEDNESS is paid in full and this
AGREEMENT is terminated upon the terms hereof; provided, however, that all
accrued and unpaid interest not paid when due, after notice of the amount due,
shall be compounded and shall thereafter bear interest at the rate applicable to
the principal of the outstanding ADVANCE(S). With respect to each installment of
interest not paid within five (5) days from the date of receipt of the monthly
bill (which shall be the date of facsimile transmission, or U.S. Mail, whichever
is earlier), LENDER shall have the right to withhold any funds otherwise due to
BORROWER hereunder and apply such sums, in LENDER'S sole discretion, to such
outstanding interest. BORROWER shall pay to LENDER a late fee equal to three
percent (3%) of the amount of the delinquent interest installment if not paid
within five (5) days from the date of receipt of the monthly bill (which shall
be the date of facsimile transmission, or U.S. Mail, whichever is earlier),.
LENDER shall deliver its monthly bill by the 10th day of each month.
(b) Principal. The unpaid principal with respect to a particular
ADVANCE, shall be due and payable in full upon the MATURITY DATE with respect to
said ADVANCE.
2.6 MANDATORY PREPAYMENTS.
(a) OVER ADVANCES. In the event that, at any time, the INDEBTEDNESS
exceeds the percentage or dollar limitations set forth in Section 2.1.1 hereof
(herein referred to as an "OVER ADVANCE"), BORROWER shall immediately pay to
LENDER, in cash, the amount of such excess.
(b) Stale or Ineligible Mortgages. In the event that a T/D NOTE and/or
the DEED OF TRUST securing it (1) are not sold and the ADVANCE made in
connection therewith is not repaid in full, with interest as provided
hereinabove, on or before the MATURITY DATE thereof, or (ii) at any time
become(s) ineligible, said T/D NOTE and DEED OF TRUST shall automatically be
deemed a STALE MORTGAGE, and any ADVANCE made in connection therewith shall be
deemed a STALE MORTGAGE ADVANCE. Upon a T/D NOTE and DEED OF TRUST becoming a
STALE MORTGAGE, BORROWER shall immediately pay to LENDER, in cash, an amount
equal to the STALE MORTGAGE ADVANCE, plus interest thereon at the rate provided
herein, plus any and all late charges, fees and costs applicable thereto.
(c) Mandatory Prepayments. If a Mandatory Prepayment is required,
BORROWER shall have the right in lieu of payment to eliminate all, or any part
of, the OVER ADVANCE or the STALE MORTGAGE ADVANCE and thereby avoid the
obligation to
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make a Mandatory Prepayment by (1) promptly notifying LENDER in writing of
BORROWER'S intention to assign new ELIGIBLE T/D NOTES and ELIGIBLE DEEDS OF
TRUST so as to offset or decrease the OVER ADVANCE or STALE MORTGAGE ADVANCE,
and (ii) effecting the assignment of the new ELIGIBLE T/D NOTES and DEEDS OF
TRUST promptly, but in no event later than five (5) Business Days after the
occurrence of the OVER ADVANCE or the STALE MORTGAGE ADVANCE. Such assignment
shall be made in compliance with the conditions precedent stated herein. Any
Mandatory Prepayments which BORROWER is required to make pursuant to this
Section 2.6 will not affect any other obligation of BORROWER arising under this
AGREEMENT. Mandatory Prepayments will not be subject to any prepayment premium.
All Mandatory Prepayments shall be applied first to the payment of late charges,
fees and costs, if any, then to accrued and unpaid interest, and the balance
applied to the payment of principal.
2.7 Location for Payments. All payments by BORROWER hereunder shall be
made in lawful money of the United States of America to LENDER at its address as
set forth in Section 9.2 herein below, or at such other place as LENDER shall
designate in writing.
2.8 LOAN ACCOUNT. LENDER shall establish a loan account (the "LOAN
ACCOUNT") for BORROWER. In accordance with customary accounting practice, LENDER
shall debit against the LOAN ACCOUNT all ADVANCES to BORROWER and shall credit
to the LOAN ACCOUNT all payments or prepayments by BORROWER on account of
ADVANCES, and shall from time to time make other appropriate debits and credits
to the LOAN ACCOUNT. The aggregate unpaid debit balance of BORROWER's Loan
Account shall reflect the amount of BORROWER'S INDEBTEDNESS to LENDER from time
to time by reason of ADVANCES made hereunder.
LENDER shall render a statement of account of such aggregate unpaid
balance of BORROWER'S LOAN ACCOUNT monthly, which statement shall be considered
correct and accepted by BORROWER and conclusively binding on BORROWER unless
BORROWER notifies LENDER to the contrary within thirty (30) days from the date
when rendered.
2.9 COLLATERAL. As security for all ADVANCES made hereunder and all
other Indebtedness and obligations of BORROWER to LENDER hereunder and/or under
all documents and instruments executed in connection herewith, BORROWER hereby
grants to LENDER a continuing security interest in the following COLLATERAL
("COLLATERAL") without further assignment or act:
(a) Each promissory note or other evidence of INDEBTEDNESS (referred to
collectively as T/D NOTE") now owned or hereafter acquired by BORROWER except
notes in which other institutions hold perfected security interests to secure
ADVANCEs for warehouse lending purposes, and all instruments and other forms of
payment, all
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general intangibles and accounts, and all proceeds thereunder and therefrom (and
including, without limitation, till servicing rights with respect to the T/D
NOTES), and all books and records relating to any of the above. This shall also
include the specifically identified Notes, the originals of which will be
provided to LENDER to maintain possession;
(b) All collateral, security, liens and security interests now or
hereafter held for each such T/D NOTE, including, without limitation, the
beneficial interest in any related deed of trust or mortgage and all guarantees
thereof except notes in which other institutions hold perfected security
interests to secure advances for warehouse lending purposes;
(c) All present and future title insurance policies insuring any of the
deeds of trust or mortgages except notes in which other institutions hold
perfected security interests to secure advances for warehouse lending purposes;
(d) All present and future COMMITMENTS of INSTITUTIONAL INVESTORS to
purchase a T/D NOTE or T/D NOTES from BORROWER as may be assigned except notes
in which other institutions hold perfected security for warehouse lending
purposes;
(e) All present and future rights of BORROWER under loan administration
agreements and contracts to service T/D NOTES and deeds of trust for its own
account or for the account of third parties ("Servicing Contract(s)");
(f) All present and future money and deposit accounts, and all other
assets of BORROWER in which LENDER receives a security interest or which
hereafter come into the possession, custody or control of LENDER;
(g) All of BORROWER'S present and hereafter acquired accounts,
instruments, documents, chattel paper, notes, general intangibles, inventory,
raw materials, supplies, components, work in process, finished merchandise,
machinery, equipment, furnishings, furniture, fixtures, motor vehicles, tools,
goods, proprietary items, and all accessions, attachments and additions thereto,
and any equipment, fixtures or other property used in the storing, preserving,
identifying, accounting for and shipping or preparing for shipping of inventory;
and
(h) All proceeds, instruments, general intangibles, property, property
rights, privileges and benefits arising out of, from the enforcement of, or in
connection with, the COLLATERAL described in subparagraphs (a) through (g),
above, or any other COLLATERAL;
2.10 TERM. This Agreement shall have a term commencing on the date
hereof and continuing up to and including June 1, 1998, unless renewed by
written consent of
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both parties hereto. Upon termination, all INDEBTEDNESS of BORROWER to LENDER
shall be immediately due and payable in full. Either party can terminate this
AGREEMENT with a 60-day written notice.
Notwithstanding the foregoing, upon the occurrence of an EVENT OF
DEFAULT under Article 7 hereof, LENDER may terminate this AGREEMENT immediately
upon notice given in writing, at which time all INDEBTEDNESS shall become due
and payable. Notwithstanding termination, until all INDEBTEDNESS has been fully
repaid, LENDER shall retain its security interest in all existing COLLATERAL and
COLLATERAL arising thereafter, and BORROWER shall continue to perform all of its
obligations hereunder.
ARTICLE 3 CONDITIONS PRECEDENT
3.1 Conditions Precedent to Borrowing. As conditions precedent to the
making of any ADVANCE under this AGREEMENT, BORROWER shall have validly executed
and delivered to LENDER, in form and substance satisfactory to LENDER and its
counsel, each of the following:
(i) This AGREEMENT, duly executed, together with such other
documents, financing statements, security agreements or other agreements as
LENDER may request;
(ii) Resolution of BORROWER's Board of Directors authorizing any
officer to execute this AGREEMENT and all other documents related to this
AGREEMENT, and further authorizing the borrowings and the granting of the
security interest provided for herein;
(iii) A certificate of good standing showing that BORROWER is in
good standing under the laws of Texas, including any certificates or licenses
required by the banking commission of the State of Texas, and certificates
indicating that BORROWER has qualified to transact business and is in good
standing in all other states where it transacts business; and
(iv) The financial statements referred to in Sections 6.9 and 6.10
of this AGREEMENT.
(v) Documentation acceptable to LENDER evidencing that BORROWER
has pledged a Certificate of Deposit ("CD") in the amount of 1% of the aggregate
set forth in Article 2.1 above naming LENDER as beneficiary of the principal of
the CD and BORROWER as recipient of any interest on the CD.
3.2 Conditions Precedent to Each Advance. As conditions precedent to
the making of each ADVANCE hereunder:
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(a) The BORROWER at the time of such ADVANCE shall comply and shall
have complied with all of the covenants, representations and warranties under
this AGREEMENT, and no EVENT OF DEFAULT shall have occurred and be continuing at
the time of such ADVANCE;
(b) BORROWER shall have delivered to LENDER the following, to the
extent appropriate in connection with the particular ADVANCE, each in form and
substance acceptable to LENDER and its counsel:
(i) The copy or copies of Servicing Contract(s), if any, upon
which the request for an ADVANCE is/are based;
(ii) The ELIGIBLE T/D NOTE upon which the request for an ADVANCE
is based, endorsed in blank by BORROWER;
(iii) An Assignment to LENDER of the ELIGIBLE DEED OF TRUST in
recordable form.
(iv) The original ELIGIBLE DEED OF TRUST securing said ELIGIBLE
T/D NOTE or a copy thereof certified by a title company or escrow company
satisfactory to LENDER to be a true copy of the original being recorded;
(v) An Assignment of said ELIGIBLE DEED OF TRUST, in form suitable
to be recorded;
(vi) A copy of the COMMITMENT by which the INSTITUTIONAL INVESTOR
undertakes to purchase such ELIGIBLE T/D NOTE, or other evidence satisfactory to
LENDER of the existence thereof;
(vii) A certified copy of the COMMITMENT of the Federal Housing
Administration, the Veterans Administration or other instrumentality of the
United States or private mortgage insurer, if any, to insure or guarantee such
ELIGIBLE T/D NOTE. LENDER agrees to waive the requirements of this provision
where such requirements are not demanded by the INSTITUTIONAL INVESTOR with
respect to Non-Conforming A through D Mortgage Products subject to
INSTITUTIONAL INVESTORS' preapproval and COMMITMENT.
(viii) A copy of escrow or other instructions to the title
company, if any, covering the transactions;
(ix) Copies of all policies of insurance required under Section
3.4 of this AGREEMENT, and a commitment for title insurance and preliminary
title report
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from a title company or companies acceptable to LENDER (and reflecting only such
exceptions as are acceptable to LENDER);
(x) Loan Request and Disbursement Instructions by BORROWER to
LENDER;
(xi) Disclosure to Mortgagor, as required by federal and/or state
truth-in-lending laws, acknowledged as read and accepted by such mortgagor;
(xii) A copy of an appraisal of the real property covered by the
DEED OF TRUST securing the ELIGIBLE T/D NOTE, prepared by the Federal Housing
Administration, the Veterans' Administration, or such other appraiser as may be
acceptable to LENDER.
(xiii) Such other related documents as LENDER may require.
3.2A. Wet-Borrowing Procedures. "WET BORROWING" shall be defined as the
funding by LENDER to the closing agent of funds requested by BORROWER and
approved by LENDER without delivery of all the documents required by LENDER
pursuant to Section 3.2 hereof. The conditions and procedures of Sections 2.2
and 3.2 apply to WET BORROWING except as follows:
(a) Collateral Documents. A WET BORROWING may be funded before delivery
of all of the required documents listed in 3.2 above if BORROWER faxed to LENDER
a Loan Request and Disbursement Instructions, accompanied by the documents set
forth on the transmittal letter attached as Exhibit "A" to this Agreement.
(b) All documents required by LENDER pursuant to Section 3.2 shall be
delivered to LENDER within forty-eight (48) hours of funding.
3.3 Further Documentation. When received by BORROWER, and in any event
within ninety (90) days from the time of each ADVANCE (to the extent
appropriate), BORROWER shall have delivered to LENDER the following documents
relating to each such ADVANCE, upon request of LENDER:
(a) The original recorded ELIGIBLE DEED OF TRUST securing the ELIGIBLE
T/D NOTE when it becomes available;
(b) An TLTA policy issued by a title company acceptable to LENDER in
advance made against said T/D NOTE), insuring the DEED OF TRUST securing the
assigned ELIGIBLE T/D NOTE to be a first or, with LENDER'S consent, second lien
on the property therein described, subject only to PERMITTED ENCUMBRANCES; and
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(c) A Veteran's Administration Loan Guarantee Certificate or Federal
Housing Administration Certificate of Insurance or a private mortgage insurer
certificate if applicable to insure or guarantee the ELIGIBLE T/D NOTE. LENDER
agrees to waive the requirements of this provision where such requirements are
not demanded by the INSTITUTIONAL INVESTOR with respect to Non-Conforming A-
through D Mortgage Products subject to INSTITUTIONAL INVESTORS' preapproval and
COMMITMENT.
3.4 Hazard Insurance. BORROWER warrants that it will hold in its
custody and will maintain in accordance with LENDER instructions policies or
binders of hazard insurance, in the amount of the assigned T/D NOTES or for the
insurance value of the improvements, whichever is less, covering all property
described in the assigned DEED OF TRUST, written by financially responsible
insurers acceptable to LENDER and its counsel. Insurance affording protection
against loss or damage from fire and other hazards covered by the standard
extended coverage endorsement must be held in amounts sufficient to pay the
mortgage balance in event of a covered loss, or in those instances where the
appraisal made in connection with the mortgage loan provides separate valuations
for land and improvements, in an amount sufficient to cover the full replacement
cost of the improvements. In those areas which have been identified by the
Secretary of Housing and Urban Development as areas having special flood
hazards, insurance coverage in the form of the Standard Flood Insurance Policy
must be held in an amount at least equivalent to the lesser of the outstanding
principal balance of the mortgage; the value of the insurable improvements, if
separate values have been established for land and improvement; or the maximum
of flood insurance available under the Flood Disaster Protection Act on the date
upon which the mortgage loan was closed. Individual policies shall permit
assignment to LENDER and will be delivered to LENDER on demand.
3.5 Reservation by LENDER. LENDER reserves the right, at its option,
and at any time, to reject any and all documents tendered, and/or to refuse to
make an ADVANCE to BORROWER if the conditions set forth herein are not met.
ARTICLE 4 COLLECTION AND APPLICATION OF SECURITY
4.1 Collection. It is contemplated that each ADVANCE will be repaid
from the proceeds of sale to INSTITUTIONAL INVESTORS or other third parties of
the T/D NOTE assigned concurrently with the assignment of such T/D NOTE.
Interest at the rate provided herein shall be billed monthly unless BORROWER is
in default herein under, in which case LENDER has the corresponding remedies
provided in the Loan and Security AGREEMENT.
4.2 Documentation for Assigned T/D NOTES. BORROWER shall promptly
deliver to LENDER, when issued, every original certificate of mortgage guarantee
insurance and
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every original guarantee of a T/D NOTE assigned to LENDER pursuant to the terms
of this AGREEMENT. BORROWER shall also, upon demand of LENDER, deliver to LENDER
any original DEED OF TRUST (not previously delivered) securing an Assigned T/D
NOTES, as well as all applications, financial statements, appraisals, credit
reports, corporate resolutions and other documents of all kinds which are
customarily desired for inspection or transfer incidental to the purchase of a
T/D NOTE by an investor and shall also provide LENDER, upon request, with any
additional documents which are customarily executed by sellers of notes to
INSTITUTIONAL INVESTORS, including, without limitation, any documents which may
be requested by the Veterans Administration, the Federal Housing Administration
or any other federal instrumentality or private insurer issuing mortgage
guarantee insurance or guaranteeing an assigned T/D NOTE in connection with
transfer of the same.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
To induce LENDER to enter into this AGREEMENT, BORROWER hereby makes
the following representations and warranties, each of which shall: (a) be deemed
to be automatically repeated with each ADVANCE hereunder and shall be true and
accurate at each such time; (b) be conclusively presumed to have been relied on
by LENDER regardless of any investigation made or information possessed by
LENDER; and (copyright) survive the execution and delivery of this AGREEMENT as
well as any documents or instruments executed or delivered pursuant to the terms
hereof.
5.1 Organization and Good Standing. BORROWER is a corporation duly
organized, existing and in good standing under the laws of the State of Texas,
has the power and authority and is duly qualified to transact the business in
which it is engaged and to own its properties; and is in good standing and
qualified to do business in every other jurisdiction in which the nature of its
business makes such qualification necessary. BORROWER has complied with all
applicable laws and regulations in full force and effect, all permits and
licenses which BORROWER is required to possess in each of the jurisdictions in
which BORROWER presently engages in business, and shall be deemed to be
automatically repeated with each new jurisdiction in which BORROWER begins to
engage in business during the term of this AGREEMENT and shall be true and
accurate at each such time.
5.2 Corporate Authority. BORROWER has all requisite power and authority
to execute, deliver and perform this AGREEMENT and all other instruments,
agreements or documents which it is required to execute and deliver pursuant to
this AGREEMENT or in connection herewith, all of the foregoing have been duly
authorized by all required corporate action, and all of the foregoing constitute
the legal, valid and binding obligations of BORROWER enforceable against it in
accordance with their respective terms.
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5.3 Litigation and Claims. There is no litigation, tax claim,
proceedings or dispute pending or threatened against or affecting BORROWER or
its property, nor is BORROWER aware of any facts which may give rise to
litigation, tax claim, proceedings or dispute pending or threatened against or
affecting BORROWER or its property which might result in any material adverse
change in the business or financial condition of BORROWER or in BORROWER's
ability to perform its obligations hereunder or under any note or agreement
required under this AGREEMENT, except for those, if any, previously disclosed in
writing to LENDER.
5.4 Financial Statements. All financial statements, information and
other data furnished by BORROWER to LENDER in connection with this AGREEMENT are
complete and correct, accurately and fairly present the financial condition of
BORROWER as of the date thereof, and have been prepared in accordance with
generally accepted accounting principles consistently applied. There has been no
material adverse change in the financial condition of BORROWER or in its
operations since the date of such financial statements so furnished. BORROWER
has no obligations, liabilities for taxes or other outstanding obligations which
are material in the aggregate, except as disclosed in such statement,
information and data.
5.5 Assignment. BORROWER has good, merchantable and absolute title to
each T/D NOTE assigned to LENDER, and BORROWER has the right and power to
assign, and has validly assigned, to LENDER its interest in all such T/D NOTES
and the DEEDS OF TRUST securing same, and BORROWER has not previously assigned
or encumbered same.
5.6 T/D NOTES. Each T/D NOTE is free of all disputes, offsets and
adverse claims, is not in default, and is a valid, genuine, legally enforceable
and subsisting obligation of its maker, who is legally or otherwise competent to
make the same, in the face amount of the T/D NOTE. No T/D NOTE violates any law
or regulation of the state in which the real property securing such T/D NOTE is
located.
5.7 DEEDS OF TRUST. Each T/D NOTE is secured by a DEED OF TRUST which
is a first or second lien upon the real property therein described subject only
to PERMITTED ENCUMBRANCES. Each DEED OF TRUST is in proper form and bears all
affidavits and acknowledgments required by law as a condition for filing or
recordation, and has been recorded in the office of proper jurisdiction to
establish the priority of said DEED OF TRUST and to give constructive notice
thereof.
5.8 Insurance or Guaranty. T/D NOTES purporting to be eligible for
insurance or guaranty by the Federal Housing Administration, Veterans
Administration or other instrumentality of the United States or private mortgage
insurer are eligible for such insurance or guaranty (except as set forth in
1.9.2 above). LENDER also agrees to waive the requirements of this provision
where such requirements are not demanded by
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the INSTITUTIONAL INVESTOR with respect to Non-Conforming A- through D Mortgage
Products subject to INSTITUTIONAL INVESTORS' preapproval and COMMITMENT.
5.9 Use of Proceeds. Each T/D NOTE assigned complies or will comply in
all respect with the terms of the COMMITMENT relating thereto, and BORROWER will
fully comply with all terms of said COMMITMENT prior to its expiration. The
ADVANCES made by LENDER hereunder shall be used to provide funds to BORROWER for
the sole purpose of making loans pursuant to ELIGIBLE T/D NOTES. Except as may
otherwise be agreed with LENDER the funds advanced hereunder for each real
estate loan evidenced by an assigned T/D NOTE have been or will be fully
disbursed and only to the maker of the T/D NOTE or such other persons or
entities as may be legally entitled to such proceeds. In the event of a default
of any assigned T/D NOTE hereunder, BORROWER will promptly notify LENDER.
5.10 Disclosure. There has been and will hereafter be full compliance
with the Federal Truth in Lending Act and Regulation Z issued thereunder, and
BORROWER hereby agrees to fully indemnify and hold LENDER harmless against any
damage or loss or liability sustained by LENDER as a result of any possible
failure to comply with the provisions of said Acts and Regulations.
5.11 No Defaults. The execution and delivery of the AGREEMENT, the
occurrence of the obligations herein set forth, and the consummation of the
transactions herein contemplated have not resulted and will not result in the
creation of a lien on any property of BORROWER other than as contemplated by
this AGREEMENT, and will not conflict with, result in the breach of any of the
terms, conditions or provisions of, or constitute a default under (and BORROWER
is not now in violation of or in default under) the articles of incorporation or
bylaws of BORROWER, or any bond, debenture, note, contract, indenture, mortgage,
loan agreement, lease or any other evidence of indebtedness, agreement or
instrument to which BORROWER is a party or by which it or any of its properties
may be bound, or result in the violation by BORROWER of any law, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
BORROWER or any of its properties.
5.12 Title and Indemnification. BORROWER has good and marketable title
to its properties and assets, not subject to any security interests other than
those reflected in its current financial statement; BORROWER shall not grant
extensions of time for the payment, or compromise for less than full face value,
or release in whole or in part any person liable for the payment of, or allow
any credit whatsoever against, any portion of the COLLATERAL, except for the
amount of cash to be paid upon any such COLLATERAL or any instrument or document
representing such COLLATERAL; the COLLATERAL, including the accounts and
proceeds resulting from any disposition thereof, will remain free and clear
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of any liens, excepting the liens hereby granted to LENDER, which liens to
LENDER shall at all times be first and prior on the COLLATERAL and as to the
proceeds; BORROWER shall pay and discharge when due, all taxes, levies,
assessments and other charges upon the COLLATERAL and shall defend LENDER
against and save it harmless from, all claims of any persons against LENDER and
this indemnity shall include attorneys' fees and legal expenses, including
out-of-pocket expenses; and LENDER shall not be required to take any steps to
perfect its security interest or lien in the COLLATERAL or to collect or realize
upon the COLLATERAL or any distribution of interest or principal, nor shall loss
of the COLLATERAL or any of the property secured thereby release BORROWER from
any of its obligations hereunder.
5.13 Location of COLLATERAL. The COLLATERAL is to remain, at all
times, in the possession of LENDER or its assigns, and BORROWER may not take
such COLLATERAL from the possession of LENDER or its assigns without the prior
written approval of LENDER.
5.14 BORROWER Expenses and Reimbursement. All sums paid or incurred by
LENDER for and all costs and expenses (including attorneys' fees, legal expenses
and court costs) which LENDER may incur in enforcing or protecting its security
interest or lien on or rights and interest in the COLLATERAL, or any of its
rights or remedies under this or any other agreement between the parties hereto
or in respect of any of the transactions to be had thereunder, shall be
considered as additional Indebtedness owing by BORROWER to LENDER hereunder and,
as such, shall be secured by all the COLLATERAL and the proceeds from the sale,
collection or other disposition thereof and by any and all other collateral,
security, assets, reserves, or funds of BORROWER in or coming into the hands or
inuring to the benefit of LENDER.
5.15 Protection of COLLATERAL: Collection of T/D NOTE Payments. LENDER
shall use due diligence to maintain the T/D NOTE received from the BORROWER.
LENDER shall have no duty or obligation to take any action with respect to the
collection of any payments or other obligations under the T/D NOTES or the
maintenance or administration of the T/D NOTES, or to otherwise act with respect
to the COLLATERAL. BORROWER shall indemnify LENDER and shall hold LENDER
harmless from any liability, fees, costs or expenses with respect to anything
done or omitted to be done, in good faith or upon advice of Lender's counsel, by
LENDER with respect to the T/D NOTES for the COLLATERAL other than that
resulting from LENDER'S gross negligence or intentional misconduct.
ARTICLE 6 COVENANTS OF BORROWER
BORROWER covenants and agrees that so long as BORROWER is indebted to
LENDER or LENDER has any obligation to make ADVANCES hereunder, BORROWER shall:
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<PAGE> 17
6.1 Payment and Performance of Obligations. From time to time as they
become due, pay all installments of principal and interest on ADVANCES made to
such BORROWER pursuant to this AGREEMENT, and promptly pay and discharge all of
its obligations hereunder.
6.2 Books and Accounts. Keep and maintain books and accounts in which
full, true and correct entries of all its dealings and transactions are made, in
accordance with generally accepted accounting principles consistently applied;
and permit representatives of LENDER within normal business hours (including
banks or assignees chosen by LENDER), and as long as no default has occurred
reasonable notice will be given, to visit and inspect BORROWER'S properties and
offices and to examine BORROWER'S books and records, and to take extracts and
copies therefrom, and to discuss its affairs, finances and accounts with its
officers and with its certified public accountants, and to conduct such other
investigations as are relevant and as LENDER may deem appropriate.
6.3 Corporate Existence. Preserve and keep its corporate existence,
rights, qualifications, franchises, permits and licenses in full force and
effect in all states in which any of its properties may be located or in which
the nature of its business requires it to do so, and continually operate its
business, except for periodic shutdowns in the ordinary course of business and
interruptions over which it has no control.
6.4 Taxes and Obligations. Pay and discharge when due any and all
indebtedness, obligations, assessments, taxes, including Federal and state
income taxes and other governmental charges, except such as BORROWER may in good
faith contest or as to which a bona fide dispute may arise provided provision is
made to the satisfaction of LENDER for eventual payment thereof in the event
that it is found that the same is an obligation of BORROWER, and when such
dispute or contest is settled or determined will promptly pay the full amount
then due.
6.5 Insurance. Obtain and keep in full force and effect adequate
insurance covering all risks, casualties and losses usually insured against and
customarily carried by firms engaged in similar businesses, and upon demand of
LENDER, submit schedules, certificates of insurance or duplicate policies
evidencing such coverages.
6.6 Changes in Financial Condition. Promptly ADVISE LENDER of any
material adverse change in its financial condition or operations.
6.7 Laws. Comply with and observe all material provisions of its
Articles of Incorporation and By-Laws and of all laws, regulations, statutes or
ordinances applicable to it or its properties.
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<PAGE> 18
6.8 Litigation. Promptly give notice to LENDER, in writing, of any
actions, suits or proceedings pending, or to its knowledge threatened against
it, involving the possibility of a material adverse effect on its operations or
financial condition.
6.9 Quarterly Statements. Furnish to LENDER concurrently herewith and
within forty-five (45) days after the end of each of its fiscal quarters a
reasonably detailed, unaudited financial statement certified by its chief
financial officer to have been prepared in accordance with generally accepted
accounting principles consistently applied, including a balance sheet and a
profit and loss statement, which fairly and accurately presents its financial
condition at the date of such statement and the results of its operations in the
period covered.
6.10 Annual Statement. Furnish to LENDER concurrently herewith and
within ninety (90) days after the end of each fiscal year, a reasonably
detailed, audited financial statement, including a balance sheet and a
reconciliation of surplus and retained earnings as of the end of such fiscal
year and a statement of source and application of funds and a profit and loss
statement for such year, certified by an independent certified public accountant
of recognized standing, and acceptable to LENDER, to have been prepared in
accordance with generally accepted accounting principles consistently applied.
6.11 Monthly Delinquents. Furnish to LENDER monthly schedules
identifying all loans in default in the warehouse line hereunder.
6.12 Reports. Furnish LENDER with such written reports regarding
BORROWER'S business and status as LENDER may reasonably request.
6.13 Notices. Give LENDER immediate notice of the occurrence of (1) any
EVENT OF DEFAULT hereunder, or any condition, act or event which, with the
giving of notice or the lapse of time or both would constitute an EVENT OF
DEFAULT, (ii) any event by which LENDER will be entitled to receive the proceeds
of any hazard or other insurance, or other proceeds payable to LENDER by the
terms of the DEED OF TRUST securing any T/D NOTE, or any reason of which LENDER
may be entitled to accelerate the maturity of any T/D NOTE, (iii) any change of
BORROWER'S address, and (iv) any change in corporate status or the identity or
authority of officers.
6.14 COMMITMENTS. Fulfill all its obligations and conditions under the
INSTITUTIONAL INVESTOR'S COMMITMENT within the time allowed thereby.
6.15 Restricted FNMA Stock. Not without prior written notice to LENDER,
assign, transfer, pledge, hypothecate or otherwise encumber any shares of FNMA
stock which BORROWER may now own or may hereafter acquire, provided, however,
that
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<PAGE> 19
[PAGE MISSING]
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<PAGE> 20
7.5 Involuntary Insolvency. If an Insolvency Proceeding is commenced
against BORROWER.
7.6 Injunction. If BORROWER is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs.
7.7 Lien, Levy. If a notice of lien, levy or assessment is filed of
record with respect to any material amount or all of BORROWER'S assets by the
United States Government, or any department, agency or instrumentality thereof,
or by any state, county, municipal or other governmental agency, or if any taxes
or debts owing at any time hereafter to any one or more of such entities becomes
a lien, whether choate or otherwise, upon any or all of the BORROWER'S assets,
and the same is not paid on the payment date thereof.
7.8 Judgment Lien. If a judgment or other claim becomes a lien or
encumbrance in excess of $25,000 upon any or all of BORROWER'S ASSETS, except
for encumbrances permitted by LENDER, in writing.
7.9 Impairment of Guaranties, Subordinations. If any party
subordinating its claims to those of LENDER or any guarantor of or indemnitor
regarding any of BORROWER'S Indebtedness or obligations hereunder dies,
terminates its subordination or guaranty or indemnity agreement, or becomes the
subject of an Insolvency Proceeding.
7.10 Uninsured Loss. Disposition of Encumbrance of COLLATERAL. Loss,
theft, substantial damage, or destruction not fully covered by insurance, of any
of the property or premises secured by the DEEDS OF TRUST for which hazard
insurance was available or sale or encumbrance of any of the COLLATERAL or the
making of any levy, seizure, or attachment thereof or thereon except in all
cases as may be specifically permitted by other provisions of this AGREEMENT.
7.11 Default Under Other Agreements. Any action by BORROWER which
causes or permits any agreement pertaining to the borrowing of money or the
advance of credit to which BORROWER may be a party as borrower to be in default
in excess of $25,000, whether or not that default gives the holder of the
obligation concerned the right to accelerate the indebtedness and whether or not
a default is declared. This includes any other agreement between BORROWER and
LENDER, now existing or hereafter created.
7.12 Lien. If BORROWER shall pledge, hypothecate or otherwise give a
lien on the COLLATERAL or any T/D NOTE to, or if such lien shall be obtained by,
any person other than LENDER or its participants or assigns, except notes used
as collateral for advances made by other institutions for warehouse lending
purposes.
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<PAGE> 21
7.13 Conditions. Breach of any term or condition or warranty of any
trust receipt, certificate or other document relating to T/D NOTES and security
delivered to LENDER hereunder, or otherwise relating to this AGREEMENT.
ARTICLE 8 REMEDIES
8.1 Acceleration of Obligations; Right to Dispose of COLLATERAL. Upon
the occurrence of an EVENT OF DEFAULT as above provided, all or any portion of
the obligations and INDEBTEDNESS due or to become due from BORROWER to LENDER,
whether arising under this AGREEMENT or otherwise, at the option of LENDER, and
without notice or demand by LENDER, shall accelerate and become at once due and
payable; BORROWER will forthwith pay to LENDER in addition to any and all sums
and charges due, the entire principal of and interest accrued on the ADVANCES
and all other INDEBTEDNESS and obligations hereunder. LENDER, thereupon, shall
have all the rights and remedies of a secured party under the California Uniform
Commercial Code ("Code") and all other legal and equitable rights to which it
may be entitled, including, without limitation, the right to collect and apply
payments under the T/D NOTES, and to give direct notice to all obligors under
said T/D NOTES to make payments directly to LENDER. If not previously delivered
to LENDER, LENDER shall have the right to take immediate possession of the T/D
NOTES and may enter any of the premises of BORROWER with or without force or
process of law. BORROWER and LENDER agree that five (5) days notice to BORROWER
of any public or private sale or other disposition of COLLATERAL shall be
reasonable notice thereof, and such sale shall be at such location(s) as LENDER
shall designate in said notice. LENDER shall have the right to bid at such sale
on its own behalf. Out of proceeds arising from any such sale, LENDER shall
retain all costs and charges, including attorneys' fees for advice, counsel, or
other legal services or for pursuing, reclaiming, seeking to reclaim, taking,
keeping, removing and storing COLLATERAL and advertising such COLLATERAL for
sale, selling and any and all other charges and expenses in connection
therewith. Any balance shall be applied upon the INDEBTEDNESS and obligations of
BORROWER to LENDER hereunder; and in the event of deficiency, BORROWER shall
remain liable to LENDER. In the event of any surplus, such surplus shall be paid
to the party entitled by law to same.
In view of the fact that there may not be a readily available market
for the COLLATERAL, or that federal or state securities or other laws may impose
certain restrictions on the method by which the COLLATERAL may be disposed of,
BORROWER agrees that upon the occurrence of an EVENT OF DEFAULT LENDER may, from
time to time, attempt to sell all or any part of the COLLATERAL by a private
placement restricting the bidder and prospective purchasers. In so doing, LENDER
may solicit offers to buy the COLLATERAL, or any part of it, for cash from a
limited number of purchasers deemed by LENDER, in its reasonable judgment, to be
respectable parties who might be interested in purchasing the COLLATERAL, and
the acceptance by LENDER of the highest offer
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<PAGE> 22
obtained thereby shall be deemed to be a commercially reasonable method of
disposition of such COLLATERAL.
8.2 Application of COLLATERAL; Termination of AGREEMENTS. Upon the
occurrence of an EVENT OF DEFAULT, LENDER may also, with or without proceeding
with such sale, or foreclosure or demanding payment of all obligations without
notice, terminate further performance under this AGREEMENT or any other
agreement or agreements between BORROWER and LENDER without further liability or
obligation by LENDER, and may also, at any time, appropriate and apply on any
obligations any and all COLLATERAL in the possession of LENDER, any and all
balances, credits, deposits, accounts, reserves, indebtedness, or other monies
due or owing to lender or held by LENDER hereunder or under any such financing
agreement or otherwise, whether accrued or not. Neither such termination, nor
the termination of this AGREEMENT by lapse of time, the giving of notice, or
otherwise shall absolve, release, or otherwise affect the liability of BORROWER
in respect of transactions had prior to such termination, nor affect any of the
liens, security interests, rights, powers and remedies of LENDER, but they
shall, in all events, continue until all Indebtedness, obligations, and
liabilities of BORROWER to LENDER are satisfied. LENDER shall not, in any
manner, be liable to BORROWER for any failure to make or continue to make any
loans or ADVANCES hereunder.
8.3 Power of Attorney. BORROWER, in the event of default as set forth
in this agreement, hereby makes, constitutes and appoints LENDER, and its agents
and designees, the true and lawful agents and attorneys-in-fact of BORROWER,
with full power of substitution (a) to receive, open and dispose of all mail
addressed to BORROWER relating to the COLLATERAL, (b) In the event of default to
notify and direct the United States Post Office authorities by notice given in
the name of BORROWER and signed on its behalf, to change the address for
delivery of all mail address to BORROWER relating to the COLLATERAL to an
address to be designated by LENDER, and to cause such mail to be delivered to
such designated address where LENDER may open all such mail and remove therefrom
any notes, checks, acceptances, drafts, money orders or other instruments in
payment of the COLLATERAL in which LENDER has a security interest hereunder and
any documents relative thereto, (c) to endorse the name of BORROWER upon any
such notes, checks, acceptances, drafts, money orders, instruments, or other
form of payment representing payments on assigned T/D NOTES and DEEDS OF TRUST
or COMMITMENTS to purchase T/D NOTEs and DEEDS OF TRUST, or on COLLATERAL or
security of any kind and to effect the deposit and collection thereof, and,
further to endorse the name of BORROWER on any other documents otherwise
relating to such COLLATERAL, (d) to sign the name of BORROWER to drafts against
its T/D NOTE obligors, to send notices to such T/D NOTE obligors, (e) to
complete, execute, deliver and record, on behalf of BORROWER, assignments,
notices of assignments, financing statements and other public records and
notices an all other instruments or documents, (f) to do every
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<PAGE> 23
other thing necessary or desirable to effect transfer of a T/D NOTE and DEED OF
TRUST; to take all necessary and appropriate action in BORROWER's name with
respect to ADVANCEs hereunder and servicing of T/D NOTEs and DEEDS OF TRUST; to
commence, prosecute, settle, discontinue, defend or otherwise dispose of any
claim relating to any COMMITMENT, T/D NOTE, DEED OF TRUST or other COLLATERAL,
and (g) to do any and all other things necessary or proper to carry out the
intent of this AGREEMENT and to perfect and to protect the liens and rights of
LENDER created under this AGREEMENT. BORROWER agrees that neither LENDER nor
any of its agents, designees or attorneys-in-fact will be liable for any acts of
commission or omission, or for any error of judgment or mistake of fact or law.
The powers granted hereunder are coupled with an interest and shall be
irrevocable during the term hereof. LENDER shall have the right to settle or
adjust disputes and/or claims in respect to the COLLATERAL with the T/D NOTE
obligors thereon for amounts and upon such terms as LENDER, in its sole
discretion, deems to be advisable in such case crediting BORROWER with only the
proceeds received and collected by Lender. Lender shall have the right to apply
all money or security otherwise due to LENDER to the payment of any of the
ADVANCE or other sums, fees, costs and expenses payable pursuant to this
AGREEMENT at such time or times and in such order of application as LENDER in
its sole discretion may determine.
8.3A Power of Attorney. BORROWER irrevocably appoints LENDER as its
attorney-in-fact (with full power of substitution) for, on behalf of, and the
name of BORROWER to (a) endorse and deliver to any person any check, instrument,
or other document received by Lender that represents payment in respect of any
Collateral, (B) prepare, complete, execute, deliver, and record any assignment
of any mortgage, deed of trust, or trust deed securing any T/D NOTE or DEED OF
TRUST, (c) endorse and deliver or otherwise transfer any T/D NOTE and do every
other thing necessary and appropriate action with respect to any Collateral, (e)
commence, prosecute, settle, discontinue, defend, or otherwise dispose of any
claim relating to any Collateral, and (f) sign that BORROWER'S name wherever
appropriate to effect the performance of this Agreement. This section shall be
liberally, not restrictively, construed to give the greatest latitude to
LENDER's power as the BORROWER'S attorney-in-fact to collect, sell, and deliver
any Collateral and all other documents relating to it. The powers and
authorities conferred on LENDER in this section (g) are discretionary and not
obligatory on the part of LENDER, (h) may be exercised by LENDER through any
person who, at the time of the execution of a particular document, is an
officer of LENDER, and (i) is granted for a valuable consideration coupled with
an interest, and irrevocable until - and all persons dealing with LENDER, any
of its officers acting under this section, or any substitute are fully
protected in treating the powers and authorities conferred by this section as
existing and continuing in full force and effect until advised by LENDER that -
all commitments under the Loan Agreement to extend credit under this AGREEMENT
have been terminated or canceled and the Indebtedness is fully paid and
performed.
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<PAGE> 24
8.4 Remedies Cumulative. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of BORROWER
contained in this AGREEMENT, or in any document referred to herein or contained
in any agreement supplementary hereto or in any schedule or in any guaranty
AGREEMENT given to LENDER or contained in any other agreement between LENDER and
BORROWER, heretofore, concurrently, or hereafter entered into, shall be deemed
cumulative to and not exclusive or in derogation or substitution of any of the
terms, covenants, conditions or agreements of Borrower herein contained.
8.5 The CD referenced in provision 3.1(v) of the Loan and Security
Agreement which is being assigned to LENDER shall only be called upon as
security upon the happening of any Event of Default set forth in Article 7 of
the Loan and Security Agreement. The General Assignment of CD will expire upon
termination of the Loan and Security Agreement only if no Event of Default set
forth in Article 7 is being claimed by LENDER.
ARTICLE 9 MISCELLANEOUS
9.1 Delays and Waivers: No delay or omission to exercise any right,
power or remedy accruing to Lender on any breach or default of BORROWER under
this AGREEMENT shall impair any such right, power or remedy of LENDER, nor shall
it be construed to be a waiver of any such breach or default, or acquiescence in
any such breach or default occurring later; nor shall any waiver of any single
breach or default be considered waiver of any other prior or subsequent breach
or default. Any waiver, permit, consent or approval of any kind by LENDER of any
breach or default under this AGREEMENT, or any waiver by LENDER of any provision
or condition of this AGREEMENT, must be in writing and shall be effective only
to the extent specifically set forth in that writing.
9.2 Address: Except as specifically provided herein, any communications
between the parties or notices provided for in this AGREEMENT may be given by
mailing them first class, postage prepaid, to LENDER and to BORROWER at the
addresses shown below, or to such other addresses as either party may indicate
to the other in writing at the date of this AGREEMENT.
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<PAGE> 25
Any notice or demand shall be deemed to have been given when actually received
if given personally or by facsimile or telex, or, if mailed as provided above,
forty-eight (48) hours after being so deposited in the United States mail:
To BORROWER: CAPITAL FIRST MORTGAGE CORPORATION
Attention: L.H. ("Rick") Hardy, Jr., or
Glenn LaPointe, or
Terry G. Hartnett
823 Congress Avenue, Ste 707
Austin, Texas 78701
Facsimile No.: 512/481-8001
Telephone: 512/481-8000
To LENDER: Pioneer Commercial Funding Corp.
Attn: Glenda Klein, Senior V.P.
6660 Reseda Blvd., Suite 108
Reseda, California 91335
Facsimile No.: (818) 776-0004
With a
copy to: Meskin, Eisenberg & Wayne
Attn: Joel Meskin, Esq.
18321 Ventura Blvd., Suite 900
Tarzana, California 91356-4252
Facsimile No.: (818) 708-3419
9.3 Expenses. The obligations of BORROWER hereunder shall survive the
final payment of all INDEBTEDNESS of BORROWER and the resulting termination of
this AGREEMENT. Should LENDER be required to enforce the provisions of this
AGREEMENT or take or defend any legal action against or by BORROWER or any third
party, then LENDER shall be entitled to payment of any and all costs and
reasonable attorneys' fees, whether or not suit is actually commenced.
9.4 Jurisdiction and Venue. This Agreement, and any note or other
instruments or agreements executed in connection with this AGREEMENT, shall be
governed by and construed under the laws of the State of California. The parties
agree that all actions or proceedings arising in connection with this Agreement
shall be tried and litigated, at the election of LENDER, only the state courts
located in the County of Los Angeles, or the federal courts located in the
Central District of California.
9.5 Amendments. This AGREEMENT contains the entire agreement of the
parties hereto and may be amended only by the written consent of both LENDER and
BORROWER.
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<PAGE> 26
9.6 Descriptive Headings. The descriptive headings of the several
sections of this AGREEMENT are inserted for convenience only and shall not be
deemed to affect the meaning or construction of any of the provisions hereof.
9.7 Successors and Assigns. This AGREEMENT shall be binding upon and
inure to the benefit of the respective successors and assignees of LENDER and
BORROWER. BORROWER shall not assign this AGREEMENT or any of its rights, duties
or obligations without the prior written consent of LENDER. LENDER reserves the
right to assign, sell, transfer, negotiate or grant participations in all or any
part of LENDER'S rights, benefits or interests hereunder. In connection
therewith, LENDER may disclose all documents and information which LENDER now
has or may acquire relating to BORROWER or BORROWER'S business, to LENDER'S
funding sources or as may be required for compliance by lender with SEC
regulations for public companies.
9.8 Severability. To the extent any provision of this AGREEMENT is not
enforceable under applicable law, such provision shall be deemed null and void
and shall have no effect on the remaining portions of the AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of the
day and year first hereinabove given.
Capital First Mortgage Corporation
By
----------------------------------
L.H. ("Rick") Hardy, Jr.
Title:
---------------------------------
By
----------------------------------
Glenn La Pointe
Title:
---------------------------------
By
----------------------------------
Terry G. Hartnett
Title:
---------------------------------
By
----------------------------------
, Secretary
-------------------
PIONEER COMMERCIAL FUNDING CORP.
By
----------------------------------
(Lender)
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<PAGE> 1
EXHIBIT 6(l)
LEASE AGREEMENT
By and Between
823 CONGRESS, LTD.
("Landlord")
and
CAPITAL FIRST MORTGAGE CORPORATION
("Tenant")
<PAGE> 2
SUITE # 707
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered as of the _ day of April, 1997
by and between 823 CONGRESS, LTD., a Texas limited partnership ("Landlord") and
CAPITAL FIRST MORTGAGE CORPORATION, a Texas corporation ("Tenant").
ARTICLE 1 - PREMISES, TERM AND USE
1.01. Leased Premises.
(a) Upon the terms, provisions and conditions hereof, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the premises, reflected
on the floor plans set forth in Exhibit "A" attached hereto and incorporated
herein for all purposes, in the Building known as the 823 CONGRESS, Building
(the "Building") which term shall also include the related parking areas,
landscaping, and other similar improvements), constructed or to be constructed
on the land described in Exhibit "B" hereto (the "Land"). Such premises,
together with any other space in the Building leased by Tenant pursuant hereto,
are herein called the "Leased Premises."
(b) The Rentable Area (defined below) of the Initial Leased Premises
(the "Initial Leased Premises") is approximately 1,806 square feet, and the
Rentable Area for the entire Building is approximately 181,381 square feet.
Tenant's pro rata share of Basic Operating Costs (defined in Section 2.02 of the
Lease) is agreed to be 0.9957% ("Tenant's Share").
(c) The term "Rentable Area" shall mean (i) in the case of a single
tenancy floor, the area as calculated by Landlord's engineer within the inside
surface of the outer glass or finished column walls of the Building to the
inside surface of the opposite outer wall, excluding only the areas within the
Building used for elevator mechanical rooms or shafts, stairs, fire towers,
flues, vents, stacks, pipe shafts, and vertical ducts, but including any such
areas which are for the specific use of Tenant, plus an allocable portion (based
on Rentable Area in the Leased Premises compared to Rentable Area of all tenants
in the Building) of the Building's elevator areas, mechanical rooms, ground and
basement lobbies and other similar facilities utilized by all Building tenants,
and (ii) in the case of a multi-tenant floor, the area as calculated by
Landlord's engineer within the inside surface of the outer glass or finished
column walls enclosing the Leased Premises to the midpoint of the demising walls
separating the Leased Premises from other areas, but including an allocable
portion (based on Rentable Area in the Leased Premises compared to Rentable Area
of all tenants on the floor) of the corridors, elevator foyers, restrooms,
mechanical rooms, janitor closets, vending areas, and other similar facilities
for the use of all Building tenants on the particular floor, plus an allocable
portion (based on Rentable Area in the Leased Premises compared to Rentable Area
of all tenants in the Building) of the Building's elevator areas, mechanical
rooms, ground and basement lobbies and other similar facilities for the use of
all tenants in the Building. The Rentable Area does not necessarily equal the
square footage of usable space in the Leased Premises.
1.02. Term.
(a) Subject to the terms, provisions and conditions hereof, this Lease
shall continue in force for a term ("Term") of approximately sixty months
commencing on the Commencement Date and ending on the sixtieth full month
thereafter.
(b) Commencement. As used herein, "Commencement Date" means the latter
to occur of: (i) the date Tenant's leasehold improvements are substantially
completed (or would have been substantially completed except for delays caused
by Tenant) in accordance with Exhibit C attached hereto and made a part hereof
for all purposes, or (ii) May 1, 1997. Notwithstanding the foregoing, if Tenant
occupies all or any part of the Premises prior to (i) or (ii) above, the
Commencement Date shall be the date of such occupancy. Within five (5) days
after
1
<PAGE> 3
the Commencement Date or at any time thereafter on the request of Landlord,
Tenant shall execute and deliver to Landlord a declaration (in the form of
Exhibit L hereto) specifying, among other things, the date upon which the same
occurred.
1.03. Use. The Leased Premises shall be used and occupied by Tenant solely
for the purpose of office space, and for no other purpose, without Landlord's
express written consent.
ARTICLE 2 - RENTAL
2.01. Base Rental. Tenant shall pay monthly rental ("Base Rental") during
the term of the Lease according to the following rental schedule:
<TABLE>
<CAPTION>
Lease Months Rent
------------ ----
<S> <C>
1-12 $2,107.00 per month (based on a "rental rate of $14.00 per
square foot of Rentable Area per year)
13-24 $2,107.00 per month (based on a rental rate of $14.00 per
square foot of Rentable Area per year)
25-36 $2,107.00 per month (based on a rental rate of $14.00 per
square foot of Rentable Area per year)
37-48 $2,408.00 per month (based on a rental rate of $16.00 per
square foot of Rentable Area per year)
49-60 $2,408.00 per month (based on a rental rate of $16.00 per
square foot of Rentable Area per year)
</TABLE>
Such Base Rental shall be due and payable in advance in monthly installments by
the first (1st) day of each calendar month during the Term according to the
rental schedule outlined above at Landlord's address as provided herein (or at
such other place as Landlord may hereafter designate) without demand, deduction,
abatement, or setoff (except as otherwise expressly provided for herein or other
portions of this Lease). If this Lease does not commence on the first day of a
month, Base Rental for such partial month shall be due on or before the
Commencement Date. Notwithstanding the foregoing, if Landlord obtains a
certificate of occupancy prior to May 1, 1997, no rent shall be due for the
period prior to May 1, 1997 regardless of whether Tenant actually occupies the
Premises.
2.02. Tenant's Share of Basic Operating Costs.
(a) Beginning January 1, 1998, and continuing for each calendar year
thereafter for the remainder of the Term, Tenant shall pay, as an adjustment to
Base Rental, an amount equal to Tenant's Share (per square foot of Rentable Area
of the Leased Premises compared to the square footage of Rentable Area in the
Building) of the excess ("Excess") of Basic Operating Costs (hereafter defined)
for the Building over the actual 1997 Base Year Basic Operating Costs. Such
Excess shall be payable by Tenant to Landlord as additional Base Rental. At
Landlord's option, in its sole discretion, Landlord may collect such Excess in
arrears on a yearly basis; or alternatively, prior to the commencement of each
calendar year Landlord shall make and provide a good faith estimate of the Basic
Operating Costs, and related Excess, for the Building for the upcoming calendar
year, and, thereafter, Tenant shall pay, as additional Base Rental in equal
monthly installments, Tenant's Share of the difference between the estimated
Basic Operating Costs for said calendar year and the Base Year Operating Costs
(i.e. the "Excess"). Any amounts paid based on such an estimate shall be subject
to adjustment when actual Basic Operating Costs are available for such calendar
year pursuant to the methodology defined below.
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(b) Within one hundred fifty (150) days or as soon thereafter as possible
of the conclusion of each calendar year of the Term, Landlord shall furnish to
Tenant a statement of actual Basic Operating Costs for such year, and within
thirty (30) days thereafter an appropriate cash adjustment shall be made between
Landlord and Tenant to reflect any difference between Landlord's estimate of,
and the actual, Basic Operating Costs. For any calendar year during which the
Term includes less than all of the calendar year, Landlord shall have the option
of calculating actual Basic Operating Costs only for the portion of the calendar
year included in the Term and make the aforementioned adjustment on that basis.
(c) Basic Operating Costs shall be paid by Tenant in the proportion
(herein called "Tenant's Share") which the Rentable Area under this Lease bears
to the total Rentable Area of the Building.
(d) "Basic Operating Costs" shall mean all expenditures that Landlord pays
or becomes obligated to pay in connection with owning, operating, and
maintaining the Building, parking, and related facilities, and such additional
facilities in subsequent years as may be determined by Landlord to be advisable
in accordance with sound and reasonable practices for facilities of a like kind
and character. Basic Operating Costs shall be determined on an accrual basis in
accordance with generally accepted accounting principles which shall be
consistently applied. Basic Operating Costs shall include, without limitation,
the following:
(1) All costs related to the management, operation and maintenance of
the Building, including, without limitation, all personnel costs;
(2) All supplies, equipment and materials used in the operation and
maintenance of the Building;
(3) Cost of all utilities for the Building, including the cost of
water and power, heating, lighting, air conditioning and ventilating for
the Building;
(4) Cost of all maintenance and service agreements for the Building,
the equipment therein and grounds, including landscaping maintenance,
alarm service, window cleaning and elevator maintenance;
(5) Cost of all insurance relating to the Building, including casualty
and liability insurance applicable to the Building and Landlord's personal
property used in connection therewith;
(6) All taxes and assessments and governmental charges, whether
federal, state, county, municipal or other, subsequently created or
otherwise, and whether they be by taxing the Leased Premises or otherwise,
and any other taxes and assessments attributable to the Land, the Building
or its operation excluding, however, federal and state taxes on income and
ad valorem taxes on Tenant's personal property and on the value of
leasehold improvements to the extent that the same exceeds Building
Standard allowances;
(7) Cost of repairs and general maintenance (excluding such repairs
and general maintenance paid by insurance proceeds or by Tenant or other
third parties;
(8) Legal expenses, accounting expenses and management fees incurred
with respect to the Building;
(9) Costs incurred in compliance with existing new or revised federal
or state laws or municipal ordinances or codes or regulations promulgated
under any of the same; and
(10) Amortization of the cost (whether incurred before or during the
Term of this Lease) of capital items which are primarily for the purpose
of operation, maintenance, or repair, or of reducing (or avoiding
increases in) operating costs or which may be required by governmental
authority, together with actual or imputed interest thereon at a market
rate. All such costs shall be amortized over the
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reasonable life of the capital investment items with the reasonable life
and amortization schedule being determined in accordance with generally
accepted accounting principles and in no event to extend beyond the
reasonable life of the Building. In the case of installations for the
purpose of reducing (or avoiding increases in) operating costs, Landlord
shall, upon request, provide Tenant a cost justification therefore. Basic
Operating Costs shall not include (i) expenditures classified as capital
expenditures for Federal income tax purposes, and depreciation, except as
set forth in Section 2.02(d)(10), (ii) costs for which Landlord is
specifically reimbursed by Tenant, any other tenant of the Building, or
any other third party, (iii) costs of initial construction of the
Building, (iv) cost of renovating or modifying non-common space in the
Building for lease to other tenants, (v) leasing commissions, and (vi)
base rent under ground leases (but not taxes, insurance, repairs or other
items otherwise included in Section 2.02(d) even if they are obligations
under the ground leases).
(e) If the Building is not fully occupied during any year an adjustment
shall be made in computing the Basic Operating Costs for such year so that the
Basic Operating Costs shall be computed as though ninety-five percent (95%) of
the Building has been occupied during such year.
2.03. Audit Tenant, at its expense, shall have the right, upon giving
reasonable notice, to audit Landlord's books and records relating to any
increase or additional rental payable here hereunder for any periods within two
(2) years prior to such audit; or at Landlord's sole discretion, Landlord will
provide an audit or report prepared by a certified public accountant, which
audit or report for purposes of this Lease shall be conclusive.
ARTICLE 3 - LANDLORD'S SERVICES
3.01. Services to be furnished by Landlord.
(a) Landlord shall use its best efforts to furnish Tenant, at Landlord's
expense, subject to the Building Rules and Regulations (hereafter defined) and
Tenant's performance of its obligations hereunder, the following services:
(1) Air conditioning and heating in season, during Normal Building
Operating Hours (hereafter defined), at such temperatures and in such
amounts as are considered by Landlord to be standard;
(2) Hot and cold water at those points of supply provided for lavatory
and drinking purposes only;
(3) Window washing services for the outside portions of the Building
at such times as determined by Landlord;
(4) Elevators for access to and egress from the Leased Premises and
the Building twenty-four (24) hours a day, seven (7) days a week;
(5) Electricity and proper facilities to furnish sufficient electrical
power during Normal Building Operating Hours for normal offices machines
and other machines of low electrical consumption (but not including
electricity required for electronic data processing equipment other than
as mentioned above, special lighting in excess of building standard, or
any other items of high electrical consumption) up to a total consumption
of not more than 1 watt per square foot of Rentable Area at rated capacity
at 120 volts single phase; and
(6) Replacement of fluorescent lamps in Building Standard light
fixtures installed by Landlord and incandescent bulb replacement in all
public areas.
(7) Janitorial service to the Building and the Leased Premises five
(5) nights per week.
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(b) "Normal Building Operating Hours" shall be from 7:00 a.m. to 7:00 p.m.
Monday through Friday, and 8:00 a.m. to 1:00 p.m. Saturday, exclusive of
holidays.
(c) Failure by Landlord to any extent to furnish such services or any
cessation thereof of Landlord shall not render Landlord liable in any respect
for damages to either person or property, nor be construed as an eviction of
Tenant, nor work an abatement of rent, nor relieve tenant from fulfillment of
any covenant or agreement hereof. Should any of such services be interrupted,
Landlord shall use reasonable diligence to restore same promptly, but Tenant
shall have no claim for rebate of rent or damages or eviction on account
thereof.
(d) Tenant shall pay to Landlord, monthly, as billed, such charges as may
be separately metered or as Landlord may compute for any services agreed to in
writing in advance by Tenant not standard for the Building, including without
limitation electrical service in excess of that provided for in Section 3.01(a).
3.02. Access by Tenant Prior to Commencement of Term. Landlord, at its
discretion, may permit Tenant and its employees, agents, suppliers, contractors
and workmen to enter the Leased Premises prior to the commencement of the Term
to enable Tenant to do such things as may be required by Tenant to make the
Leased Premises ready for Tenant's occupancy. If such permission is granted,
Tenant guarantees that such parties will not interfere with or delay the
performance of any activities by Landlord or other occupants of the Building.
Landlord may withdraw such permission upon twenty-four (24) hours notice to
Tenant if Landlord determines that any such interference or delay has been or
may be caused. Any such entry into the Leased Premises shall be at Tenant's risk
and Landlord shall not be liable in any way for personal injury, death, or
property damage which may be suffered in or about the Leased Premises or the
Building by Tenant or its employees, agents, contractors, suppliers or workmen.
3.03. Improvements to be made by Landlord. Landlord shall make those
improvements to the Leased Premises as generally reflected in Exhibit "C"
hereto, under the terms and conditions therein set forth. When used herein,
"Building Standard" items shall mean those items described as such in Exhibit
"C" hereto. No improvements shall be made except pursuant to plans and
specifications approved in writing by Landlord. Landlord shall solicit bids for
construction of the improvements in the manner deemed appropriate by Landlord.
Landlord shall pay for the costs of making those improvements described as such
in Exhibit "C" hereto. Any additional costs shall be paid by Tenant before
commencement of construction of the improvements, or in arrears after completion
of construction of the improvements and within ten (10) days after Landlord has
delivered an itemized statement to Tenant outlining Tenant's additional costs.
If Tenant desires to make any change orders, Tenant must obtain Landlord's prior
written approval of each specific change order. After Landlord has determined
that the improvements have been substantially completed, Landlord will so notify
Tenant. Within three (3) business days after such notification, Tenant will
inspect the improvements and provide Landlord with either Tenant's written
acceptance of the improvements or a written statement describing all of Tenant's
reasons for non-acceptance. Landlord disclaims and Tenant waives all warranties,
including implied warranties, with respect to the improvements including any
warranties of merchantability or fitness for a particular purpose. Either party
may obtain warranties from the contractor or from any supplier or manufacturer
of the improvements, and each party will look solely to the contractors,
suppliers and manufacturers of the improvements with respect to any claims
regarding the improvements.
3.04. Repair and Maintenance by Landlord. Landlord shall not be required
to make any improvements or repairs of any kind or character to the Leased
Premises, except such repairs as may be required to the Building corridors,
lobby, structural members of the Building, and equipment used to provide the
services referred to in Section 3.01, and such additional maintenance to such
corridors, lobbies or structural members as may be necessary because of damage
by persons other than Tenant, its agents, employees, invitees, or visitors. The
obligation of Landlord to so maintain and repair the Leased Premises shall be
limited to Building Standard items. Tenant will promptly give Landlord written
notice of any damage in the Leased Premises. This Section shall not apply in the
case of damage or destruction by fire or other casualty (as to which Section
5.02 shall apply), or damage resulting from an eminent domain taking (as to
which Section 5.01 shall apply).
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3.05. Disclaimer of Warranties. Tenant represents and warrants that
Landlord (including any person acting for Landlord) has made no representations
or warranties to Tenant as to the condition or suitability of the Leased
Premises, either express or implied. Except to the extent, if any, expressly set
forth in this Lease, to the full extent allowed by applicable law and as a
material part of the consideration for Landlord's entering into this Lease with
Tenant, Tenant waives and Landlord disclaims all representations and warranties
to Tenant of any kind, whether express or implied, including, without
limitation, as to habitability, condition of the Leased Premises or Building
(including, without limitation, suitability for particular purpose or commercial
use), and provision of services. Tenant represents and warrants that it has been
afforded an opportunity to conduct and has conducted inspections of the Leased
Premises and the Building and is relying solely upon the results of such
inspections in electing to enter into this Lease Agreement. Tenant agrees to
accept the Leased Premises in its AS IS, WHERE IS condition, with all faults.
ARTICLE 4 - TENANT'S COVENANTS
4.01. Payments by Tenant. Tenant agrees to timely pay all rents and sums
provided to be paid to Landlord hereunder at the times and in the manner herein
provided and to occupy at all times the Leased Premises.
4.02. Certain Taxes. In addition to payments required to be made to
Landlord hereunder, Tenant shall timely pay to the charging authority without
abatement, deduction or offset, all ad valorem taxes, general and special
assessments, and other charges of every description levied on or assessed
against Tenant's personal property or on improvements installed in the Leased
Premises from time to time that are above Building Standard. Tenant shall pay
all such charges whether or not they are chargeable against Landlord. Upon
Landlord's request, Tenant shall provide Landlord with proof of payment of such
charges.
4.03. Repairs by Tenant. Tenant shall, at its cost, but under Landlord's
control, repair or replace any damage to the Building, or any part thereof,
caused by Tenant or Tenant's agents, employees, licensees, invitees or visitors,
and any damage to the Leased Premises.
4.04. Care of the Leased Premises. Tenant shall maintain the Leased
Premises in a clean, attractive condition, and not commit or allow any waste or
damage to be committed on or any portion of the Leased Premises, and at the
expiration or termination of this Lease shall deliver up the Leased Premises to
Landlord in as good condition as at date of possession by Tenant, ordinary wear
and tear excepted.
4.05. Assignment and Sublease. Tenant shall not mortgage, pledge,
hypothecate or otherwise transfer or assign this Lease or the leasehold estate
granted hereby absolutely or as security for a debt or other obligation, whether
by a direct or indirect method, and Tenant shall not cause or allow this Lease
or the leasehold estate to be subjected to any unpaid charge or any existing or
subsequent interest of any third person, without the prior written consent of
Landlord which shall not be unreasonably withheld. Tenant shall not sublet the
Leased Premises or any part thereof without the prior written consent of
Landlord. Any attempted assignment, sublease or other action by Tenant in
violation of this Section 4.05 shall be void and shall constitute an Event of
Default (hereinafter defined) not subject to any notice or opportunity to cure.
In no event may Tenant assign this Lease or sublease all or any portion of the
Leased Premises to any party whose operations in the Building would not be in
keeping with, or would detract from, the operations of other tenants in the
Building. If Tenant is not a public company that is registered on a national
exchange or that is required to register its stock with the Securities and
Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934,
then any change in a majority of the voting rights or other control rights of
Tenant shall be deemed an assignment for the purposes hereof. If the rent and
other consideration for any assignment or subleasing exceeds the Rental, for the
portion of the Term covered by such assignment or subleasing, then Landlord
shall be entitled to all such excess, which shall be paid by Tenant to Landlord
immediately upon Tenant's receipt thereof. Tenant shall, unless released by
Landlord upon any permitted assignment or sublease, remain directly and
primarily liable for the performance of all of the covenants, duties and
obligations of tenant hereunder and Landlord shall be permitted to enforce the
provisions of this Lease against Tenant and/or any assignee or sublessee without
demand upon or proceeding in any way against any other
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person. Consent by Landlord to a particular assignment or sublease shall not be
deemed a consent to any other or subsequent transaction. If this Lease is
assigned or if the Leased Premises are subleased without the permission of
Landlord, then Landlord may nevertheless collect rent from the assignee or
sublessee and apply the net amount collected to the rent payable hereunder, but
no such transaction or collection of rent or application thereof by Landlord
shall be deemed a waiver of any provision hereof or a release of Tenant from the
performance of the obligations of the Tenant hereunder. All subleases and
assignments shall be subordinate and subject to the provisions of this Lease and
shall automatically terminate upon the expiration or prior termination of this
Lease or the termination of Tenant's right to possession hereunder.
4.06. Alterations, Additions, Improvements. Tenant will make no
alteration, change, improvement, repair, replacement or addition to the Leased
Premises without the prior written consent of Landlord. All alterations,
changes, improvements, repairs, replacements and additions to the Leased
Premises shall be made under Landlord's control and at Tenant's expense. Tenant
may remove its trade fixtures, office supplies and moveable office furniture and
equipment not attached to the Building provided (a) such removal is made under
Landlord's control, but at Tenant's expense, prior to the expiration or prior
termination of this Lease, (b) Tenant has paid all rent required during the
entire Term of this Lease and is not then in default in the timely performance
of any obligation or covenant under this Lease, and (c) Tenant pays in advance
to repair all damage caused by such removal. All other property at the Leased
Premises (including but not limited to wall-to-wall carpeting, drywall,
partitions, paneling or other wall covering) and any other article attached or
affixed to the floor, wall, or ceiling of the Leased Premises shall become the
property of Landlord and shall be surrendered with the Leased Premises as part
thereof at the expiration or prior termination of this Lease, without payment or
compensation therefor. However, at Landlord's option, Landlord may, at Tenant's
expense, prior to termination or expiration of this Lease, remove any and all
alterations, additions, fixtures, equipment and property placed or installed by
it in the Leased Premises pursuant to this Lease or at Tenant's request, and
repair any damage caused by such removal. Tenant shall pay for such removal and
repair in advance.
4.07. Compliance with Laws and Usage; Liens. Tenant, at its cost, shall
comply with all federal, state, municipal and other laws and ordinances, and the
Building Rules and Regulations applicable to the Leased Premises and the
business conducted therein by Tenant; will not engage in any activity which
would cause Landlord's fire and extended coverage insurance to be cancelled or
the rate therefor to be increased (or, upon agreement of Landlord and Tenant,
will pay any such increase); will not commit any act which is a nuisance or
annoyance to Landlord or to other tenants or which might, in the exclusive
judgment of Landlord, appreciably damage Landlord's goodwill or reputation, or
tend to injure or depreciate the Building; and will not commit or permit waste
in the Leased Premises or Building. Tenant has no authority to encumber the
Building or Leased Premises with any lien, and Tenant shall not suffer or permit
any such lien to exist. Should any such lien hereafter be filed, Tenant shall
promptly discharge the same at its sole cost. If Tenant fails to do so, Landlord
shall have the right, but not the duty, to pay or otherwise discharge, stay or
prevent the execution of any such lien. Tenant shall reimburse Landlord upon
demand for all sums paid by Landlord, together with all of Landlord's reasonable
attorneys' fees and costs, plus interest on all such sums from the date paid by
Landlord until repaid by Tenant. Tenant shall defend (with counsel chosen by
Landlord) and indemnify Landlord against all claims, liability, damages and loss
of any type arising out of any kind of work performed on the Leased Premises by
Tenant, including, without limitation, any damages caused by the release of
asbestos, together with reasonable attorneys' fees and all reasonable costs and
expenses incurred by Landlord in negotiating, settling, defending or otherwise
protecting against such claims.
4.08. Access by Landlord. Tenant shall permit Landlord or its agents or
representatives to enter into and upon any part of the Leased Premises at all
reasonable hours to inspect same; to clean; to make repairs, alterations or
additions thereto, as Landlord may deem necessary or desirable; to show the
Leased Premises to prospective purchasers or tenants; or for any reasonable
purpose deemed by Landlord.
4.09. Landlord's Mortgagee. Tenant agrees with Landlord that this Lease is
and shall be subordinate to any deed of trust now or hereafter affecting the
Building or the Leased Premises, but that the beneficiary of any such deed of
trust ("Landlord's Mortgagee") shall have the right at any time to elect, by
notice in writing given to Tenant, to make this Lease superior to the lien of
such mortgage or deed of trust. Upon the giving of such notice
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to Tenant, this Lease shall be deemed prior and superior to the mortgage or deed
of trust in respect to which such notice is given; and at Landlord's Mortgagee's
request, Tenant shall execute a recordable memorandum of this Lease establishing
this Lease as superior to such lien. Landlord's Mortgagee may, by like notice,
make this Lease subordinate to such mortgage or deed of trust. If Landlord's
Mortgagee shall elect to make this Lease subordinate to such mortgage or deed of
trust, the same shall be self-operative and no further instrument of
subordination need be required by any Landlord's Mortgagee. In confirmation of
such subordination, however, Tenant shall execute promptly any reasonable
instrument that Landlord or Landlord's Mortgagee may request. Tenant shall have
no right unilaterally to subordinate this Lease to any mortgage or deed of trust
affecting the Building or the Leased Premises. In the event of the sale of the
Building by Landlord's Mortgagee pursuant to its remedies provided for by law or
by such mortgage or deed of trust, if such has been subordinated to this Lease,
or upon the transfer, sale, or assignment of the Building to any third party
through any means allowed by law, or upon the termination of the ground leases
on the land under the Building, Tenant shall automatically become the tenant of
Landlord's successor in interest without change in terms of other provisions of
this Lease, as the same shall have been amended, and such successor in interest
shall succeed to the rights and obligations of the Landlord under this Lease.
Upon request by such successor in interest, Tenant shall execute and deliver '
reasonable instruments confirming the attornment provided for herein.
Notwithstanding any contrary provision in this Lease, Tenant's failure to
execute such instrument on demand shall be an Event of Default hereunder not
subject to any notice or opportunity to cure. Tenant hereby irrevocably
constitutes and appoints Landlord the Tenant's attorney-in-fact to execute any
such instrument for and on behalf of Tenant. If Landlord's Mortgagee sells the
Building under the deed of trust and such has not been subordinated to this
Lease, this Lease shall terminate upon such sale.
4.10. Estoppel Certificate. At Landlord's request, Tenant will promptly
execute an estoppel certificate addressed to Landlord's Mortgagee certifying as
to such notice provisions and other matters as Landlord's Mortgagee may
reasonable request. At Landlord's request from time to time, Tenant will execute
a certificate stating the commencement and expiration dates of the Term, the
rental then payable hereunder, that there are no defaults on the part of the
Landlord or claims against Landlord hereunder (or if there are any, stating the
same with particularity), and such other information pertaining to this Lease as
Landlord may reasonably request. Notwithstanding any contrary provision in this
Lease, Tenant's failure to execute such instrument on demand shall be an Event
of Default hereunder not subject to any notice or opportunity to cure.
4.11. Hazardous Substances. Except for any asbestos in the Leased Premises
at the commencement of this Lease, Tenant shall not cause or permit any
Hazardous Substance (as defined below) to be brought upon or kept or used on or
about the Premises, by Tenant, its agents, employees, contractors, licensees or
invitees unless Tenant first obtains the prior written consent of Landlord. If
at any time Tenant shall become aware or have reasonable cause to believe that
any Hazardous Substance has come to be located on or in the Leased Premises,
Tenant shall immediately upon discovering such presence or suspected presence of
the Hazardous Substance give written notice of that condition to Landlord.
"Hazardous Substance" shall mean any hazardous or toxic substance, including,
but not limited to, any substance named or described in any list of hazardous
substances or hazardous materials in the United States Code, the Code of Federal
Regulations, or any similar list or definition compiled by any federal, state or
local authority.
4.12. Notice of Litigation and Other Matters. Tenant shall promptly inform
Landlord of (a) any litigation against Tenant or any guarantor of Tenant or
affecting any security for the performance of Tenant's obligations hereunder
which might have a material adverse effect upon the financial condition of
Tenant or any guarantor of Tenant or upon such security or might cause a default
under this Lease, (b) any claim or controversy which might become the subject of
such litigation, (c) any material adverse change in the financial condition of
Tenant or any guarantor of Tenant, and (d) any information, financial or
otherwise, with respect to Tenant as Landlord may reasonably request from time
to time.
4.13. Valid Obligations. Tenant and the undersigned representative of
Tenant represent and warrant to Landlord that:
(a) If Tenant is a legal entity, Tenant is duly organized, validly
existing and in good standing under the laws of the state of Texas and has the
power and authority to carry on its business as presently conducted and
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as contemplated to be conducted on the Leased Premises by this Lease and to
enter into and perform its obligations under this Lease.
(b) If Tenant is a legal entity, the execution, delivery and performance
by the Tenant of this Lease has been duly authorized by all necessary action
under its articles or certificate of incorporation, by-laws and otherwise.
(c) The execution, delivery and performance of this Lease by Tenant will
not violate any law, its articles or certificate of incorporation, by-laws or
any other instrument or agreement constituting, binding upon or affecting
Tenant.
4.14. Reference to Tenant. In this Lease, every reference to Tenant in the
context of the description of an obligation of Tenant or of an action of Tenant
shall refer also to each assignee and/or sublessee of Tenant, whether the
assignee or sublessee is direct or indirect.
ARTICLE 5 - MUTUAL COVENANTS.
5.01. Condemnation and Loss or Damage. If the Leased Premises, Building,
or any part thereof shall be taken or condemned for any public purpose (or
conveyed in lieu or in settlement thereof) to such an extent as to render the
remainder of the Leased Premises or a substantial part of the Building, in the
opinion of Landlord, not reasonably suitable for occupancy, this Lease shall, at
the option of Landlord, forthwith cease and terminate. If this Lease is not so
terminated, Landlord shall repair any damage resulting from such taking, to the
extent and in the manner provided in Section 5.02, and rental hereunder shall be
abated to the extent the Leased Premises are rendered untenantable during the
period of repair, and thereafter be adjusted on a pro rata basis considering the
areas of the Leased Premises taken and remaining. In either case, all proceeds
from any taking or condemnation of the Building and the Leased Premises shall
belong to and be paid to Landlord.
5.02. Fire or Other Casualty, Certain Repairs.
(a) In the event of a fire or other casualty in the Leased Premises,
Tenant shall immediately give notice thereof to Landlord. If the Leased Premises
shall be partially destroyed by fire or other casualty so as to render the
Leased premises untenantable in whole or in part, then the rental provided for
herein shall abate as to the portion of the Leased Premises rendered
untenantable until such time as the Leased Premises are made tenantable as
determined by Landlord and Landlord agrees to commence and prosecute such repair
work promptly and with reasonable diligence. However, if such destruction
results in the Leased Premises being untenantable in substantial part for a
period reasonably estimated by Landlord to be six (6) months or longer, or in
the event of such substantial damage or destruction of the Building that
Landlord decides not to rebuild, then all rent owed up to the date of such
damage or destruction shall be paid by Tenant and this Lease shall terminate at
Landlord's option upon notice thereof to Tenant. Landlord shall give Tenant
written notice of its decision, estimates or election under this Section 5.02
within sixty (60) days after any such damage or destruction. Notwithstanding
anything to the contrary contained herein, if such casualty is caused by the
acts or omissions of Tenant, or any sublessee or assignee, or any of their
agents, representatives, contractors, subcontractors, guests, invitees,
licensees or employees, then Tenant shall be liable to Landlord for all damage
occasioned thereby, shall cause the Leased Premises and the Building, at its
sole cost and expense, to be restored and shall not be entitled to any abatement
of rent.
(b) Should Landlord elect to effect any repairs under Sections 5.01 or
5.02, Landlord shall only be obligated to restore or rebuild the Leased Premises
to a Building Standard condition. In no event, however, shall Landlord be
responsible to Tenant for reconstruction of any improvements to the Premises
constructed by Tenant or any damage to any of Tenant's equipment, machinery,
fixtures or other personal property located in or about the Premises.
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5.03. Lien for Rent. To secure the payment of rent and all other sums due
hereunder and for the performance of all covenants required hereunder to be
performed by Tenant, Tenant grants to Landlord a lien and security interest on
all property of Tenant which now or hereafter may be placed in or upon the
Leased Premises, and upon all proceeds of any insurance which may accrue to
Tenant by reason of damage or destruction of any such property, which lien and
security interest shall be in addition to Landlord's lien provided by law.
Tenant may not remove any such property from the Leased Premises without
Landlord's prior written consent. Upon request, the parties shall take such
further reasonable action as may be required to perfect such security interest.
5.04. Holding Over. If Tenant should remain in possession of the Leased
Premises after the termination or expiration of the Term without the execution
by Landlord and Tenant of a new lease, then Tenant shall be deemed to be
occupying the Leased Premises as a tenant-at-sufferance, subject to all the
covenants and obligations of this Lease and at a daily rental equal to two
hundred percent (200%) of the per day rental in effect immediately prior to such
expiration of termination, computed on the basis of a thirty (30) day month, but
such holding over shall not extend the Term.
5.05. Assignment by Landlord. Landlord shall have the right to transfer
and assign, in whole or in part, all its rights and obligations hereunder and in
the Building and property referred to herein, and upon any such transfer or
assignment, no further liability or obligation shall thereafter accrue hereunder
against the transferor.
5.06. Limitation to Landlord's Liability. Tenant specifically agrees to
look solely to Landlord's interest in the Building for the recovery of any
judgment from Landlord, it being agreed that Landlord shall never be personally
liable for any such judgment. The provisions contained in the foregoing sentence
shall not limit any right that Tenant might otherwise have to obtain injunctive
relief against Landlord, or any other action not involving the liability of
Landlord to respond in monetary damages from assets other than Landlord's
interest in the Building.
5.07. Control of Common Areas and Parking Facilities by Landlord. All
automobile parking areas, driveways, entrances and exits thereto, and other
facilities furnished by Landlord, including all parking areas, truck way or
ways, loading areas, pedestrian walkways, ramps, landscaped areas, stairways and
other areas and improvements provided by Landlord for the general use, in
common, of tenants, their officers, agents, employees, invitees, licensees,
visitors and customers shall be at all times subject to the exclusive control
and management of Landlord, and Landlord shall have the right from time to time
to establish, modify and enforce reasonable rules and regulations (herein called
the "Building Rules and Regulations") with respect to all facilities and areas
mentioned in this Section; the initial Building Rules and Regulations are set
out in Exhibit "D" hereto.
5.08. Default by Tenant.
(a) Each of the following occurrences relative to Tenant shall constitute
an "Event of Default":
(1) Failure or refusal by Tenant to make the timely payment of any
rent or other sums payable under this Lease or any Parking Agreement
between Landlord and Tenant when and as the same shall become due and
payable, which remains uncured after Landlord has given Tenant three (3)
days' written notice of the same; however, once Landlord has given Tenant
two (2) such notices (whether as to one or more than one failure to pay)
it shall not be required to give further notice and thereafter the failure
or refusal by Tenant to timely make any payment due hereunder shall be an
Event of Default without further notice; or
(2) Abandonment or vacating of the Leased Premises or any significant
portion thereof; or
(3) The filing or execution or occurrence of a petition in bankruptcy
or other insolvency proceeding by or against Tenant or any guarantor of
Tenant; or petition seeking relief under any provision of the U.S.
Bankruptcy Code; or an assignment for the benefit of creditors or
composition; or
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<PAGE> 12
a petition of other proceeding by or against the Tenant for the
appointment of a trustee, receiver or liquidator of Tenant or any of
Tenant's property; or a proceeding by any governmental authority for the
dissolution or liquidation of Tenant or any guarantor of Tenant; or
(4) The occurrence of any other event herein provided to be an Event
of Default; or
(5) Failure by Tenant in the performance or compliance with any of the
agreements, terms, covenants or conditions provided in this Lease or any
Parking Agreement between Landlord and Tenant, other than those referred
to above in Subsection (a), which remains uncured for a period of (10)
days after written notice from Landlord to Tenant specifying the items in
default; or
(6) The dissolution, liquidation or termination of existence of Tenant
or any guarantor of Tenant; or
(7) If Tenant is not an individual, a transfer of a controlling
interest in Tenant without Landlord's written consent; or
(8) A default under any guaranty agreement under which another party
guarantees performance of Tenant's obligations hereunder, or any material
adverse change in the financial condition of Tenant or any guarantor of
Tenant.
(b) This Lease and the Term and estate hereby made are subject to the
limitation that if and whenever any Event of Default shall occur, Landlord may,
at its option and without further written notice to Tenant, in addition to all
other remedies given hereunder or by law or equity, do any one or more of the
following:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender possession of the Leased Premises to Landlord;
(2) Enter upon and take possession of the Leased Premises and expel or
remove Tenant and any other occupant therefrom, terminating the right to
possession with or without having terminated the Lease;
(3) Alter locks and other security devices at the Leased Premises.
(c) Exercise by Landlord of any one or more remedies shall not constitute
an acceptance of surrender of the Leased Premises by Tenant, whether by
agreement or by operation of law, it being understood that such surrender can be
effected only by the written agreement of Landlord and Tenant.
(d) If Landlord terminates this Lease by reason of an Event of Default,
Tenant shall pay to Landlord the sum of all rent and other indebtedness accrued
to the date of such termination, plus interest, plus, as damages, an amount
equal to the then present value of all rentals then payable under this Lease for
the remainder of the Term, less the then present value of the fair market rental
value of the Leased Premises for such period. For purposes of discounting to
present value, the parties shall use the discount rate of the Federal Reserve
Bank of Dallas on the date of the termination. The cost to Landlord to perform
any unperformed obligation of Tenant as of the termination of the Lease shall be
included in the indebtedness accrued to the date of such termination, whether or
not such costs have been incurred or paid by Landlord as of that date. Unless
Tenant has paid all amounts due to Landlord hereunder, Landlord may at
Landlord's election use Tenant's personal property and trade fixtures or any of
such property and fixtures without compensation and without liability for use or
damage, or store them for the account and at the cost of Tenant.
(e) If Landlord repossesses the Leased Premises without terminating the
Lease, then Tenant shall pay to Landlord all rent and other indebtedness accrued
to the date of such repossession, plus rent and other sums required to be paid
by Tenant during the remainder of the Term, diminished by any net sums
thereafter received
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<PAGE> 13
by Landlord through reletting the Leased premises during said period (after
deducting expenses incurred by Landlord as provided below); reentry by Landlord
will not affect the obligations of Tenant for the unexpired Term. Tenant shall
not be entitled to any excess of any rent obtained by reletting over the rent
herein reserved. Actions to collect amounts due by Tenant may be brought on one
or more occasions, without the necessity of Landlord's waiting until expiration
of the Term. Landlord may at Landlord's election use Tenant's personal property
and trade fixtures or any of such property and fixtures without compensation and
without liability for use or damage, or store them for the account and at the
cost of Tenant.
(f) In case of an Event of Default, Tenant shall also pay to Landlord:
broker's fees incurred by Landlord in connection with reletting the whole or any
part of the Leased Premises; the cost of removing and storing Tenant's or any
other occupant's property; the cost of repairing, altering, remodeling or
otherwise putting the Leased Premises into condition acceptable to a new tenant
or tenants, and all reasonable expenses incurred by Landlord in enforcing
Landlord's remedies, including reasonable attorneys' fees and court costs.
(g) Upon repossession of the Leased Premises for an Event of Default,
Landlord shall not be obligated to relet the Leased premises, or any portion
thereof, or to collect rental after reletting, but Landlord shall use reasonable
efforts to attempt to relet and collect rental. In the event of reletting,
Landlord may relet the whole or any portion of the Leased Premises for any
period, to any tenant, and for any use and purpose.
(h) If Tenant should fail to make any payment, perform any obligation, or
cure any default hereunder, Landlord, without obligation to do so and without
thereby waiving such failure or default, may make such payment, perform such
obligation, and/or remedy such other default for the account of Tenant (and
enter the Leased Premises for such purpose), and Tenant shall pay upon demand
all costs, expenses and disbursements (including reasonable attorneys' fees)
incurred by Landlord in taking such remedial action.
5.09. Non-Waiver. Neither acceptance of rent by Landlord nor failure by
Landlord to complain of any action, non-action or default of Tenant shall
constitute a waiver of any of Landlord's rights hereunder. Waiver by Landlord of
any right for any default of Tenant shall not constitute a waiver of any right
for either a subsequent default of the same obligation or any other default.
5.10. Independent Obligations. The obligation of Tenant to pay all rent
and other sums hereunder provided to be paid by Tenant and the obligation of
Tenant to perform Tenant's other covenants and duties hereunder constitute
unconditional obligations to be performed at all times provided for hereunder,
independent of Landlord's obligations or performance thereof, save and except
only when an abatement thereof or reduction therein is hereinabove expressly
provided for and not otherwise. Tenant waives and relinquishes all rights which
Tenant might have to claim any nature of lien against or withhold, or deduct
from or offset against any rent and other sums provided hereunder to be paid
Landlord by Tenant.
5.11. Time of Essence. In all instances where any act is required at a
particular indicated time or within an indicated period, it is understood and
stipulated that time is of the essence.
5.12. Remedies Cumulative. Landlord may restrain or enjoin any breach or
threatened breach of any covenant, duty or obligation of Tenant herein contained
without the necessity of proving the inadequacy of any legal remedy or
irreparable harm. The remedies of Landlord, whether exercised by Landlord or
not, shall not be deemed to be in exclusion of any other.
5.13. Insurance, Subrogation, Liability, Indemnity, and Waiver.
(a) Landlord shall maintain fire and extended coverage insurance on the
portion of the Building constructed by Landlord, and building standard leasehold
improvements in such amount as Landlord deems appropriate. Such insurance shall
be maintained with an insurance company authorized to do business in Texas, in
reasonable amounts desired by Landlord and payments for losses thereunder shall
be made solely to Landlord. Tenant shall maintain at its expense fire and
extended coverage insurance for the full insurable value, at replacement cost,
on all of its personal property, including removable trade fixtures, located in
the Leased
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<PAGE> 14
Premises and on its non-Building Standard leasehold improvements and all
additions and improvements made by Tenant and not required to be insured by
Landlord above.
(b) Landlord and Tenant shall each, at their respective expense, maintain
a policy or policies of comprehensive general liability insurance, including
contractual liabilities, with the premiums thereon fully paid, issued by and
binding upon some solvent insurance company, such insurance to afford minimum
protection (which may be affected by primary and/or excess coverage) with bodily
injury limits of not less than $1,000,000 for each occurrence and $1,000,000 in
the aggregate and property damage liability of not less than $250,000 for each
occurrence and $250,000 in the aggregate.
(c) Anything herein to the contrary notwithstanding, except as provided in
Section 4.07, each party hereto hereby releases and waives all claims, rights of
recovery and causes of action that either party (or any party claiming by,
through or under such party) by subrogation or otherwise may now or hereafter
have against the other party or any of the other party's directors, officers,
partners, employees or agents for any loss or damage that may occur to the
Building, Leased Premises, Tenant improvements or any of the contents of any of
the foregoing by reason of fire or other casualty, or any other cause including
negligence of the parties hereto or their directors, officers, partners,
employees, or agents, that could have been insured against under the terms of
(1) standard fire and extended coverage insurance policies with vandalism and
malicious mischief endorsement and sprinkler leakage endorsement (where
applicable) or (2) any other loss covered by insurance of the respective
parties except gross negligence or willful misconduct; provided, however, that
this waiver shall be ineffective against any insurer of Landlord or Tenant to
the extent that such waiver is prohibited by the laws and insurance regulations
of the State of Texas. The waiver set forth in this Section 5.13 (c) shall not
apply to any deductibles on policies carried by Landlord nor to any coinsurance
penalty which Landlord might sustain.
(d) Except for the claims, rights of recovery and causes of action that
Landlord has released and waived pursuant to Section 5.13 (c), Tenant hereby
releases and agrees to indemnify, defend, and hold harmless Landlord and
Landlord's agents, directors, officers, partners, employees, invitees and
contractors, from all claims, losses, costs, damages and expenses (including,
but not limited to, attorneys' fees) resulting or arising from any injuries or
death of any person, damage to any property, or the presence or release of any
Hazardous Substance, caused or alleged to have been caused by an act, omission,
or neglect of Tenant or any sublessee or assignee, or any of their directors,
officers, partners, employees, agents, invitees or guests, or any parties
contracting with Tenant relating to the Leased Premises.
(e) Tenant agrees that Landlord shall not be responsible or liable to
Tenant or any sublessee or assignee, or any of their employees, agents,
customers, licensees, or invitees, for bodily injury (fatal or non-fatal) or
property damage occasioned by the acts or omissions of any other tenant or such
tenant's employees, agents, contractors, customers, licensees, or invitees
within the Building, or for any loss or damage to any property or persons
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition or order of governmental body or
authority, or any other cause beyond the control of Landlord, or for any
inconvenience or loss to Tenant in connection with any of the repair,
maintenance, damage, destruction, restoration or replacement referred to in this
Lease.
(f) All insurance required hereby shall be issued by carriers and in
amounts satisfactory to Landlord and shall specifically provide that the same
cannot be cancelled or materially changed without ten (10) days' prior written
notice to Landlord. Additionally, all such insurance shall name the Landlord as
an additional insured. Tenant shall furnish Landlord with certificates of all
such insurance before Tenant takes possession of the Leased Premises, and from
time to time upon request of Landlord shall provide Landlord with evidence of
insurance, including without limitation, copies of all policies of insurance
required to be kept by Tenant hereunder. If Tenant fails to procure or maintain
insurance as required hereunder or fails to furnish Landlord with proof of such
insurance, Landlord shall have the right, in addition to all other rights and
remedies granted Landlord herein, to procure and maintain such insurance. All
sums paid by Landlord in this respect shall be treated as additional rent due
from Tenant on demand. Landlord shall not be liable for any failure to obtain or
maintain any such insurance or if any insurance obtained by Landlord does not
name, insure or in any way protect Tenant or any person other than Landlord.
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<PAGE> 15
5.14. Venue; Governing Law. This Lease shall be governed by the laws of
the State of Texas. All monetary and other obligations of Landlord and Tenant
are performable exclusively in Austin, Travis County, Texas.
5.15. Notice. Any notice which may or shall be given under the terms of
this Lease shall be in writing and shall be either delivered by hand or sent by
United States Registered or Certified Mail, postage prepaid, if for Landlord to
the address provided below; or if for Tenant, to the Leased Premises. Such
addresses may be changed from time to time by either party by giving notice as
provided above; however, Tenant may not change its address unless Landlord has
consented to a sublease or assignment of this Lease. Notice shall be deemed
given when delivered (if delivered by hand) or three (3) days after postmarked
(if sent by mail).
Landlord's Address: 823 Congress, Ltd.
c/o OMNI Commercial Realty Advisors, Inc.
823 Congress Avenue, Suite 1111
Austin, Texas 78701
5.16. Entire Agreement, Binding Effect, and Severability. This Lease and
any written addenda and all exhibits hereto (which are expressly incorporated
herein by this reference) shall constitute the entire agreement between Landlord
and Tenant; no prior written or prior or contemporaneous oral promises or
representations shall be binding. This Lease shall not be amended, changed or
extended except by written instrument signed by both parties hereto. In
particular, the parties wish to avoid any dispute or litigation regarding
whether or not there shall have been any oral modification, consent or waiver of
any provision of this Lease, and therefore each party warrants to the other that
it shall not make or rely on, or claim that it or the other party shall have
made, any modification, consent or waiver of any provision of this Lease unless
the same shall be in writing and signed by both parties. Tenant warrants that
the provisions of this paragraph 5.16 shall remain in effect as written unless
and until the same have been amended in a writing signed by Landlord that
expressly states that it is amending the provisions of this paragraph 5.16. The
provisions of this Lease shall be binding upon and inure to the benefit of the
heirs, executors, administrators, successors and assigns of the parties, but
this provision shall in no way alter the restrictions on assignment and
subletting applicable to Tenant hereunder. If any provision of this Lease or the
application thereof to any person or circumstance shall at any time or to any
extent be held invalid or unenforceable, and the basis of the bargain between
the parties hereto is not destroyed or rendered ineffective thereby the
remainder of this Lease or the application of such provisions to persons of
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected thereby.
5.17. Right of Reentry and Surrender. Upon the expiration or termination
of the Term for whatever cause, Landlord shall have the right to immediately
reenter and reassume possession of the Leased Premises and remove Tenant's
property therefrom, and Tenant expressly acknowledges such right. Upon the
expiration or earlier termination of the Term, Tenant shall peaceably quit and
surrender the Leased Premises in good order and condition, excepting ordinary
wear and tear and casualty loss that Landlord is obligated to repair. All
obligations of Tenant and Landlord for the period of time prior to the
expiration or earlier termination of the Term shall survive such expiration or
termination.
5.18. Number and Gender; Captions; References. Pronouns, where used
herein, of whatever gender, shall include natural persons, corporations, and
associations of every kind and character, and the singular shall include the
plural and vice versa where and as often as may be appropriate. Article and
section headings under this Lease are for convenience of reference and shall not
affect the construction or interpretation of this Lease. Whenever the terms
"hereof", "herein", or words of similar import are used in this Lease, they
shall be construed as referring to this Lease in its entirety rather than to a
particular section or provision, unless the context specifically indicates to
the contrary. Any reference to a particular "Article" or "Section" shall be
construed as referring to the indicated article or section of this Lease.
5.19. Security Deposit. Concurrently with the execution hereof, Tenant has
paid to Landlord the amount of $4,214.00 to be held as a deposit to secure
performance of Tenant's obligations hereunder and to be
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<PAGE> 16
applied to the payment of the first month's rent. Upon the occurrence of any
Event of Default, or upon the failure by Tenant to timely pay any sum it is
obligated to pay hereunder, Landlord may, from time to time, without prejudice
to any other remedy, apply such deposit to the curing of such Event of Default
or the payment of such sum. Should Landlord so apply such deposit, Tenant shall
immediately upon receipt of notice thereof, deposit with Landlord a sufficient
amount to bring Tenant's total deposit to the level stated in the first sentence
of this Section 5.19. Upon termination or expiration of this Lease, the security
deposit shall be returned to Tenant, to the extent the same is not then applied
to curing of any Event of Default or the payment of any sum owed by Tenant
hereunder. Landlord may keep such security deposit in its bank account and
commingle same with its other funds; and shall not be responsible for paying any
interest thereon. The amount so deposited shall not be considered as an advance
payment of rental hereunder, or as a measure of Landlord's damages in the event
of any failure to perform on the part of Tenant.
5.20. Delinquent Payments; Handling Charge. Any payments required of
Tenant hereunder, whether as rental or otherwise, shall bear interest from the
time due until paid at the maximum rate of interest for which the parties are
permitted by law to contract. Furthermore, should Tenant fail to timely pay any
installment of rental hereunder, a fee equal to five percent (5%) of the
delinquent installment to reimburse Landlord for its cost and inconvenience
incurred in dealing with Tenant's delinquent payment. In no event, however,
shall the charges imposed under this Section 5.20 and elsewhere in this Lease,
to the extent the same are considered to be interest under applicable law,
exceed the maximum rate of interest allowable under applicable law.
5.21. Relocation. If Landlord chooses to utilize the Leased Premises for
other purposes during the Term, Tenant agrees to relocate to other space in the
Building designated by Landlord and acceptable to Tenant, provided such space is
of equal or larger size than the Leased Premises and has at least the same
number of windows. Landlord shall pay all out-of-pocket expenses of any such
relocation, including the expenses of moving and reconstruction of all Tenant
furnished and Landlord furnished improvements. In the event of such relocation,
this Lease shall continue in full force and effect without any change in the
terms or other conditions, but with the new location substituted for the old
location set forth in this Lease.
5.22. Quiet Enjoyment. Tenant, on paying all sums herein called for and
performing and observing all of its covenants and agreements hereunder, shall
and may peaceably and quietly have, hold, occupy, use, and enjoy the Leased
premises during the Term subject to the provisions of this Lease and applicable
governmental laws, rules, and regulations; and Landlord agrees to warrant and
forever defend Tenant's right to such occupancy against the claims of any and
all persons whomsoever lawfully claiming the same or any part thereof, by,
thereof or under Landlord but not otherwise, subject only to the provisions of
this Lease and all applicable governmental laws, rules, and regulations.
5.23. Signs. No signs, symbols, or identifying marks shall be placed upon
the Building or in the halls, elevators, staircases, entrances, parking areas or
upon the doors of walls without prior written approval of Landlord. Landlord
agrees to provide and install, at Tenant's cost, all letters and numerals in the
Building standard graphics, and no others shall be used or permitted on the
Leased Premises.
5.24. Broker. Tenant represents and warrants that Tenant has dealt with,
and only with, OMNI COMMERCIAL REALTY ADVISORS, INC. as Landlord's broker in
connection with this Lease and that, insofar as Tenant knows, no other broker(s)
negotiated this Lease or is entitled to any commission in connection herewith.
Tenant shall indemnify and hold harmless Landlord from and against all claims
(and costs of defending against and investigating such claims) of any other
broker(s) or similar parties claiming under Tenant in connection with this
Lease.
ARTICLE 6 - TELEPHONE/DATA SERVICE
6.01. Telephone/Data Service. Procurement, wiring, and installation of a
telephone system, whether owned or leased by the Tenant, to serve the Leased
Premises for Voice, data, or other communication service, shall be the sole
responsibility of the Tenant; provided, however, that Landlord shall connect the
telephone
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<PAGE> 17
and electrical outlets for the Leased premises in accordance with the floor
plans shown on Exhibit "A". All wiring provided for such services shall be in
compliance with current fire and building codes as mandated by the City of
Austin.
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original on the date first written above written.
LANDLORD:
823 CONGRESS, LTD., a Texas limited partnership
By: OMNI CONGRESS JOINT VENTURE,
a Texas general partnership, General Partner
By: /s/ TOM STACY
---------------------------------------------
Tom Stacy, Managing Venturer
Date: 4-8-97
-------------------------------------------
TENANT:
CAPITAL FIRST MORTGAGE CORPORATION,
a Texas corporation
By: /s/ GLENN LAPOINTE
---------------------------------------------
Its: President
--------------------------------------------
Date: 4-7-97
-------------------------------------------
16
<PAGE> 18
EXHIBITS
EXHIBIT A: FLOOR PLANS
EXHIBIT B: LAND DESCRIPTION
EXHIBIT C: INITIAL IMPROVEMENTS
EXHIBIT D: RULES AND REGULATIONS
EXHIBIT E: ACKNOWLEDGEMENT
EXHIBIT F: ADDITIONAL TERMS
EXHIBIT G: ENVIRONMENTAL
EXHIBIT H: NONE
EXHIBIT I: NONE
EXHIBIT J: NONE
EXHIBIT K: GUARANTY OF LEASE
EXHIBIT L: COMMENCEMENT DATE DECLARATION
17
<PAGE> 19
EXHIBIT A
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
FLOOR PLANS - LEASED PREMISES
[SEE ATTACHED]
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
----------- ----------
<PAGE> 20
[FLOOR PLAN]
<PAGE> 21
EXHIBIT B
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
DESCRIPTION OF LAND
823 Congress Avenue, located on Lots 4-6 Block 097, original City of
Austin, Austin, Travis County, Texas
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
----------- ----------
<PAGE> 22
EXHIBIT C
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
INITIAL IMPROVEMENTS
Landlord shall install new building standard carpet and new 4" base and
will repaint the drywall and interior trim with building standard paint in
colors selected by Tenant.
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
----------- ----------
<PAGE> 23
EXHIBIT D
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
RULES AND REGULATIONS
1. WALK AND PASSAGEWAY OBSTRUCTION. The sidewalks, entries, passages,
courts, corridors, stairways, and elevators shall not be obstructed by Tenant,
Tenant's employees or agents or used by them for other purposes than for ingress
and egress to and from their respective suites.
2. HEAVY EQUIPMENT; FURNITURE MOVEMENT. All safes or other heavy articles
shall be carried up or into the Building only at such times and in such manner
as shall be prescribed by Landlord and Landlord shall in all cases have the
right to specify the proper weight and position of any such safe or other heavy
article. Any damage done to the Building by taking in or removing any safe or
other heavy article or from overloading any floor in any way shall be paid by
Tenant. Maximum live floor loads shall not exceed fifty (50) pounds per square
foot. Defacing or injuring in any way any part of the Building by Tenant, his
agent or servants, shall be paid by Tenant. Movement of furniture or office
equipment in or out of the Building, or dispatch or receipt by Tenant of any
heavy equipment, bulky material or merchandise which requires use of elevators
or stairways, or movement through the Building's service or lobby entrance shall
be restricted to such hours as shall be in a manner to be agreed upon between
Tenant (upon Tenant's initiation) and Landlord in advance. The time, method, and
routing of movement and limitations for safety or other concern which may
prohibit any article, equipment or other item from being brought into the
Building shall be subject to Landlord's discretion and control. Any hand trucks,
carryalls, or similar appliances used for the delivery or receipt of merchandise
or equipment shall be equipped with rubber tires, side guards and such other
safeguards as the Building shall require. Although Landlord or its personnel may
participate in or assist in the supervision of such movement, Tenant assumes
final responsibility for all risks as to damage to articles moved and injury to
persons or property engaged in such movement, including equipment, property and
personnel of Landlord if damaged or injured as a result of acts in connection
with carrying out this service for Tenant, from the time of entering the
property to completion of work. Landlord shall not be liable for the acts of any
person engaged in, or any damage or loss to any of said property or persons
resulting from any act in connection with such service performed for Tenant.
3. SIGNS; DIRECTORIES. No sign, advertisement or notice shall be inscribed,
painted or affixed on any part of the inside or outside of the Building unless
approved by Landlord. Tenant shall not mark, paint, drill into or in any way
deface the walls, ceilings, partitions or floors of the Building and shall not
put therein any spikes, hooks, screws or nails. Tenant may, however, place on
the walls without Landlord's prior permission, paintings, photographs or other
matters which may be hung with no more than two (2) ten (10) pound limit picture
hangers each.
4. DISPLAY CASES. No showcase or any other fixture or objects whatsoever
shall be placed in front of the Building or in the lobby, corridor, or other
public areas, within the Building or the grounds contiguous therewith by Tenant,
without written consent of Landlord.
5. JANITORIAL SERVICE. Tenant shall not employ any person or persons other
than the janitor of the Landlord for the purpose of cleaning or taking charge of
the Leased Premises, without the written consent of the Landlord, it being
understood and agreed that the Landlord shall be in no way responsible to any
Tenant for any loss of property from the Leased Premises, however occurring, or
for any damage done to the furniture by the janitor or any of its employees, or
by any other person or persons employed by Tenant. Any person
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
----------- ----------
D-1
<PAGE> 24
employed by Tenant with the written consent of the Landlord must be subject to
and under the control and direction of the janitor of the Building. The janitor
of the Building may at all times keep a pass key, and he and other agents of the
Landlord shall at all times be allowed admittance to said Leased Premises.
Landlord's janitors shall not be hindered by Tenant while performing their
duties.
6. LOCKS. Landlord will furnish Tenant, free of charge, two keys for each
corridor door entering the Leased Premises, additional keys to be furnished at a
reasonable charge by Landlord on an order signed by Tenant or Tenant's
authorized representatives. All such keys shall remain the property of Landlord.
No additional locks shall be allowed on any door of the Leased Premises without
Landlord's permission, and Tenant shall not make or permit to be made any
duplicate keys, except those furnished by Landlord. Upon termination of this
Lease, Tenant shall surrender to Landlord all keys to the Leased premises and
give to Landlord the explanation of the combination of all locks for safes, safe
cabinets and vault doors, if any, in the Leased Premises.
7. BUILDING SECURITY. The Landlord specifically reserves the right to
refuse admittance to the Building after 6:00 p.m. daily or on Sunday or on legal
holidays to any person or persons who cannot furnish satisfactory identification
or to any person or persons who for any other reason should be denied access to
the premises. All persons entering the Building after 6:00 p.m., whether Tenant
or others, may be required to sign a register before given admittance to any
part of the Building, but Landlord shall not be liable for any damages which may
result from its failure to maintain such a register or for any omissions from
said register. Landlord will use reasonable efforts to provide security to the
Building (but shall have no obligation to do so) during the weekends and after
normal working hours during the week; provided, however, Landlord shall not be
liable to Tenant for losses due to theft or burglary, or for damage done by
unauthorized persons on the premises.
8. LIGHT & AIR PASSAGEWAYS. The doors, skylights and windows that reflect
or admit light and air into the corridors and passageways, or to any place in
said Building shall not be covered or obstructed by Tenant.
9. PLUMBING FIXTURES. The water closets and other water fixtures shall not
be used for any purpose other than those for which they were constructed, and
any damage resulting to them for misuse or the defacing or injury of any part of
the Building shall be paid for by Tenant, excepting only where the defacing or
injury is by Landlord or an agent of Landlord. Tenant shall not waste water by
interfering with the faucets or otherwise.
10. NOISE. Tenant shall not disturb the occupants of the Building by the
use of any musical or sound producing instrument, making unseemly noises, or by
interference in any way. Tenant shall not bring any dogs or other animals into
the Building.
11. BICYCLES. Tenant shall not bring any bicycle or similar vehicles into
the Building.
12. DEBRIS. Nothing shall be thrown out of the doors of the Building, or
down the stairways or other passages by Tenant.
13. ELEVATOR SERVICE. The Landlord shall not be liable for any damages from
stoppage of elevators for necessary or desirable repairs or improvements, or
delays of any sort or duration in connection with the elevator service. Advance
notice of arriving or departing shipments will enable the Building Management to
give better assistance.
14. ELECTRIC SERVICE. If Tenant desires background music, telegraphic,
telephonic or other electric communications, the Landlord or its agents will
direct the electricians, as to where and how the wires may be introduced, and
without such directions, no boring or cutting for wires will be permitted.
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D-2
<PAGE> 25
15. CANVASSING & SOLICITING. Canvassing, soliciting and peddling in the
Building is prohibited and Tenant shall cooperate to prevent the same.
16. AUTOMOBILE PARKING. All vehicles will be parked within striped lanes as
designated by Landlord from time to time. Parking across the stripes or in
unmarked areas, blocking of walkways, loading areas, entrances or driveways,
will not be permitted. Tenants and their employees shall observe rules,
regulations and restrictions as may be imposed by Landlord from time to time on
such parking areas. Without limitation of other remedies available at law or set
forth herein, Landlord may, at owner's cost and without liability to the
Landlord, tow away or cause to be towed away all vehicles owned by Tenant or
Tenant's employees parking in any reserved parking areas in violation of this
provisions or parked in any other area in violation of this agreement or any
other agreement, rule or regulation relating to the parking. Landlord reserves
the right to utilize the parking areas during other than normal building
operating hours. Landlord shall not be liable for violations of any parking
agreement, rule, regulation, or law by any other party.
17. UNATTENDED PREMISES. Tenant, its agents, servants, and employees,
before leaving the leased premises unattended, shall close and lock all doors
and shut off all lights.
18. EXCESS TRASH DISPOSAL. In the event Tenant must dispose of crates,
boxes, etc. which will not fit into office waste paper baskets, it will be the
responsibility of Tenant to dispose of same. In no event will Tenant set such
items in the public hallways or other areas the Building (excepting Tenant's own
Leased Premises) for disposal.
19. CARPET DAMAGE. Tenant will be responsible for any damage to carpeting
and flooring as a result of rust or corrosion of file cabinets, pot holders,
roller chairs and metal objects, spilled beverages and stains.
20. EXTRA UTILITY USAGE. In the event Tenant desires utility or air
conditioning service at other than normal operating hours, the request must be
made at the Property Manager's office. This service will be made available at
the then prevailing rate established on an hourly basis.
21. ADDITIONAL RULES. The Landlord reserves the right to make such other
and further reasonable rules and regulations as in its judgement may from time
to time be needed for the safety, care and cleanliness of the Leased premises
and for the preservation of good order therein.
22. HOUSEKEEPING. Tenant space that is visible from public areas must be
kept neat and clean. All freight and passenger elevator lobbies are to be kept
neat and clean. The disposal of trash or storage of materials in these areas is
prohibited.
23. THERMOSTAT SETTING. Tenant shall not tamper with or attempt to adjust
temperature control thermostats in Leased Premises. Landlord shall adjust
thermostats as required to maintain the building standard temperature. Landlord
requires that all window blinds remain down.
24. LOCKING OF DOORS. All doors leading from public corridors to the Leased
Premises are to be kept closed when not in use, and locked during the night, or
when the space is unoccupied.
25. NOTICES. Tenant shall give immediate notice to the Property Manager's
office in case of accidents in the Leased Premises or in the Building or defects
therein or in any fixtures or equipment, or of any known emergency in the
Building.
26. COOKING. No cooking shall be done or permitted by Tenant on the Leased
Premises; nor shall sleeping or lodging be permitted. Tenant may, however,
operate or allow the use of a coffee bar and microwave oven by or for its
employees.
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D-3
<PAGE> 26
27. SERVICES. Tenant shall refer all contractors, contractors'
representatives and installation technicians rendering any service for Tenant to
Landlord for Landlord's supervision and/or approval before performance of any
such contractual services. This shall apply to all work performed in the
Building including but not limited to installation of telephones, telegraph
equipment, and electrical devices and attachments, and installation of any and
every nature affecting floors, walls, woodwork, trim, windows, ceilings,
equipment or any other physical portion of the Building. None of this work will
be done by Tenant without Landlord's written approval first had and obtained,
except as otherwise expressly provided in the Lease.
28. TELEPHONE/DATA SERVICES. Except as otherwise provided for in the Lease,
the procurement, wiring, and installation of a telephone system, whether owned
or leased by the Tenant, to serve the Leased Premises for Voice, data, or other
communication service, shall be the sole responsibility of the Tenant.
Telephone and electrical outlets for the Leased Premises shall all terminate in
the telephone/electrical closet common to the floor on which the Leased Premises
are located. All wiring provided for such services shall be in compliance with
current fire and building codes as mandated by the City of Austin.
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<PAGE> 27
EXHIBIT E
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
ACKNOWLEDGEMENT
Tenant hereby acknowledges that Tenant received notice from Landlord prior
to signing of the Lease that asbestos is present in certain areas of the
Building. Tenant further agrees that Tenant shall not allow or give permission
to any person, including Tenant, to move or dislodge the ceiling tiles, to go or
perform any work above the ceiling in the Leased Premises (or elsewhere in the
Building), or to make any alterations in the Leased Premises (or elsewhere in
the Building), without the Landlord's prior written consent.
TENANT:
CAPITAL FIRST MORTGAGE CORPORATION,
a Texas corporation
By: /s/ GLENN LAPOINTE
------------------------------
Its: President
------------------------------
Date: 4-7-97
------------------------------
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----------- ----------
<PAGE> 28
EXHIBIT F
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
ADDITIONAL TERMS
None.
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----------- ----------
<PAGE> 29
EXHIBIT G
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
ENVIRONMENTAL NOTICE
As you may know, asbestos is often present in buildings constructed between
the mid-1930's and the late 1970's when it was commonly used for fire insulation
purposes. For background information purposes, asbestos is a term used to
describe a group of six (6) naturally occurring crystalline fiber minerals.
Asbestos has been used extensively throughout the world in the textile,
insulation and building industries. With respect to its use in buildings,
surveys conducted by the Environmental Protection Agency (E.P.A.) indicate that
asbestos-containing construction and building materials occur in more than
750,000 buildings, including schools, public buildings, and office buildings
throughout the country.
Because the 823 Congress Building was constructed during the period in
which asbestos was commonly used, First City, Texas - Austin (former owners)
retained the services of an engineering and testing consulting firm to conduct a
survey of the building to determine the possible presence of asbestos-containing
materials. The test results from material samples obtained during the survey
indicated that the building's fireproofing material, some pipe insulation
material, some vinyl floor material, some equipment insulation, and some HVAC
duct insulation joint material contain varying amounts of asbestos. These
materials were observed to be in good condition and intact at the time of the
survey. ALTHOUGH THESE MATERIALS EXIST IN THE BUILDING, NO FRIABLE ASBESTOS -
CONTAINING MATERIALS ARE EXPOSED TO THE NORMALLY OCCUPIED TENANT SPACES IN THE
BUILDING. ACCORDING TO OUR CONSULTANTS, THE MATERIALS NOTED ABOVE AS CONTAINING
ASBESTOS DO NOT CURRENTLY PRESENT A HAZARD TO THE BUILDING OCCUPANTS IF THEY ARE
NOT DISTURBED.
Upon notification of the results of this survey, and in the continuing
interest in the safety of the building occupants, the consulting firm conducted
a series of air-sampling tests to determine if there was any measurable
concentration of airborne fiber content in the building's air. This
"prevalent-level air-sampling" serves to indicate the concentration of any and
all types of airborne fibers (including carpet, dust, etc.) of a specific size
and shape. The results of these tests, which were taken in accordance with
E.P.A. and the Occupational Safety and Health Administration (OSHA) guidelines,
indicated that the air in the 823 Congress Building had airborne fiber
concentrations which were below the testing method limit of detection and well
within EPA and OSHA established guidelines. In conjunction with our consultants,
we will conduct periodic air-sample tests to ensure that the air concentrations
remain within established guidelines. The results of these tests are, and will
be, kept in the building management office and available for your inspection at
any time.
Additionally, our consultant has prepared an Operations and Maintenance
Program, which includes periodic reinspection of the asbestos-containing
materials, periodic prevalent-level air monitoring, and a program manual
detailing established guidelines to be followed during construction or
renovation work in the 823 Congress Building to assure that such work presents
minimal exposure risk to building occupants. In addition, a Building Asbestos
Coordinator will coordinate all construction and renovation work performed
within the 823 Congress Building, utilizing subcontractors fully aware of the
Operations and Maintenance Program.
Because of the strict guidelines established by this Operations and
Maintenance Manual, OMNI Commercial Realty Advisors, Inc. requires that all work
performed within lease space in the 823 Congress Building be conducted only
after obtaining written approval from OMNI Commercial Realty Advisors, Inc.
Tenants shall submit to OMNI
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G-1
<PAGE> 30
Commercial Realty Advisor's Inc. a detailed written request of any and all work
that Tenant wants to perform. This requirement is critical to consistent and
continued safe maintenance activities.
By signing in the space provided below, please acknowledge that you have
received a copy of this letter, and your firm's agreement to comply with all
requirements and guidelines noted above.
LANDLORD:
823 CONGRESS, LTD., a Texas limited
partnership
By: OMNI CONGRESS JOINT VENTURE,
a Texas general partnership, General
Partner
By: /s/ TOM STACY
-------------------------------
Tom Stacy, Managing Venturer
Date: 4-8-97
-------------------------------
TENANT:
CAPITAL FIRST MORTGAGE CORPORATION,
a Texas corporation
By: /s/ GLENN LAPOINTE
------------------------------
Its: President
------------------------------
Date: 4-7-97
------------------------------
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
----------- ----------
G-2
<PAGE> 31
EXHlBIT H
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
[THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 32
EXHIBIT I
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
[THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 33
EXHIBIT J
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
[THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 34
EXHIBIT K
TO
LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND CAPITAL FIRST MORTGAGE CORPORATION, AS TENANT
GUARANTY OF LEASE
1. FOR VALUE RECEIVED, and in consideration for, and as an inducement to
823 CONGRESS, LTD., Landlord, to enter into the Lease Agreement (with all
Exhibits and Riders thereto, the "Lease") dated April 1, 1997 with CAPITAL FIRST
MORTGAGE CORPORATION, a Texas corporation, as Tenant, the undersigned, TERRY G.
HARTNETT, GLENN A. LaPOINTE and JOE SHAFFER, (hereinafter collectively called
"Guarantor", whether one or more), hereby absolutely and unconditionally
guarantees the full performance and observance of all the covenants, duties and
obligations (including, without limitation, the obligation to pay all rent and
other sums) therein provided to be performed and observed by Tenant, Tenant's
heirs, executors, administrators, successors and assigns (the phrase "heirs,
executors, administrators, successors and assigns" not altering any of the
provisions of said Lease relating to assignment or subletting); and Guarantor
hereby makes himself fully liable for such performance.
2. Guarantor expressly agrees that the validity of this Guaranty and its
obligations hereunder shall not be terminated, affected or impaired by reason of
the assertion by Landlord against Tenant of any of the rights or remedies
reserved under the Lease. Guarantor further covenants and agrees that this
Guaranty and the full liability of Guarantor hereunder shall remain and continue
in full force and effect notwithstanding the occurrence of any one or more of
the following types of transactions: (i) any renewal, extension, modification or
amendment of said Lease; (ii) any assignment or transfer by Landlord; (iii) any
assignment or transfer or subletting by Tenant; (iv) death of any party Tenant
(who may be a natural person); (v) any dissolution of Tenant (if Tenant is a
corporation); or (vi) the fact that Tenant (if Tenant is a corporation) may be a
party to any merger, consolidation or reorganization; provided however, if
Tenant is a disappearing party in any such merger, consolidation or
reorganization, then Guarantor shall thereupon automatically become primarily
liable for the performance of all the covenants, duties and obligations
(including, without limitation, the obligation to pay all rent and other sums)
of Tenant under said Lease. Landlord shall not be obligated to give notice to
Guarantor of the occurrence of any of the foregoing events.
3. Failure of Landlord to insist upon strict performance or observance of
any of the terms, provisions or covenants of said Lease or to exercise of any
right therein contained shall not be construed as a waiver or relinquishment for
the future of any such term, provision, covenant or right, but the same shall
continue and remain in full force and effect. Receipt by Landlord of rent (or
any other monetary sum or acceptance of performance of any obligation of Tenant
under said Lease) with knowledge of the breach of any provision of said Lease
shall not be deemed a waiver of such breach. Waiver by Landlord of any right of
Landlord against Tenant under said Lease shall not constitute a waiver as
against Guarantor or in any other way inure to the benefit of Guarantor (unless
Landlord agrees in writing that the liability of Guarantor under this Guaranty
is thereby affected).
4. Guarantor further agrees that in any right of action which shall accrue
to Landlord under said Lease, Landlord may, at its option, proceed against
Tenant alone (without having made any prior demand upon Guarantor or having
commenced any action against Guarantor of having obtained or having attempted
to satisfy any judgment against Guarantor) or may proceed against Guarantor and
Tenant, jointly or severally, or may proceed against Guarantor alone (without
having made any prior demand upon Tenant or having commenced any action against
Tenant or having obtained or having attempted to satisfy any judgment against
Tenant) or, in the case of there being more than one Guarantor, may proceed
against one or more Guarantors (without having made any prior
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K-1
<PAGE> 35
demand upon any other Guarantor or having commenced any action against any other
Guarantor or having obtained or attempted to satisfy any judgment against any
other Guarantor).
5. All of the covenants, duties and obligations of Guarantor under this
Guaranty shall be performed in Austin, Texas and all matters relating to this
Guaranty and the covenants, duties and obligations of Guarantor under this
Guaranty shall be governed by the laws of the State of Texas.
6. Guarantor specifically waives any notice of acceptance of this Guaranty
by Landlord.
7. If any obligation of Tenant under the Lease is secured, in whole or in
part, by collateral of any type Landlord may, from time to time, at its
discretion and with or without valuable consideration, allow substitution or
withdrawal of all or any part of such collateral or subordinate or waive any of
its lien rights with respect to all or any part of such collateral or release
all or any part of such collateral, without notice to or consent of Guarantor
and without in any wise impairing, diminishing or releasing the liability of
Guarantor under this Guaranty. Under no circumstances shall Landlord be required
to first resort to any collateral for any obligation of Tenant as any nature of
prerequisite or precondition to invoking or enforcing the liability of Guarantor
under this Guaranty.
8. Guarantor acknowledges and represents to Landlord that Tenant executed
said Lease and Guarantor executed this Guaranty prior to the time that Landlord
executed said Lease. Guarantor acknowledges and agrees that the execution and
delivery of this Guaranty by Guarantor to Landlord has served as a material
inducement to Landlord to execute and deliver said Lease. Guarantor further
acknowledges and agrees that but for the execution and delivery of this Guaranty
by Guarantor, Landlord would not have executed and delivered said Lease.
9. Guarantor agrees that in the event that Tenant shall become insolvent or
shall be adjudicated a bankrupt, or shall file petition for reorganization,
rearrangement or other relief under any present or future provisions of the
Federal Bankruptcy Code, or if such a petition be filed by creditors of said
Tenant, or if Tenant shall seek a judicial readjustment of the rights of its
creditors under any present or future Federal or State law or if a receiver of
all or part of its property and assets is appointed by any State or Federal
court, no such proceeding or action taken therein shall modify, diminish or in
any way affect the liability of Guarantor under this Guaranty and the liability
of Guarantor with respect to such Lease shall be of the same scope as if
Guarantor had executed said Lease as the named tenant thereunder and no
rejection and/or termination of such Lease in any of the proceedings referred to
in this paragraph shall be effective to release and/or terminate the continuing
liability of Guarantor to Landlord under this Guaranty with respect to such
Lease for the remainder of the Lease Term stated therein unaffected by any such
rejection and/or termination in said proceedings; and if, in connection with any
of the circumstances referred to in this paragraph, Landlord should request that
Guarantor execute a new Lease for the balance of the term of said Lease, but in
all other aspects identical with said Lease, Guarantor shall do so as the named
"Tenant" under such new Lease, Guarantor shall do so as the named "Tenant" under
such new Lease (irrespective of the fact that the existing Lease may have been
"rejected" or "terminated" in connection with any proceedings referred to in
this paragraph). In the event of failure or refusal of Guarantor to execute such
new Lease as herein provided, without limiting any of the legal or equitable
remedies of Landlord on account of such failure or refusal, Guarantor agrees
that Landlord shall have the right to obtain a decree of specific performance
against Guarantor. In addition, Guarantor shall be fully liable to Landlord for
any amounts paid by Tenant under the Lease that are paid back to Tenant or
otherwise recovered from Landlord for the benefit of Tenant or its estate,
receivership or conservatorship pursuant to any of the proceedings referred to
in this paragraph.
10. All rights of Guarantor against Tenant arising by way or subrogation on
account of Guarantor's having performed some covenant, duty or obligation of
Tenant under said Lease shall be subject and subordinate to all of the rights of
Landlord against Tenant with respect to such Lease. Guarantor shall not exercise
any such right of Guarantor against Tenant until all of the covenants, duties
and obligations of Tenant under such Lease shall have been fully performed.
11. The stated rights of Landlord under this Guaranty shall be understood
as not excluding any other legal or equitable rights of Landlord against
Guarantor not expressly set forth herein, but shall be understood as being
cumulative to all such other legal and equitable rights of Landlord not
expressly stated herein.
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<PAGE> 36
12. Whenever this Guaranty is executed by more than one party as Guarantor,
all references herein to Guarantor shall refer to each and all of the
undersigned parties signing this Guaranty as Guarantor, and the liability of
said parties for the performance of the covenants, duties and obligations of
Guarantor hereunder shall be joint and several.
13. Whenever this Guaranty is executed by a corporation, such corporation
represents that the guaranty granted hereby has been approved by, or pursuant to
authority granted by, the Board of Directors of such corporation based on a
determination that such guaranty may reasonably be expected to benefit, directly
or indirectly, the guarantor corporation.
14. Should any portion of this Guaranty ever be held legally invalid or
unenforceable, the balance of this Guaranty shall not thereby be affected, but
shall remain in full force and effect in accordance with its terms and
provisions.
15. All terms and provisions hereof shall inure to the benefit of the
assigns and successors of Landlord and shall be binding upon the heirs,
executors, administrators, successors and assigns of Guarantor.
16. In any action between the parties seeking enforcement or interpretation
of this Guaranty or the Lease, the prevailing party in such action shall be
awarded, in addition to damages, injunctive or other relief, its reasonable cost
and expenses, and a reasonable attorney's fee as may be fixed by the court
having jurisdiction over the matter.
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original, effective as of the date of the Lease.
GUARANTOR
/s/ TERRY G. HARTNETT
-----------------------------------
Terry G. Hartnett
Address: 6000 Shepherd Mt Cove #106
--------------------------
Austin, TX 78730
-----------------------------------
GUARANTOR
/s/ GLENN A. LAPOINTE
-----------------------------------
Glenn A. LaPointe
Address: 12913 Muldown Dr.
--------------------------
Austin, TX 78729
-----------------------------------
GUARANTOR
/s/ JOE SHAFFER
-----------------------------------
Joe Shaffer
Address: 1818 Sylvia Ln
--------------------------
Round Rock, TX 78681
-----------------------------------
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<PAGE> 1
EXHIBIT 6(m)
FIRST AMENDMENT TO LEASE AGREEMENT
This FIRST AMENDMENT TO LEASE AGREEMENT ("Amendment") is entered into as
of the 1st day of September, 1998 between 823 CONGRESS, LTD., a Texas limited
partnership (the "Landlord"), and AUSTIN FUNDING CORPORATION (F/K/A CAPITAL
FIRST MORTGAGE CORPORATION), a Texas corporation (the "Tenant").
1. Purpose of Agreement/Reference of Additional Terms. On or about April
7, 1997, Landlord entered into a written Lease Agreement (the "Lease") with
Tenant for 1,806 square feet of rentable area on the seventh (7th) floor of the
building known as the 823 Congress Building at 823 Congress in Austin, Texas.
The parties now wish to change the size and location of the Premises and make
the other changes herein. The parties hereby incorporate the Lease by reference
into this document and agree that except as modified herein, the terms of the
Lease shall remain in full force and effect. The term "Lease" shall mean the
original Lease Agreement as subsequently amended or revised by this First
Amendment.
2. Change of Premises. Effective September 1, 1998, the Premises shall be
changed to Suite 515 consisting of 3,293 rentable square feet as shown on the
attached First Amendment Exhibit A which shall replace Exhibit A to the Lease.
Tenant shall vacate Suite 707 on or before September 10, 1998.
3. Rental
(a) Base Rental. Effective September 1, 1998, Tenant's monthly Base
Rental shall be as follows:
<TABLE>
<CAPTION>
Lease Period Base Rental
------------ -----------
<S> <C>
9/01/98 - 4/30/00 $3,841.83 per month (based on a rental
rate of $14.00 per square foot of
Rental Area per year)
5/01/00 - 02/28/01 $4,390.67 per month (based on a rental
rate of $16.00 per square foot of
Rentable Area per year)
</TABLE>
(b) Additional Rental. Effective September 1, 1998, Tenant's share of
the Excess of Basic Operating Costs shall be 1.8155% (3,293/181,381).
4. Condition of Premises. Tenant accepts the Premises "AS IS". Landlord
shall have no obligation to remove any furniture, fixtures, equipment or any
other goods or tangible property located therein.
5. Parking. Tenant shall have the parking rights provided on the attached
First Amendment Exhibit B.
6. Additional Rights. Notwithstanding any contrary or inconsistent
language in the Lease, Tenant shall have no rights to expand or terminate the
Lease. Landlord's sole renewal rights are contained in First Amendment Exhibit
C; Landlord's sole right of first refusal is contained in First Amendment D.
7. Warranties, Representations and Covenants. Tenant acknowledges and
confirms, to the best of its knowledge and belief, that (a) Landlord is in
substantial compliance with all warranties, representations and covenants of
Landlord contained in the Lease as of the date of this Amendment, (b) no
default or breach has
<PAGE> 2
occurred as of the date of this Amendment in the performance and observation of
the material agreements, covenants and obligations of Landlord under the Lease
and (c) the Lease is in full force and effect as of the date of this Amendment.
Landlord acknowledges and confirms, to the best of its knowledge and belief,
that (a) Tenant is in substantial compliance with all warranties,representations
and covenants of Tenant contained in the Lease as of the date of this Amendment,
(b) no default or breach has occurred as of the date of this Amendment in the
performance and observation of the material agreements, covenants and
obligations of Tenant under the Lease, and (c) the Lease is in full force and
effect as of the date of this Amendment.
8. Defined Terms. Words and terms used herein which are defined in the
Lease are used in this Amendment as defined in the Lease, except as
specifically otherwise provided by the terms of this Amendment.
9. Miscellaneous.
(a) Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
counterparts shall be deemed to be an original and all of which counterparts
shall constitute one and the same agreement. The signature of each party to
this Amendment is not required to appear on each counterpart of this Amendment,
provided that each party to this Amendment has executed at least one
counterpart of this Amendment. In making proof of this Amendment it will not be
necessary to account for or produce each executed counterpart of this Amendment.
(b) Entirety and Controlling Agreement. This Amendment, in
conjunction with the Lease, embodies the entire agreement between Tenant and
Landlord. In the event of any conflict or inconsistency between the provisions
of the Lease and the provisions of this Amendment, the provisions of this
Amendment shall supersede, control and govern.
(c) Broker. Tenant represents and warrants that Tenant has dealt
with, and only with, OMNI COMMERCIAL REALTY ADVISORS, INC. as agent/broker in
connection with this Lease and that, insofar as Tenant knows, no other broker
has negotiated this Lease or is entitled to any commission in connection
herewith. Tenant shall indemnify and hold harmless Landlord from and against
all claims (and costs of defending against and investigating such claims) of
any broker(s) or similar parties claiming under Tenant in connection with this
Lease.
(d) Governing Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, Tenant and Landlord have executed this instrument
effective the 1st day of September, 1998.
<PAGE> 3
LANDLORD:
823 CONGRESS, LTD., a Texas limited partnership
By: OMNI CONGRESS JOINT VENTURE,
a Texas general partnership, General Partner
By: /s/ TOM STACY
--------------------------------------------
Tom Stacy, Managing Venturer
Date: 8/27/98
--------------------------------------------
TENANT:
AUSTIN FUNDING CORPORATION (F/K/A
CAPITAL FIRST MORTGAGE CORPORATION),
a Texas corporation
By: /s/ GLENN LAPOINTE
---------------------------------------------
Printed Name: Glenn LaPointe
-----------------------------------
Title: President
------------------------------------------
Date: 8-25-98
------------------------------------------
<PAGE> 4
FIRST AMENDMENT EXHIBIT A
TO
FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND AUSTIN FUNDING CORPORATION
(F/K/A CAPITAL FIRST MORTGAGE CORPORATION), AS TENANT
FLOOR PLANS - LEASED PREMISES
[SEE ATTACHED]
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GC
---- ----
<PAGE> 5
[FLOOR PLAN]
823 CONGRESS - AUSTIN/DOWNTOWN
------------------------------
FIFTH FLOOR JANUARY 1995
<PAGE> 6
FIRST AMENDMENT EXHIBIT B
TO
FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND AUSTIN FUNDING CORPORATION
(F/K/A CAPITAL FIRST MORTGAGE CORPORATION), AS TENANT
PARKING
(a) Guaranteed Spaces Provided. Landlord agrees to provide, and Tenant agrees
to rent through the Term of the Lease, five (5) unreserved parking spaces (the
"Guaranteed Spaces"). Tenant shall rent all spaces unless and until Landlord
releases Tenant from such spaces after Tenant gives at least sixty (60) days
prior written notice to Landlord that Tenant desires to take fewer spaces, but
Landlord shall be under no obligation to later make available to Tenant any
spaces relinquished by Tenant.
(b) Parking Rates. All Guaranteed Parking Spaces shall be located in the 823
Congress Parking Garage. As rental for parking spaces provided to Tenant
hereunder, Tenant shall pay to Landlord or the operator of the garage, as may be
designated from time to time by Landlord, monthly in advance in the same manner
and in addition to the Base Rate provided in the Lease, rental on each such
parking space at the initial rates of $75.00 plus tax per month for each
unreserved space in the 823 Congress Garage. Rates may be changed from time to
time by the operator(s) of the garage(s).
(c) Miscellaneous. Tenant shall comply with all traffic, security,
safety and other rules and regulations promulgated from time to time by
Landlord or the Garage Operator. Tenant shall indemnify and hold harmless
Landlord from and against all claims, losses, liabilities, damages, costs and
expenses (including, but not limited to, attorneys' fees and court costs)
arising or alleged to arise out of Tenant's use of any such parking spaces,
whether or not caused or alleged to be caused by Landlord's negligence. In the
event any of the above unrelinquished parking spaces are or become unavailable
at any time or from time to time throughout the Term, whether due to casualty
or any other cause beyond Landlord's reasonable control, this Lease shall
continue in full force and effect; provided, however, Tenant shall be entitled
to an abatement of the rent due for any such unrelinquished space for so long
as it is unavailable for use by Tenant during normal Building hours.
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
-------- -------
- -
<PAGE> 7
FIRST AMENDMENT EXHIBIT C
TO
FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND AUSTIN FUNDING CORPORATION
(F/K/A CAPITAL FIRST MORTGAGE CORPORATION), AS TENANT
RENEWAL OPTION
Provided that a Default by Tenant has not occurred and is then continuing,
Tenant shall have the right to renew and extend this Lease with respect to all
of the Premises for one (1) renewal term of five (5) years commencing upon the
expiration of the initial Term by giving Landlord written notice thereof at
lease six (6) months but not more than twelve (12) months prior to the
expiration of the initial Term. In the event of such renewal, the "Term" shall
include such renewal term and such renewal shall be upon the same provisions as
for the initial Term except that:
1. Tenant shall pay during the renewal Base Rent to Landlord in monthly
installments in an amount equal to the then prevailing market rate for
comparable space in the first-class office buildings in downtown, Austin, Texas
as of the commencement of the renewal term (the "Market Rate") as designated by
Landlord within thirty (30) days after Landlord receives Tenant's renewal
notice. In addition, during such renewal term, Tenant shall pay all other Rent
and other amounts due under this Lease, including without limitation all rental
adjustments pursuant to Article 3 of this Lease, provided that any expense caps
or similar limitations shall not be renewed or carried forward unless the Market
Rate contemplates that such limitations be continued the renewal term. If Tenant
does not agree with Landlord's designation of Market Rate for purposes for
computing Base Rent or other Rent for the renewal term then Tenant may, within
five (5) days after the date of Landlord's designation, either (i) withdraw its
election to renew, or (ii) request arbitration of such Market Rate in accordance
with the following procedure; failure to take any action shall be deemed to be a
waiver of the renewal election. Landlord and Tenant each shall select one
qualified (MAI) appraiser and inform the other as to its selection within five
(5) business days after the date Tenant receives Landlord's designation of
Market Rate (the "Designation Date"). Those two appraisers shall select a third
qualified (MAI) appraiser within ten (10) business days after the Designation
Date. In order to be "qualified," each of said appraisers shall have at least
three (3) years of experience appraising leasehold interests under commercial
leases in downtown Austin, Texas. Landlord and Tenant shall each bear the cost
of its appraiser and one-half (1/2) of the cost of the third appraiser. Said
three appraisers shall determine the Market Rate in accordance with the
parameters set forth herein by mutual agreement within thirty (30) business days
after the Designation Date. If all of said appraisers fail to agree on the
Market Rate within thirty (30) business days after the Designation Date, but two
of said appraisers can so agree, then the Market Rate as determined by such two
appraisers shall be controlling. If none of said appraisers can agree on the
Market Rate within such time period, then an average shall be taken of the two
closest determinations thereof and such average shall be controlling (except
that if the median of the three rates provided by the appraisers is also the
average of the three, it shall be controlling). Tenant shall have fifteen (15)
days to accept or reject in writing the Market Rate as determined by said
arbitration procedure. If such Market Rate is not agreed to by Tenant as
determined by said arbitration procedure on or before the end of said fifteen
(15) day period, then Tenant shall pay all of Landlord's costs associated with
obtaining the aforementioned appraisals and the exercise of the applicable
option to renew and all rights of Landlord and Tenant under this option to renew
shall immediately terminate and all terms and conditions of this option to renew
shall be of no further force and effect. Except as noted above in case of a
failure to agree on Market Rate, Tenant may not revoke its election to renew
after such election has been made.
2. Landlord shall not be obligated to make any alterations or
improvements to the Premises.
3. Tenant shall have no further right to renew this Lease.
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
------- -----------------
<PAGE> 8
FIRST AMENDMENT EXHIBIT D
TO
FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN
823 CONGRESS, LTD., AS LANDLORD,
AND AUSTIN FUNDING CORPORATION
(F/K/A CAPITAL FIRST MORTGAGE CORPORATION), AS TENANT
RIGHT OF FIRST REFUSAL
1. Landlord hereby grants to Tenant a right of first refusal (the "Right of
First Refusal") exercisable as hereinafter set forth, covering approximately
1,163 rental square feet of area on the fifth (5th) floor of the Building, more
particularly described on Attachment D-1 hereto (the "Refusal Space"). All
rights of Tenant to lease the Refusal Space pursuant to the Right of First
Refusal shall be applicable to all or any portion of the Refusal Space. The
Right of First Refusal shall be as follows:
(a) Upon receipt of a bona fide offer for the lease of all or
any portion of the Refusal Space, which offer Landlord wishes to
accept, and provided Tenant is not at such time in default under
the Lease beyond any applicable cure periods, Landlord shall give
Tenant notice (the "Notice") in writing of the terms and
conditions of the offer. Provided that a Default by Tenant has
not occurred and is then continuing and that Tenant has been
notified in writing of said Default, Tenant may exercise the
Right of First Refusal by delivering to Landlord written notice
of Tenant's election on or before the fifth (5th) business day
after the date of Landlord's delivery to Tenant of the Notice. In
the event Tenant exercises its Right of First Refusal, it shall
be required to lease the Refusal Space on the same terms and
conditions provided in the Notice, subject to section (c) below.
(b) In the event Landlord does not actually receive notice of Tenant's
election to lease the Refusal Space described in the Notice within
the period provided herein, then Landlord shall be free to lease
such space to one or more third parties on material terms and
conditions no less favorable to Landlord than those described in
the Notice.
(c) All Refusal Space leased to Tenant pursuant to the Right of First
Refusal may, at Landlord's option, be for a term which is
coterminous with the initial Term of this Lease and any renewal or
extension thereof.
(d) The term "Premises", as used in this Lease and/or the Underlying
Lease, shall include all expansions thereof that may occur from
time to time pursuant to this Right of First Refusal.
2. Tenant's right of first refusal shall be subject to (i) any
pre-existing options, (ii) any rights of first refusal, renewal or expansion
rights granted to other tenants or third parties and (iii) any renewals of
leases with or relocations of existing tenants.
3. Once Tenant has rejected an opportunity to exercise its right
of first refusal, this right of first refusal shall terminate.
INITIALED FOR IDENTIFICATION BY LANDLORD TS AND TENANT GL
------------ ------------
<PAGE> 1
EXHIBIT 8(a)
REORGANIZATION PLAN AND AGREEMENT
A PLAN AND AGREEMENT dated as of May 26, 1999 by and among Innovation
International, Inc., a Delaware corporation ("INNO"), Austin Asset Management
Corporation, a Nevada corporation organized by INNO ("AUSTIN"), Austin Funding
Corporation, a Texas corporation ("AFC"), and the eleven (11) individual owners
of AFC executing this Agreement whose names are listed on Schedule I annexed
hereto ("the Owners").
WITNESSETH:
WHEREAS: INNO is owned by more than 460 shareholders residing in 26
States (the "Shareholders"); and AUSTIN is owned by INNO; and 100% of the stock
of AFC is held by the OWNERS; and
WHEREAS, the Board of Directors of INNO has declared a stock
dividend-in-kind, equal to 1,600,000 shares of the Common Stock of AUSTIN,
payable directly to the Shareholders and subject to their acceptance or return
as described elsewhere herein, resulting in the severance and termination of
INNO's control over AUSTIN; and
WHEREAS, the Board of Directors of AUSTIN has approved a plan to
acquire 100% of the stock of AFC, and the OWNERS wish to transfer the same to
AUSTIN as provided herein, in exchange for the Consideration and Contingent
Consideration described herein, and subject to the condition that AUSTIN be
severed from INNO; and
NOW, THEREFORE, in consideration of the foregoing and the mutual premises herein
set forth, and subject to the terms and conditions hereof, the parties agree as
follows:
1. ACQUISITION OF AFC BY AUSTIN. Prior to the Closing Date defined herein, INNO
shall distribute or cause AUSTIN to distribute 1,600,000 shares of the $.001
par value Common Stock of AUSTIN to the Shareholders in the ratio of One (1)
AUSTIN share for each Twenty-five (25) INNO shares owned, said distribution to
be done as a Stock Dividend-in-Kind. On the Closing Date, AUSTIN shall issue
and deliver to the OWNERS the consideration described below in exchange for
100% of the stock in AFC owned by them; and then AFC shall become a wholly
owned subsidiary of AUSTIN.
<PAGE> 2
2. CONSIDERATION. In consideration of the acquisition of AFC, AUSTIN shall
issue and deliver an aggregate of nineteen million, seven hundred, thirty three
thousand, three hundred, thirty-three (19,733,333) shares of its common stock
to be allocated to the OWNERS in the same proportion as their holdings in AFC
are described in Schedule I hereto.
3. CONTINGENT CONSIDERATION. At any time within 5 calendar years following the
closing date, if the audited consolidated Pretax Income of AUSTIN shall have
reflected a 25% compound internal growth rate without giving effect to the
earnings of acquired businesses, for any three consecutive years, then AUSTIN
shall issue and deliver an additional two million, five hundred thousand
(2,500,000) shares of its common stock to be allocated to the OWNERS in the
same proportion as their holdings in AFC are described in Schedule I hereto.
Nothing contained in this Agreement shall be deemed to prohibit any of the
OWNERS from partially or wholly assigning their rights to receive the
Contingent Consideration described herein to any one or more employees or
agents of AFC or AUSTIN.
4. THE CLOSING. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place on June 22, 1999 at a place determined and
agreed by AUSTIN and the OWNERS.
5. REPRESENTATIONS OF AFC AND THE OWNERS. AFC and the OWNERS identified herein
jointly and severally represent and warrant to INNO and AUSTIN as follows:
(a) Organization. AFC is duly organized and validly exists as a business
corporation under the laws of the State of Texas. AFC has no subsidiaries. AFC
has the legal power and authority to own, operate and lease its properties and
assets and to carry on its business as now conducted, and is duly qualified to
do business wherever the nature and location of its business and assets require
such qualification.
(b) Authorization and Capital Stock. AFC has the legal power, authority and
capacity to enter into, execute, deliver and perform its obligations under this
Agreement. This Agreement constitutes the valid and binding agreement of AFC,
enforceable in accordance with its terms
2
<PAGE> 3
(subject to applicable bankruptcy, insolvency and other rights affecting the
enforceability of creditors' rights generally and the discretion of the courts
in granting equitable remedies). The authorized capital stock of AFC consists
of One Million (1,000,000) shares of $.01 par value Common Stock and One
Million (1,000,000) shares of $.01 par value Preferred Stock of which 943,413
Common Shares and no Preferred Shares are validly issued, fully paid,
non-assessable and outstanding. There are no other securities, subscriptive
rights or rights, warrants, options, contracts, understandings or commitments
providing for issuance of, or granting rights to acquire any capital stock of
AFC or securities convertible into or exchangeable for capital stock of AFC.
(c) Assets and Business. Except as described in any schedule and/or exhibit
hereto and in the financial statements, AFC owns, free and clear of all other
mortgages, claims, charges, liens, encumbrances restrictions, options, pledges,
calls or commitments of any character and any security interest whatsoever, and
holds good and marketable title to all of the assets and rights currently used
in the conduct of its business. There are no existing agreements, warrants or
rights providing for the sale of any assets, properties, rights or for the
business of AFC except for sales in the ordinary course of business.
(d) Licenses. If any licenses from which no exemption is applicable or has been
obtained, are necessary, AFC holds all licenses necessary to the conduct of its
business, all of which have been duly and validly obtained, are enforceable and
are in full force and effect as of the date hereof AFC is not in default under
any of such licenses and has not committed or omitted an act which would
constitute default or which would be grounds for license revocation or
suspension. Neither this Agreement nor its consummation will result in the
forfeiture, revocation, impairment or suspension of such licenses.
(e) Financial Statements. AFC has delivered to INNO true, correct and complete
financial statements of AFC (copies of which are annexed hereto as Exhibit 3)
as of 12/31/98 which have not been independently audited. The financial
statements appearing as Exhibit 3 are materially correct and complete and have
been prepared in accordance with generally accepted accounting principles
consistently applied. Financial statements for the year ending December 31,
1998 and any prior years during which AFC was in existence will be obtained and
provided hereunder in
3
<PAGE> 4
audited form, from an independent auditing firm of standing up to the
requirements of the SEC and NASD for the level of public reporting selected by
AUSTIN and AFC after the closing. The year ending December 31, 1998 and all
subsequent years will be audited and certified by such qualified auditors and
will include the combination or consolidation of the accounts of AFC and
AUSTIN.
(f) Public and Regulatory Information. AFC and the OWNERS shall prepare or
obtain and deliver to AUSTIN all financial and other information required to be
included in the reports which AUSTIN must file in support of the trading of its
common stock in the Over The Counter markets, or as may be required by the SEC
in connection with the issuance and/or trading of its securities, or by the
NASD or any Broker Dealer organization making a market or proposing to make a
market in the securities of AUSTIN, all of which shall be prepared and filed in
a timely manner. The preparation and provision of all financial statements
described above in sub-paragraph (e) are included, without limiting the
generality hereof, in this sub-paragraph (f).
(g) Information. All written material furnished or to be furnished by AFC and
the OWNERS does not and will not contain any statement which is false or
misleading with respect to any material fact, and does not and will not omit to
state any material fact, the omission of which makes the statements therein
false or misleading.
(h) Taxes. AFC has duly filed all tax returns and reports (or extensions for
filing such returns and reports) related to its business required to be filed
and has duly paid all taxes and other governmental charges ("Taxes") upon AFC's
properties, assets, income, franchises, licenses, stock issuances or transfers
or sales related to its business. There are no unpaid taxes which are a lien on
AFC's properties and assets, except liens for Taxes not yet due and payable.
There is not pending or known any proposed assessment by any taxing authority
for additional Taxes applicable to AFC. AFC has not adopted a plan of
liquidation under any tax code, or entered into any contract to merge or
consolidate with or sell all or any substantial part of its assets to any other
firm or corporation.
4
<PAGE> 5
(i) No Adverse Change. Except as set forth on Schedule 3i annexed hereto, and
to the best knowledge of the OWNERS after due inquiry, since December 31, 1998,
there has not been (i) any material adverse change in the financial condition
of AFC or in its operations, business, prospects, properties or assets, (ii)
any past or prospective loss of its business, or any notice from any customer
that it is planning or considering a material change in its patronage, (iii)
any mortgage, pledge, lien or encumbrance or other security interest made or
incurred on any of AFC's assets, other than liens for Taxes not yet due and
payable, (iv) any sale, transfer or other disposition of AFC's properties or
assets other than arising in the ordinary course of business, (v) any loan,
borrowing or guaranty obligating AFC other than arising in the ordinary course
of business, or (vi) any other event or condition of any character which has
materially and adversely affected or does materially and adversely affect AFC's
assets or impede its business.
(j) Insurance. AFC maintains fully paid-up transferable insurance policies or
bonds which provide insurance coverage in normal and customary amounts with
respect to the risks normally insured against by companies similarly situated,
including general and public liability insurance.
(k) Litigation. Except as disclosed in any schedule or exhibit hereto, there
is no legal, administrative, arbitration or other proceeding or claim,
governmental or administrative investigation or inquiry pending or threatened
against or involving AFC or AFC's properties, assets, business or financial
condition, or which questions AFC's ability to carry out its obligations
hereunder, or which challenges the acquisition of AFC by AUSTIN or the exchange
of securities contemplated hereby.
(1) Authority. On or before the closing date, AFC will have taken all necessary
legal action to approve the execution and delivery of this Agreement and the
performance of its obligations hereunder and all transactions contemplated
hereby will have been duly authorized by all requisite corporate action on the
part of the Directors and OWNERS of AFC, and AFC and no further authorization,
approval or consent is necessary. Neither the Directors nor any other present
OWNERS of AFC will have any appraisal or other dissenters' rights respecting
the transactions contemplated hereby.
5
<PAGE> 6
(m) Compliance with Other Instruments, Etc. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will conflict with or result in violation of or constitute a default under and
is not prohibited by the Articles of Incorporation or By-Laws of AFC, the
provisions of any agreement, mortgage, indenture, franchise, license, permit,
or other consent, approval authorization, lease or other instrument, judgement,
decree, order, law or regulation by which AFC is bound or by which AFC's
business or assets may be affected.
(n) Governmental and Other Consents, Etc. No consent, approval or authorization
of or declaration or filing with any governmental authority or other person or
entity, domestic or foreign, on the part of AFC is required in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(o) Compliance with Law, Etc. AFC has complied with and is not in default in
any respect under any law, ordinance, requirement, regulation, judgement,
decree or order applicable to it or its business or properties and AFC has not
received notice of any claimed default with respect to any of the foregoing.
(p) Adverse Agreements, Etc. Except as set forth on any Schedule or exhibit
hereto, neither AFC nor the OWNERS is a party to any agreement or instrument or
subject to any charter or other corporate restriction which materially and
adversely affects AFC's or the OWNERS' obligations hereunder.
(q) Brokers. All negotiations relative to this Agreement and the transactions
contemplated hereby have been conducted without the intervention of any other
person or entity, and in such a manner so as not to give rise to any valid
claim against INNO, AUSTIN or AFC for a finder's or brokerage fee or like
payment.
(r) Restricted Securities. The AUSTIN common stock to be issued hereunder, upon
issuance and transfer to the OWNERS, will not have been "registered" and
therefore will be "restricted securities", as those terms are used under the
Securities Act of 1933, as amended (the "1933 Act"), and the rules and
regulations thereunder. By execution of this Agreement, each OWNER
6
<PAGE> 7
agrees, represents and warrants that his acquisition of the AUSTIN Shares
hereunder is for investment only, for his own account (both of record and
beneficially) and not with a view to "distribution" as that term is used under
the 1933 Act. The AUSTIN shares to be issued hereunder may bear a legend
substantially as follows: "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
ANY STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED UNLESS THE CORPORATION
RECEIVES AN OPINION OF COUNSEL, AT THE REQUEST OF THE PRESIDENT, SATISFACTORY
TO THE CORPORATION AND ITS COUNSEL, THAT SUCH TRANSFER OR OTHER DISPOSITION CAN
BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS. BY ACQUIRING THE SHARES OF STOCK
REPRESENTED BY THIS CERTIFICATE, EACH STOCKHOLDER REPRESENTS THAT HE HAS
ACQUIRED SUCH SHARES OF STOCK FOR INVESTMENT AND THAT HE WILL NOT SELL OR
OTHERWISE DISPOSE OF THE SHARES OF STOCK WITHOUT REGISTRATION OR OTHER
COMPLIANCE WITH THE AFORESAID ACT AND RULES AND REGULATIONS THEREUNDER."
6. REPRESENTATIONS AND WARRANTIES OF INNO AND AUSTIN. INNO and AUSTIN represent
and warrant to the OWNERS as follows:
(a) Organization; Good Standing. INNO and AUSTIN are duly organized, validly
existing and in good standing under the laws of their respective States of
incorporation with all requisite corporate power and authority to own, operate
and lease its respective properties and assets and to carry on its business as
now or to be conducted, and is and will be duly qualified to do business
wherever the nature and location of its businesses and assets requires such
qualification.
(b) Authority. INNO and AUSTIN have taken and will have taken, prior to the
closing date, all necessary corporate action to approve the execution, delivery
and performance of this Agreement and the transactions contemplated hereunder.
7
<PAGE> 8
(c) Capitalization. (i) The authorized capital of INNO consists of one hundred
million (100,000,000) shares of common stock of which forty million
(40,000,000) shares are validly issued, fully paid, non-assessable and
outstanding. (ii) The authorized capital of AUSTIN consists of one hundred
million (100,000,000) shares of common stock of which 1,600,000 will have been
issued prior to the Closing Date, and twenty million (20,000,000) shares of
Preferred stock of which none will have been issued prior to the closing date.
(iii) except as set forth in this Agreement, there are and will be on the
Closing Date, no existing agreements, warrants, options, subscription rights or
other contracts or rights providing for the sale or issuance of securities of
AUSTIN.
(d) Assets and Business. INNO and AUSTIN respectively engage in no business
except as characterized by the purposes of this Agreement. Neither INNO nor
AUSTIN own any material assets or properties. There are no existing agreements,
warrants or rights currently used or useful in the conduct of the business of
either INNO or AUSTIN.
(e) Licenses. Neither INNO nor AUSTIN holds any licenses.
(f) Financial Statements. (i) During the seven (7) years preceding the date of
this Agreement, no audited or unaudited financial statement has been prepared
on INNO. INNO has no material assets and no material liabilities. INNO has not
engaged in any business during the period since 1991. (ii) AUSTIN was
incorporated on April 29, 1999. AUSTIN has never prepared a financial
statement. On the Closing Date, AUSTIN will have no liabilities and no assets
with the exception of "Organization Costs" in an amount less than two thousand
dollars ($2,000.00).
(g) Public and Regulatory Information. INNO shall use its best efforts to
supply information to the OWNERS and AUSTIN and AFC for inclusion in any
reports required to be filed by AUSTIN in support of the trading of its common
stock in the Over The Counter markets, or as may be required by the SEC in
connection with the issuance and/or trading of its securities, or by the NASD
or any Broker Dealer organization making a market or proposing to make a market
in the securities of AUSTIN. Nothing contained herein shall function to
obligate INNO to obtain
8
<PAGE> 9
and/or supply audited financial information or other information which INNO
cannot practicably obtain.
(h) Information. All written material furnished or to be furnished by INNO and
AUSTIN does not and will not contain any statement which is false or misleading
with respect to any material fact, and does not and will not omit to state any
material fact, the omission of which makes the statements therein false or
misleading.
(i) Taxes. INNO has not since 1991 filed federal, state, local or foreign tax
returns and reports (or extensions for filing such returns and reports) related
to its business. INNO believes that no such returns were required to be filed
between 1991 and the Closing Date. There are no unpaid taxes which are a lien
on INNO's properties and assets, except liens for Taxes not yet due and
payable. There is not pending or known any proposed assessment by any taxing
authority for additional Taxes applicable to INNO.
(j) Insurance. Neither INNO nor AUSTIN maintains any insurance policies or
bonds with respect to the risks normally insured against by companies similarly
situated, including general and public liability insurance.
(k) Litigation. There is no legal, administrative, arbitration or other
proceeding or claim, governmental or administrative investigation or inquiry
pending or threatened against or involving INNO or AUSTIN, their properties,
assets, business or financial condition, or which questions the ability of INNO
or AUSTIN to carry out its obligations hereunder, or which challenges the
acquisition of AFC by AUSTIN or the exchange of securities contemplated hereby.
(1) Authority. On or before the closing date, INNO and AUSTIN will have taken
all necessary legal action to approve the execution and delivery of this
Agreement and the performance of its obligations hereunder and all transactions
contemplated hereby will have been duly authorized by all requisite corporate
action on the part of the Directors of INNO and AUSTIN, and INNO and AUSTIN,
and no further authorization, approval or consent is necessary.
9
<PAGE> 10
(m) Compliance with Other Instruments, Etc. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will conflict with or result in violation of or constitute a default under and
is not prohibited by the Articles of Incorporation or By-Laws of INNO or
AUSTIN, the provisions of any agreement, mortgage, indenture, franchise,
license, permit, or other consent, approval authorization, lease or other
instrument, judgement, decree, order, law or regulation by which INNO or AUSTIN
is bound or by which any business or assets may be affected.
(n) Governmental and Other Consents, Etc. No consent, approval or authorization
of or declaration or filing with any governmental authority or other person or
entity, domestic or foreign, on the part of INNO or AUSTIN is required in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(o) Compliance with Law, Etc. INNO and AUSTIN have complied with and are not in
default in any respect under any law, ordinance, requirement, regulation,
judgement, decree or order applicable to them or their business or properties
and neither has received notice of any claimed default with respect to any of
the foregoing.
(p) Adverse Agreements, Etc. Neither INNO nor AUSTIN is a party to any
agreement or instrument or subject to any charter or other corporate
restriction which materially and adversely affects their obligations hereunder.
(q) No Continuing INNO Interest. By execution of this Agreement, INNO and
AUSTIN agree, represent and warrant that after distribution of the AUSTIN
shares described hereinabove in Paragraphs 1 and 2, INNO will thereafter have
no interest in or relationship with AFC, AUSTIN or the OWNERS with respect to
the transactions contemplated hereby.
(r) Brokers. All negotiations relative to this Agreement and the transactions
contemplated hereby have been conducted without the intervention of any other
person or entity, and in such a
10
<PAGE> 11
manner so as not to give rise to any valid claim against INNO, AUSTIN or AFC or
the OWNERS or any of them for a finder's or brokerage fee or like payment.
7. CERTAIN COVENANTS OF AFC AND THE OWNERS.
(a) Cause Conditions to be Satisfied. AFC and the OWNERS shall use their best
efforts to cause the transactions contemplated by this Agreement to be
consummated.
(b) Operation in Usual Manner. From and after the execution and delivery of
this Agreement and until the Closing Date, the OWNERS shall cause AFC to
continue to conduct its business in a prudent manner and not to engage in any
activity outside the normal and ordinary course of such business or to incur
any obligations not incurred in the normal and usual course of its business and
consistent with past practice and to take no actions or omit to take any
actions the taking or omitting of which would result in any material adverse
change in the financial condition of AFC or in its operations, business,
prospects, properties or assets or its ability to perform its obligations
hereunder.
(c) Miscellaneous. AFC and the OWNERS agree to call and hold such meeting(s) of
Directors and OWNERS as shall be necessary to consider and approve the
transactions described herein.
8. CERTAIN COVENANTS OF INNO AND AUSTIN,
(a) Cause Conditions to be Satisfied. INNO and AUSTIN shall use their best
efforts to cause the transactions contemplated by this Agreement to be
consummated.
(b) Operation in Usual Manner. From and after the execution and delivery of
this Agreement and until the Closing Date, INNO and AUSTIN shall continue to
conduct business in a prudent manner and not engage in any activity outside the
normal and ordinary course of such business in pursuit of the transactions
contemplated by this Agreement and not incur any obligations not incurred in
the interests of the transactions contemplated hereby and take no actions or
omit to take any actions the taking or omitting of which would result in any
11
<PAGE> 12
material adverse change in the financial condition of INNO or AUSTIN or either
of their operations, business, prospects, properties or assets or ability to
perform their respective obligations hereunder.
(c) Miscellaneous. INNO and AUSTIN agree to call and hold such meeting(s) of
Directors as shall be necessary to consider and approve the transactions
described herein.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF AFC AND THE OWNERS. All
obligations of AFC and the OWNERS under this Agreement are subject at their
discretion to the fulfillment, at or prior to the Closing Date of each of the
following conditions:
(i) INNO's and AUSTIN's representations and warranties herein contained shall
be true in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of said date;
(ii) INNO and AUSTIN shall have performed in all material respects all its
obligations and agreements and complied with all its covenants contained in
this Agreement to be performed and complied with by INNO and AUSTIN on or prior
to the Closing Date;
(iii) The OWNERS shall have received a certificate executed by the President of
INNO dated the Closing Date, in form and substance satisfactory to the OWNERS,
with respect to the matters specified in Section 9(i) and 9(ii);
(iv) The OWNERS shall have received a certificate executed by the President of
INNO and attaching evidence of Corporate existence and good standing of INNO
and AUSTIN in form and substance satisfactory to OWNERS.
(v) No suit action or other proceeding shall be pending before any court or
governmental agency in which it is sought to restrain or prohibit, or to obtain
damages or other relief in connection with, this Agreement or the consummation
of the transactions contemplated hereby or which might materially and adversely
affect the value of AUSTIN's business and assets.
12
<PAGE> 13
10. CONDITIONS PRECEDENT TO INNO'S AND AUSTIN'S OBLIGATIONS. All obligations of
AFC and the OWNERS under this Agreement are subject at their discretion, to the
fulfillment, at or prior to the Closing Date of each of the following
conditions:
(i) AFCs and the OWNERS' representations and warranties herein contained shall
be true in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of said date;
(ii) AFC and the OWNERS shall have performed in all material respects all its
obligations and agreements and complied with all its covenants contained in
this Agreement to be performed and complied with by AFC and the OWNERS on or
prior to the Closing Date;
(iii) INNO shall have received a certificate executed by the President of AFC
and by the OWNERS dated the Closing Date, in form and substance satisfactory to
the President of INNO, with respect to the matters specified in Section 10(i)
and 10(ii);
(iv) INNO shall have received a certificate executed by the President of AFC
and attaching evidence of Corporate existence and good standing of AFC in form
and substance satisfactory to the President of INNO.
(v) No suit action or other proceeding shall be pending before any court or
governmental agency in which it is sought to restrain or prohibit, or to obtain
damages or other relief in connection with, this Agreement or the consummation
of the transactions contemplated hereby or which might materially and adversely
affect the value of AFC's business and assets.
11. SURVIVAL OF CERTAIN PROVISIONS. All of the representations, warranties and
covenants contained in Sections 5,6,7, and 8 of this Agreement shall survive the
Closing Date for a period of two (2) years.
13
<PAGE> 14
12. INDEMNIFICATION OF INNO AND AUSTIN.
(a) Notwithstanding the events to take place on the Closing Date, and
regardless of any investigation at any time made by or on behalf of INNO or
AUSTIN or any information that either of them may have, AFC and the OWNERS
agree to fully indemnify, defend, save and hold INNO and AUSTIN harmless in the
event that INNO or AUSTIN shall at any time during the two (2) year period
following the Closing Date, suffer any expense, damage, liability, loss, cost
or deficiency, or shall have asserted against it any claim, demand or suit,
which arises out of or results from, or if INNO or AUSTIN shall pay or become
obligated to pay any sum or incur any expense (including reasonable attorney's
fees) on account of the following: (i) any inaccuracy in any representation or
the breach of any warranty of AFC or the OWNERS hereunder; (ii) any failure of
AFC or the OWNERS duly to perform or observe any term, provision, covenant,
agreement or condition hereunder on the part of AFC or the OWNERS to be
performed or observed; (iii) any material misrepresentation in, or omission
from, any statement, exhibit, certificate, schedule or other document furnished
on or after the date hereof pursuant to this Agreement by AFC or the OWNERS (or
any representative thereof); (iv) any and all claims, demands, suits, actions,
causes of action, proceedings, losses, liabilities, judgements, including but
not limited to, costs and legal and other expenses, incident to any of the
matters otherwise indemnified against by this Section 12 must be asserted by
INNO or AUSTIN no later than the second anniversary of the Closing Date.
(b) The foregoing indemnification is in addition to all of INNO's and AUSTIN's
other rights and remedies under law or in equity for any breach by AFC or the
OWNERS and INNO's and AUSTIN's right of offset for any Consideration or other
sum which INNO or AUSTIN is obligated to pay to the OWNERS is expressly
preserved.
13. INDEMNIFICATION OF AFC AND THE OWNERS.
(a) Notwithstanding the events to take place on the Closing Date, and
regardless of any investigation at any time made by or on behalf of AFC or the
OWNERS or any information that either of them may have, INNO and AUSTIN agree
to fully indemnify, defend, save and hold
14
<PAGE> 15
AFC and the OWNERS harmless in the event that AFC or the OWNERS shall at any
time during the two (2) year period following the Closing Date, suffer any
expense, damage, liability, loss, cost or deficiency, or shall have asserted
against it any claim, demand or suit, which arises out of or results from, or
if AFC or the OWNERS shall pay or become obligated to pay any sum or incur any
expense (including reasonable attorney's fees) on account of the following: (i)
any inaccuracy in any representation or the breach of any warranty of INNO or
AUSTIN hereunder; (ii) any failure of INNO or AUSTIN duly to perform or observe
any term, provision, covenant, agreement or condition hereunder on the part of
INNO or AUSTIN to be performed or observed; (iii) any material
misrepresentation in, or omission from, any statement, exhibit, certificate,
schedule or other document furnished on or after the date hereof pursuant to
this Agreement by INNO or AUSTIN (or any representative thereof); (iv) any and
all claims, demands, suits, actions, causes of action, proceedings, losses,
liabilities, judgements, including but not limited to, costs and legal and
other expenses, incident to any of the matters otherwise indemnified against by
this Section 13 must be asserted by AFC or the OWNERS no later than the second
anniversary of the Closing Date.
(b) The foregoing indemnification is in addition to all of AFC's and the
OWNERS' other rights and remedies under law or in equity for any breach by INNO
or AUSTIN and AFC's and the OWNERS right of offset for any Consideration or
other sum which AFC or the OWNERS is obligated to pay to INNO or AUSTIN is
expressly preserved.
14. POST-CLOSING MATTERS. After the Closing Date:
INNO shall cause all present Directors and Officers of AUSTIN to resign;
The OWNERS shall elect a new Board of Directors of AUSTIN in accordance with its
By-laws;
The new Board of AUSTIN shall elect or appoint Officers of AUSTIN.
AUSTIN shall enter into such employment agreements with such of its employees
as its Officers and Board shall decide.
15
<PAGE> 16
15. NOTICES. All notices, consents, demands, requests, approvals and other
communications which are required or may be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered or mailed by certified
first class mail, postage prepaid:
(a) If to AFC:
Austin Funding Corporation
823 Congress Ave., Suite 515
Austin, TX 78701
Attention: Mr. Glenn A. LaPointe
(b) If to the OWNERS:
The Owners of
Austin Funding Corporation
823 Congress Ave., Suite 515
Austin, TX 78701
C/O: Mr. Glenn A. LaPointe,
Owners' Agent
(c) If to INNO and/or AUSTIN:
C/O Frank G. Wright
280 Main Street, Suite 12
Stoneham, MA 02180
16. ENTIRE AGREEMENT. This Agreement, together with the other writings
delivered in connection therewith, embodies the entire agreement and
understanding of the parties hereto and supersedes any prior agreement and
understanding among all of the same parties.
17. EXPENSES. INNO and AUSTIN, on the one hand and the OWNERS on the other
hand, shall be fully and solely responsible for their respective costs and
expenses in preparing and negotiating this Agreement and consummating the
transactions contemplated hereby.
18. NO WAIVER. No failure to exercise, and no delay in exercising, any right,
power or privilege hereunder shall operate as a waiver thereof. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision. No extension of time of
performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of time for performance of any
other obligations or any other acts. The rights and remedies of the parties
under this Agreement,
16
<PAGE> 17
any Exhibits, any Schedules and any certificate or document delivered pursuant
to the provisions hereof, are in addition to all other rights and remedies, at
law or equity, that they may have against the others.
19. EXHIBITS AND SCHEDULES. The Exhibits and Schedules to this Agreement
constitute a part hereof as though set forth in full above.
20. SPECIFIC PERFORMANCE. The parties mutually acknowledge that in the event of
a breach or renunciation of this Agreement by any party, or a termination of
this Agreement or a willful failure by any party to perform its obligations
hereunder, the other parties will not have an adequate remedy at law and,
therefore, each of the other parties shall be entitled to injunctive or other
equitable relief, in addition to the other remedies available to them.
21. FURTHER ASSURANCES. Each of the parties agrees that at any time, and from
time to time, it shall execute, acknowledge, deliver and perform, or cause to
be executed, acknowledged, delivered and performed, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and assurances
as may be necessary or proper to carry out the purposes and intent of this
Agreement, including if necessary, but not by way of limitation, the execution
of one or more Agreements containing the same essential business conditions,
intended in the aggregate to replace the within agreement
22. SEVERABILITY. The parties stipulate that the terms and provisions of this
Agreement are fair and reasonable as at the signing of this Agreement. However,
if notwithstanding that stipulation any one or more of the terms, provisions,
covenants or restrictions of this Agreement shall be determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
23. 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.
17
<PAGE> 18
25. HEADINGS. The descriptive headings of the several paragraphs of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
INNOVATION INTERNATIONAL, INC.
Attest:
/s/ [ILLEGIBLE] /s/ FRANK G. WRIGHT
- ------------------------------- ---------------------------------------
Asst. Secretary Frank G. Wright, President
AVSTW ASSET MANAGEMENT CORPORATION
Attest:
/s/ [ILLEGIBLE] /s/ FRANK G. WRIGHT
- ------------------------------- ---------------------------------------
Secretary Frank G. Wright, President
AUSTIN FUNDING CORPORATION
/s/ GLENN A. LAPOINTE
- -------------------------------
Glenn A. LaPointe, President
Attest:
/s/ TERRY G. HARTNETT
- -------------------------------
Secretary
THE OWNERS (continued on next page)
18
<PAGE> 19
<TABLE>
<CAPTION>
OWNERS NAME SIGNATURE WITNESS
----------- --------- -------
<S> <C> <C>
Glenn A. LaPointe /s/ GLENN A. LAPOINTE /s/ BRADLEY J. FARLEY
--------------------------- ------------------------
Bradley J. Farley /s/ BRADLEY J. FARLEY /s/ GLENN A. LAPOINTE
--------------------------- ------------------------
Glenn G. Farley /s/ GLENN G. FARLEY /s/ NOELLE A. FRANCIS
--------------------------- ------------------------
Luther H. Hardy Jr. /s/ LUTHER H. HARDY JR. /s/ TERRY G. HARTNETT
--------------------------- ------------------------
Terry G. Hartnett /s/ TERRY G. HARTNETT /s/ KAREN R. HELLER
--------------------------- ------------------------
Joe C. Schaffer /s/ JOE C. SCHAFFER /s/ GLENN A. LAPOINTE
--------------------------- ------------------------
Shannon DeW. Stewart /s/ SHANNON DEW. STEWART /s/ GLENN A. LAPOINTE
--------------------------- ------------------------
Jeffrey H. Dell /s/ JEFFREY H. DELL /s/ GLENN A. LAPOINTE
--------------------------- ------------------------
Noelle A. Francis /s/ NOELLE A. FRANCIS /s/ JEFFREY H. DELL
--------------------------- ------------------------
Karen R. Heller /s/ KAREN R. HELLER /s/ SHANNON DEW. STEWART
--------------------------- ------------------------
Jennifer Ann V. Bullock /s/ JENNIFER ANN V. BULLOCK /s/ JOE C. SCHAFFER
--------------------------- ------------------------
</TABLE>
19
<PAGE> 20
SCHEDULE I
<TABLE>
<CAPTION>
Name Of Selling Number of AFC Number of AUSTIN
Shareholder: Shares to be exchanged Shares to be Issued
---------------- ---------------------- -------------------
<S> <C> <C>
Glenn A. LaPointe 324,324 6,783,872
Bradley J. Farley 162,162 3,391,936
Glenn G. Farley 162,162 3,391,936
Luther H. Hardy, Jr. 108,108 2,261,291
Terry G. Hartnett 108,108 2,261,291
Joe C. Schaffer 25,338 529,994
Shannon DeW. Stewart 25,338 529,994
Jeffrey H. Dell 12,669 264,997
Noelle A. Francis 5,068 106,007
Karen R. Heller 5,068 106,007
Jennifer Ann V. Bullock 5,068 106,007
---------------------- -------------------
Total Shares 943,413 19,733,333
</TABLE>
20
<PAGE> 1
EXHIBIT 8(b)
AMENDMENT TO REORGANIZATION PLAN AND AGREEMENT
WHEREAS: A PLAN AND AGREEMENT dated as of May 26, 1999 has been executed
by an among Innovation International, Inc., a Delaware corporation ("INNO"),
Austin Asset Management Corporation, a Nevada corporation organized by INNO
("AUSTIN"), Austin Funding Corporation, a Texas corporation ("AFC"), and the
eleven (11) individual owners of AFC ("the Owners"); and
WHEREAS: Article One of said agreement provides as shown between quotation
marks, immediately below:
1. "ACQUISITION OF AFC BY AUSTIN. Prior to the Closing Date defined herein,
INNO shall distribute or cause AUSTIN to distribute 1,600,000 shares of the
$.001 par value Common Stock of AUSTIN to the Shareholders in the ratio of One
(1) AUSTIN share for each Twenty five (25) INNO shares owned, said distribution
to be done as a Stock Dividend-in-Kind. On the Closing Date AUSTIN shall issue
and deliver to the OWNERS the consideration described below in exchange for
100% of the stock in AFC owned by them; and then AFC shall become a wholly
owned subsidiary of AUSTIN", and
WHEREAS: the parties executing this amendment have agreed that Article One
shall be and is hereby amended by adding the underscored provisions to the
otherwise unchanged language:
1. ACQUISITION OF AFC BY AUSTIN. Prior to the Closing Date defined
herein, INNO shall declare a stock dividend, payable to all
shareholders of Inno, pro-rata, in shares of AUSTIN Common Stock.
Notice of said dividend shall be given to all shareholders by mail as
of the date hereof in accordance with Exhibit A hereto. The payment
date for said dividend shall be within 30 days hereof or as soon as
practicable following the closing date and shall be postponed only to
accommodate the preparation of a Form 10SB and a Disclosure Statement
required by the SEC to be distributed to shareholders at the time the
stock is physically delivered to them. Nothing herein contained shall
diminish the obligations set forth herein pursuant to which INNO shall
distribute or cause AUSTIN to distribute 1,600,000 shares of the $.001
par value Common Stock of
<PAGE> 2
AUSTIN to the Shareholders in the ratio of One (1) AUSTIN share for
each Twenty five (25) INNO shares owned, said distribution to be done
as a Stock Dividend-in-Kind. On the Closing Date, AUSTIN shall issue
and deliver to the OWNERS the consideration described below in exchange
for 100% of the stock in AFC owned by them; and then AFC shall become a
wholly owned subsidiary of AUSTIN.
IN WITNESS WHEREOF, the parties have executed this Amendment on this
12th day of June 1999.
INNOVATION INTERNATIONAL, INC.
Attest:
/s/ [ILLEGIBLE] /s/ FRANK B. WRIGHT
- ---------------------------- ---------------------------------------
Assistant Secretary Frank G. Wright, President
AUSTIN ASSET MANAGEMENT CORPORATION
Attest:
/s/ [ILLEGIBLE] /s/ FRANK G. WRIGHT
- ---------------------------- ---------------------------------------
Secretary Frank G. Wright, President
AUSTIN FUNDING CORPORATION
/s/ GLENN A. LAPOINTE
- ----------------------------
Glenn A. LaPointe, President
<PAGE> 3
INNOVATION INTERNATIONAL, INC.
280 Main Street, Suite 12
Stoneham, MA 02180
(781) 279-4320
June 14, 1999
Dear Fellow Shareholders:
While we have no revenues, no income, and no working capital with which to
encourage, develop or promote any business, we continue to seek opportunities,
which will benefit all shareholders. In connection therewith, we organize new
subsidiaries, from-time-to-time, which will become independent of Innovation as
they acquire other, unrelated, successful businesses. Coincident with any such
acquisition, we will "dividend" or spin-off the subsidiary pro-rata to all
shareholders, thereby creating for each of you an equity stake in a new and
separate company, poised to conduct operations without further reference to
Innovation.
On June 7, 1999, the Board of Directors declared a stock dividend, payable in
the common stock of our subsidiary, Austin Asset Management Corporation
("Austin"). This dividend will result in the distribution of Austin common
shares, pro-rata to all Innovation stockholders, on the basis of one (1) share
of Austin for each 25 shares of Innovation owned by you as of the record date
4/30/99. After this dividend and the acquisition described below, Austin will no
longer be an Innovation company, but rather a completely separate and
independent, shareholder-owned company.
Effective today, Austin has completed the acquisition by purchase of Austin
Funding Corporation ("AFC"), which will operate as a subsidiary of Austin. AFC
is a successful, well-managed mortgage banking company located in Austin, Texas.
The acquisition of AFC has resulted in the transfer of 92.5% of the total
outstanding common stock of Austin to the former shareholders (eleven people) of
AFC. Innovation shareholders will own 7.5% of Austin. Innovation
International, Inc. will not own any shares of Austin.
Distribution of Austin shares will be made as soon as practical after filing the
(SEC) required Form 10SB and completing a Disclosure Statement for delivery to
you with those shares, all in keeping with the SEC's requirements for the
delivery of unrestricted stock to you. Those documents will describe the
transactions in full detail and will include audited consolidated financial
statements of Austin and AFC.
Inasmuch as others now control Austin, I and all other Innovation officers and
directors have resigned from Austin, effective today. In a short time Mr. Glenn
A. LaPointe, President of Austin Asset Management Corporation and AFC will
contact you.
YOU ARE NOT REQUIRED TO PAY ANYTHING FOR THE AUSTIN COMMON SHARES.
YOU ARE NOT REQUIRED TO SURRENDER, EXCHANGE OR RETURN ANY OF YOUR
INNOVATION SHARES.
We remaining Innovation directors intend to continue our search for the means to
restore value to your investment. If we succeed in generating future
opportunities similar to this one, we will pass through 100% of them to all
shareholders.
Sincerely,
/s/ FRANK G. WRIGHT
----------------------------------
Frank G. Wright
Chairman and President
<PAGE> 1
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
/s/ SPROUSE & WINN, L.L.P.
Austin, Texas
June 22, 1999
<PAGE> 1
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] MAR-31-1999
[PERIOD-START] APR-01-1998
[PERIOD-END] MAR-31-1999
[CASH] 4,245
[SECURITIES] 0
[RECEIVABLES] 89,456
[ALLOWANCES] 0
[INVENTORY] 1,852,937
[CURRENT-ASSETS] 1,946,645
[PP&E] 45,802
[DEPRECIATION] (11,535)
[TOTAL-ASSETS] 2,471,542
[CURRENT-LIABILITIES] 2,021,996
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 5
[COMMON] 20
[OTHER-SE] 432,359
[TOTAL-LIABILITY-AND-EQUITY] 2,471,542
[SALES] 20,548,383
[TOTAL-REVENUES] 20,548,383
[CGS] 19,432,063
[TOTAL-COSTS] 19,432,063
[OTHER-EXPENSES] 1,398,069
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (239,740)
[INCOME-TAX] (44,812)
[INCOME-CONTINUING] (194,928)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (194,928)
[EPS-BASIC] (97.46)
[EPS-DILUTED] 0
</TABLE>
